Model Building and
Gains from Trade
Previously . . .
Economics is the study of how people
allocate their limited resources to satisfy
their nearly unlimited wants.
Scarcity refers to the limited nature of
Incentives are factors th
EC 202-HY Chapter Review 10
1. Suppose the price of a bond is initially $900 but
increases to $950. What is happening to the interest
rate on that bond?
a. It increases.
b. It decreases.
c. It remains constant.
d. We cannot tell without more
EC 202-HY Chapter Review 07
1. Which of the following represents frictional
i. The demand for refrigerators falls when the
economy enters a recession and refrigerator
manufacturers lay off some of their workers.
ii. General Motors decides to
EC 202-HY Chapter Review 02
1. Economists use the concept of ceteris paribus to examine a change in _ in a model, while
assuming that all other variables remain constant.
a. one variable
b. two variables
c. three or more variables
d. None of these are tru
EC 202-HY Chapter Review 01
1. Scarcity refers to the _ nature of
7. The opportunity cost of attending college is likely
to be highest for a high school graduate
c. sometimes limited and sometimes
EC 202-HY Chapter Review 04
1. The difference between the willingness to pay for a good and the price that is paid to get it is
a. welfare economics
b. willingness to sell
c. producer surplus
d. consumer surplus
2. The difference between the willingness t
EC 202-HY Chapter Review 03
1. Which of the following is NOT characteristic of a market economy?
a. Significant government intervention
b. Little or no government intervention
c. Buyers and sellers motivated by self-interest
d. Prices determined by demand
EC 202-HY Chapter Review 11
1. Which of the following is the correct definition of
5. Which of the following is true about income
levels in Western Europe and Latin America before
a. growth rate of GDP
b. growth rate of per capita G
EC 202-HY Chapter Review 08
1. Refer to the table below. This country produces
only two goods CDs and books. You are told that the
CPI for this country in 2012 was 141. If the base
year is 2011, how many books should be present in
the basket of goods and
EC 202-HY Chapter Review 06
1. Which of the following would be studied by a
5. Which of the following would be included in the
a. the sale of a song written by a Californian
to a customer in Kansas
b. the sale of bolts to Ford to
EC 202-HY Chapter Review 13
1. Business cycles examine _ time
horizons, while growth theory focuses on
_ time horizons.
5. A decrease in the price level will
a. increase the interest rate and involve a
downward movement along the aggregate
EC 202-HY Chapter Review 12
1. According to economists today, economic growth
6. According to the Solow Growth Model, the
marginal product of capital is
d. resources and technology.
e. resources, te
EC 202-HY Chapter Review 16
1. Which of the following is an expansionary fiscal
3. The government of Fredonia increases its
spending by $100 million to fight a recession during
2007. If the governments budget was balanced
prior to the recession, w
EC 202-HY Chapter Review 15
1. Which of the following will be included in
I. unemployment benefits
II. construction of a new highway
III. interest payments on U.S. Treasury bonds
3. Which of the following is true regarding the U.S.
1. Imports, exports, and the trade balance Aa Aa
The following table shows the approximate value of exports and imports for the United States from 1975 through
1979. All values are in billions of dollars.
Year Exports (Billions of $) Imports (Billions o
3. Effects of a government budget deficit Aa Aa
Consider a hypothetical open economy; in other words, this economy is free to interact with other economies around
the world. The following table presents data on the relationship between various real intere
3. Why the aggregate demand curve slopes downward Aa Aa
The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is
120, and the quantity of output demanded is $500 billion. Moving up along the aggr
EC 202-HY Chapter Review 14
. Which of the following led to the Great Recession?
3. Which of the following were common to the
Great Depression and the Great Recession?
a. a decline in AD
b. a decline in LRAS
c. a decline in both AD and LRAS
d. a rise in
EC 202-HY Chapter Review 18
1. Which of the following is likely to happen if the
Fed buys Treasury securities from banks?
5. The Phillips curve depicts the relation between
a. real GDP and price level.
b. price level and inflation rate.
c. unemployment ra
8. The Fisher effect and the cost of unexpected inflation Aa Aa
Suppose the nominal interest rate on savings accounts is 8% per year. If banks and depositors expect an inflation
rate of 5% per year, the expected real interest rate is 3% I per year.
EC 202-HY Chapter Review 17
1. You go to Starbucks and see the price of a tall
latte is quoted as $3.00. You buy the latte and pay
with $3.00 cash. In the first instance money serves
as _ while in the second instance
money serves as _.
4. You transfer $10
How do macroeconomic theories evolve?
What is the Solow growth model?
How does technology affect growth?
Why are institutions the key to economic
Solow Growth Model
Resources, technology, and institution
1. What is fiscal policy?
2. What are the shortcomings of fiscal
3. What is the supply-side approach to fiscal
How Does Fiscal Policy
The use of the money supply to influence the
The Tools of Fiscal
1. How does the government spend?
2. How does the government tax?
3. What are budget deficits, and how bad
Budget deficit averaged $300 billion per year
GROWTH AND THE
1. Why does economic growth matter?
2. How do resources and technology contribute to
3. What institutions foster economic growth?
Basic measure of a na