Economics Basics: Unemployment, GDP, and Supply & Demand

– Natural Rate = Structural + Frictional

– Cyclical Rate = (Frictional + Structural) – Current Unemployment

– Natural Rate: (Frictional + Structural)

– How many unemployed: (Not working but looking)

– Labor Force: (Hold Job + Unemployed)

– Unemployment Rate: (Unemployed / (Hold Job + Unemployed)) * 100

– National Income: Corporate Profits + Employee Compensation + Proprietor’s Income + Net Interest + Rental Income

– Net Exports: (Exports – Imports)

– GDP Expenditure Approach: Consumption + Fixed Investment + Government Purchases + (Exports – Imports) – Inventory Investment (sometimes not present, then take the closest value in the question after summing everything)

1. When economic growth occurs, the PPF shifts outward.

2. If a country loses resources, the PPF shifts inward.

3. In a market, all of the other options are considered.

4. Which of the following is true because of scarcity?

5. Under socialism, economic decisions include deciding what goods and services will be produced.

6. Positive economics focuses on describing what the world is like.

7. Which of the following will shift the PPF outward? An increase in the capital stock.

8. The opportunity cost of an activity is the highest-valued alternative that will be sacrificed.

9. Transactions costs are the costs associated with making an exchange.

10. The point where the PPF intersects the horizontal axis represents the maximum quantity of one good that can be produced when all resources are devoted to its production.

11. Consider a situation where a country produces only two goods. A significant technological improvement in the production of one good will cause the PPF to rotate outward.

12. In the Wealth of Nations, Adam Smith argued that individuals are motivated by self-interest.

13. The PPF is bowed outward because of the law of increasing opportunity cost.

14. Refer to Figure 2-6. Point (3) represents an unattainable combination of goods.

15. Refer to Figure 2-6. Point (2) represents an attainable but inefficient combination of goods.

16. Refer to Figure 2-6. None of the above statements are true.

17. In an economy that can produce only two goods, if the opportunity cost of producing good X is 5Y, then the maximum amount of X that can be produced is 1500 (assuming the maximum amount of Y that can be produced is 300).

18. If the minimum wage is set above the equilibrium wage, some people who would be willing to work at the lower wage will be unable to find jobs.

19. Consider two countries, L and M, each producing two goods, X and Y. Country L’s standard of living will be higher if it has an absolute advantage in the production of both goods.

20. The opportunity cost of an activity is the highest-valued alternative that must be forgone.

21. If a supply curve shifts to the right, it means that suppliers are willing to supply more of a good at each price.

22. As the price of jelly increases, the demand for peanut butter decreases (assuming they are complements).

23. If the demand for a good increases when income increases, the good is a normal good.

24. Consider a city that imposes a rent control law. If the equilibrium rent is $1,000 per month and the rent control law sets a maximum rent of $800 per month, there will be a shortage of apartments.

25. If the price of resource H, which is used in the production of good Z, increases, the supply curve for good Z will shift leftward.

26. In Year 1, the price of good X was $10 and 100 units were sold. In Year 2, the price of good X was $12 and 120 units were sold. The demand for good X is higher in Year 2.

27. At the price ceiling, there will be a shortage.

31. Refer to Figure 3.3. A price increase from $4 to $6 will result in a decrease in quantity demanded from 12 units to 8 units.

32. Refer to Figure 3.3. A decrease in the price of a complement will shift the demand curve to the right.

33. An effective price floor will result in a surplus.

34. An effective price ceiling will result in a shortage.

35. Assume that the government provides a subsidy to producers of health care services. The supply curve for health care services will shift to the right.