Regular Econ Final Exam Review

1
Regular Econ Final Exam Review
Econ, econ, let me tell you about econ!!!
2
PPC
A
More or better resources or better technology
E
B
Capital Goods
D
C
Consumption Goods
1. At what letter is there unemployment
recession? 2. What letters represent resources
being used in their most productive manner?
full employment, full production, and best
available technology 3. What letter represents
an improvement in technology, therefore a
new PPC frontier line? 4. The (straight
line/curve) illustrates the line of increasing
cost? 5. The (straight line/curve) illustrates
the law of constant cost. 6. At what letter
would there be the most economic growth in
the future if a country were producing there
now? What is the opportunity cost when moving
from C to A B to C do we
have to give anything up when moving from D to B?
D
A, B, or C
E
A
Consumption
Capital
no
3
The Circular-Flow Diagram
Resource Market
Labor
1

2

Which Flow Represents? A. Goods/services? B.
Consumer expenditures? C. Land, labor, capital
and entrepreneurial ability? D. Rent, wages,
interest, and profits?
4
3
1
2
Households
Businesses
Outhouse


3
4
Product Market
4
The Gangsta Car
Circular-Flow Diagram
Product Market
Gangsta cars
1
2
Chrysler 300
Which flow represents? A. Consumer
expenditures? B. Goods and services? C. Land,
labor, capital, and entrepreneurial
ability? D. Rent, wages, interest, and
profits?
2
1
4
Chrysler Plant
Businesses
3
Households
Labor for Gangsta Cars
3
4
Resource Market
5
Law of Demand Change in QD
D
Reasons For Downsloping D Curve 1. Income
Effect current buyers buy more. 2. Substitution
Effect new buyers now purchase. 3. Diminishing
Marginal Utility - because buyers of
successive units receive less marginal utility,
they will buy more only when the price is
lowered.
8GB
iPhone
399.00 with 2 yr contract
Change in QD 1. Price change 2. Movement
up/down the demand curve 3. Point to point
along the curve
Price
QD
250.00
Inverse relationship
QD1
QD2
D refers to the whole curve. all
prices QD refers to a point on the
curve based on a particular price.
6
Demand Shifters TIMER 1. Taste direct 2.
Income normal-direct inferior-inverse 3.
Market Size number of consumers-direct 4.
Expectations of consumers about future
price-direct, about future
availability-inverse, or about future
incomedirect. 5. Related Good Prices
substitutes-direct complements-inverse
D
D1
D1
D2
P1
D1
D3
D2
D2
P
P
P2
P
Complement inverse
QD1 QD2
Substitute Direct
Bread
Butter
Bagels
Change in D curve 1. Non price change
TIMER 2. Whole D curve shifts There is a
change in QD but it is not caused by a change
in price. QD-single price D-all prices
QD3
QD2
QD1
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.
Law of Supply
Price increases QS increases Price decreases
QS decreases
Direct
S refers to the whole supply curve and refers
to what producers will supply at
different prices. QS refers to a point on
the curve and refers to what
producers will supply at a particular price.
S
Change in QS 1. Price change 2. Movement
(up/down S curve) 3. Point to point
(along S curve)
P2
More of you would supply your labor for 12
than if labor were getting just 6 an hour.
P1
Producers want the highest price possible.
QS1
QS2
Reasons For Upsloping S Curve 1. There is
increasing opportunity cost if you dont
produce. 2. Current producers produce more
overtime/more shifts 3. New producers are
attracted to the market.
8
.
Change in Supply Curve 1. Non-price change
RATNEST 2. Whole supply curve shifts There
was a QS change but it was not caused by a change
in price
I only have 200 acres
Corn
Broccoli
S1
S
Alternative Output Price Change INVERSE
S2
P2 P1
P
Substitutes in production
QS1 QS2
S1 S2
P
Supply Shifters RATNEST 1. Resource Cost
wages /raw materials
INVERSE 2. Alternative Output Prices
INVERSE 3. Technology DIRECT 4. Number of
Suppliers DIRECT 5. Expectations about future
price INVERSE 6. Subsidies DIRECT 7. Taxes
INVERSE
new football league- bigger S of games
S3 S1 S2
Dont confuse these two with Chg in QS.
Suppliers produce smaller/ larger quantities
at each price.
QS1
QS2
QS3
9
Price Changes for Substitutes Complements
D
D1
Subs - Direct
Dr Pepper
Coke
P1 P2
D2
Complements - Inverse
D
D2
D1
P1 P2
Motorcycles
Helmets
QD1 QD2
Alternative Output Price Changes - Inverse
S1
S
P1
S2
P
P2
QS2 QS1
Corn
Broccoli
10
D TIMER QD price change
inverse __1. Which will cause an Increase
in D for MP3 Player phones? a. increase in
income c. increase in the price of MP3 Player
phones b. decrease in income d. decrease in
the price of MP3 Player phones ___2. Which will
cause an Increase in QD for MP3 Player phones?
a. decrease in income c. decrease in the price
of MP3 Player phones b. increase in income d.
increase in the price of MP3 Player phones ___3.
Which will cause a Decrease in D for
Projectors? a. increase in the price of
projectors c. decrease in of consumers
b. decrease in the price of projectors d.
increase in projector taste ___4. Which will
cause a Decrease in QD for Projectors? a.
increase in the price of projectors c. decrease
in of consumers b. decrease in the price of
projectors d. increase in projector taste
MP3 Player Phone stereo sound,
downloadable sound games and ring tones
A
C
C
A
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Increase in D
Decrease in D
Increase in S
Decrease in S
D1 D2
S2
D
D
S
S1
D1
S1
S
S2
D2
P
P
P
P
(C)
(B)
(A)
(D)
TIMER
RATNEST
___1. Decrease in income on the market for used
cars. ___2. Decrease in income on the market for
new cars or XBOX. ___3. Consumer expectations
about a price decrease. ___4. Producer
expectations about a price decrease. ___5.
Increase in of producers on the market for
computers. ___6. Increase in of consumers on
the market for used cars. ___7. Increase in of
consumers on the market for new cars. ___8.
Decrease in the price of movies upon the market
for popcorn. ___9. Decrease in business taxes on
the market for computers. ___10. Consumer
expectations of a shortage of apples. ___11.
Decrease in resource cost on the market for
computers. ___12. Increase in the price of wheat
upon the market for corn. ___13. Consumer
expectations of a shortage of cell phones. ___14.
Producers expectations about a price
increase. ___15. Increase in income on the market
for iPods.
A
B
B
C
C
A
A
A
C
A
C
D
A
D
A
12
Comparative and Absolute AdvantageComparative
Advantage can produce at a lower productive
opportunity cost

• Haitis DCC Cubas DCC
• 1B __ C 1B __ C
• __ B 1C __ B 1C

Haiti
Cuba
100
90
X 1/5
6
costs
costs
4
1/4
1/6
costs
costs
80
Terms of Trade 1 bread __coffees
A prisoner of my own PPC.
I can consume only on my PPC.
5
Coffee
45
50
Coffee
40
World CC 1 Bread__ Coffees __
Bread1 Coffee
5
10
7.5
1/5
0
9
o
18
20
15
X 5
Bread
Bread
Trade is the free lunch of economics.
1. (Haiti/Cuba) has an absolute advantage in
coffee and (Haiti/Cuba) has an absolute
advantage in bread. 2. Haiti will export
(bread/coffee) comparative advantage import
(bread/coffee). comparative disadvantage
Cuba will export (bread/coffee) import
(bread/coffee). 3. Advantageous trade can occur
between Haiti Cuba when 1 bread is exchanged
for (3/5/7) tons of coffee. Production in
both reflects (increasing/constant) opportunity
costs.
Export what it can produce at a lower relative
price and import goods it can buy at a lower
relative price.
Do what you do best trade for the rest.
Absolute Advantage - more efficient, can produce
more with the same number of inputs who can
produce absolutely more
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Comparative Advantage 4
Fuzzy A B C D E F DCC Fuzzy
Wuzzy A B C D E F DCC
Wuzzy Plums 1500 1200 900 600 300 0 1G __ P
Plums 3500 2500 1500 1000 500 0 1G __
P Grapes 0 100 200 300 400 500 __ G 1P
Grapes 0 150 300 450 575 700__ G 1P
The countries of Fuzzy and Wuzzy
B 2500 150
C 900 200
5
1G
3
3500
1/5
1P
1/3
500
Before 900 plums 2500
plums 3400 plums
Before 200 grapes 150
grapes 350 grapes
Terms of Trade 1 Grape __ Plums
4
After 3500 plums 3500 3400 100
plums
After 500 grapes 500 350 150 grapes
11. In Wuzzy, the opportunity cost of 1 grape is
(1/2/3/4/5) plums. 12. Fuzzy has a comparative
advantage in should produce (plums/grapes). 13
. The terms of trade will be 1 grape for
somewhere between (35/26) plums.
14. Assume that if Fuzzy did not specialize it
would produce combo C and if Wuzzy did not
specialize it would produce combo B. The gains
from specialization and trade are
(0/100/150) plums and (0/100/150) grapes.
14
lower of hours gives absolute advantage
Comparative Advantage 8 Inputs
Djibouti DCC Djibouti Canada DCC
Canada Fish 10 hours 1W __F Fish 20
hours 1 W __ F Wheat 20 hours ___
W1F Wheat 60 hours ___W 1F
3
2
1W
Costs
Costs
1F
1/2
1/3
Terms of Trade 1 Wheat __ Fish
2.5
27. (Djibouti/Canada) has an absolute advantage
in both commodities. (Djibouti/Canada) has a
comparative advantage in producing wheat. 28.
(Djibouti/Canada) has an absolute disadvantage in
both, but a comparative advantage in
fish. 29. Advantageous trade can occur between
the two when 1 wheat is exchanged for
(1/2.5/3) fish.
We are going to turn inputs into
outputs. In 20 hours, Djibouti can produce an
output of 1 wheat or 2 fish. In 60 hours, Canada
can produce an output of 1 wheat or 3 fish.
Looking at inputs hours
15
Absolute Advantage Outputs v.
InputsRemember that with outputs or quantity,
the larger number indicates absolute advantage
that country can produce absolutely more from
the same inputs, and is more efficient.
Product Market
And with inputs (hours), the smaller
number indicates absolute advantage that
country is more efficient because it can produce
a good absolutely faster than the other with
the same inputs.
Resource Market
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Output v. Input Comparative and Absolute Advantage
Rabbit 1 G 3 B 1/3 G1B
Rabbit 1 B 3 G 1/3 B1G
Wabbit 1 B 2 G 1/2 B1G
Wabbit 1 G 2 B 1/2 G1B
Wabbit
Rabbit
Wabbit
Rabbit
Terms of Trade 1G 2.5 B
Terms of Trade 1B 2.5 G
Product Market outputs Country Guns
Butter Rabbit 40 units 120 units Wabbit 20
units 40 units
Resource Market inputs Country Guns
Butter Rabbit 40 hours 120 hours Wabbit 20
hours 40 hours
What country has an absolute advantage in guns?
What country has an absolute advantage in guns?
Rabbit
Wabbit
Why does Rabbit have an absolute advantage
in guns?
Why does Wabbit have an absolute advantage
in guns?
Wabbit can produce guns absolutely faster than
Rabbit 20 hours v. 40 hours
Rabbit can produce absolutely more guns than
Wabbit 40 units v. 20 units
What country has a comparative advantage in guns?
What country has a comparative advantage in guns?
Rabbit
Wabbit
Lets change inputs into outputs.
Wabbit can produce guns at a lower opportunity
cost 2 butters v. 3 butters
Rabbit can produce guns at a lower opportunity
cost 1/3 butter v. 1/2 butter
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Increase in U.S. Growth Rate (Y)We buy more
from Japan appreciating the yen and
depreciating the dollar
We want more Japanese cars, computers, DVD
players, digital cameras, and camcorders.
D1
D2
S
Price of
1.00
1.50
D
Booming Economy
AS
AD2
AD1
A
of
YR
Y
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Appreciation/Depreciation
D1
S
Exchange Rate 1 Y100
Price
D2
Y looking for s
s looking for Y
Y150
E2
D
Yen Price of Dollar
Yen depreciates
Y100
E1
Yen appreciates
A
Y50
E3
D3
Quantity of Dollars
M X
X M
A
D
Taste products/assets
-
-
-
Interest Rates
-
-
Price Level
-
-
Growth Rate
-
Currency Price
-
-
19
Decrease in U.S. Growth Rate (Y)
We buy less from Japan
depreciating the yen and
appreciating the dollar
Recessionary Economy
AS
AD1
AD2
PL
Five million of us have lost our jobs. We cant
buy as many American or Japanese products.
Y
YR
D1
1.00
Price of
S
D2
A
.50
Quantity of
D
20
1. Increase in taste more demand for a
countrys products or assets 2. Increase in
interest rates Overseas investors increase
their investments there. 3. Decrease in price
level overseas buyers want to buy our
cheaper goods. 4. Decrease in growth rate A
countrys declining economy results in them
buying less from other countries
decreasing demand for their currency and
thus appreciating the declining economys
currency 5.
APPRECIATION of a Currency
Decrease in the price of a currency relative to
the other
21
Appreciation/
Depreciation Quiz

• If Japan buys 2 million more American cars
• the dollar would (appreciate/depreciate)
  and our
• imports from Japan would (increase/decrease)
  .
• 2. If U.S. interest rates are increasing faster
  than
• Japans, the dollar would (appreciate/deprecia
  te)
• and our exports would (increase/decrease).
• 3. If prices are dropping more in Japan than in
• the U.S., the yen will (appreciate/depreciate)
  and
• Japans imports will (increase/decrease).
• 4. If the U.S. growth rate is faster than that of
  Japan,
• the dollar will (appreciate/depreciate) and
  U.S.
• imports from Japan will (increase/decrease).
• 5. If the dollar price of the yen
  decreases, the
• dollar has (appreciated/depreciated) and our
  our
• imports from Japan will (increase/decrease).

22
Real GDP Nominal GDP/Index x
100 9,299.21999/104.771996 x 100 8,875.8
So, 1,062.6 Real GDP deflates nominal GDP to
actual value takes the air out of the nominal
balloon 5,250.8 3,774.7
5,671.8 108.5 x 100_____ 108.1
x 100_____ 117.0 x100_____
3,492
4,839
4,848
Figuring Inflation
Change/Original x 100 inflation
(2000-later year)
(1999-earlier year) Current years
index last years index
172.2-166.6(5.6) C.P.I. Last years
index(1999-earlier year) x 100 166.6 x100
3.4 130.7-124.0(6.7)
116-120(-4) 333-300(33)
124.0 x 100 ____ 120 x 100
____ 300 x 100 ____
5.4
-3.3
11
23
AD/AS Primer - No Recessionary/Inflationary Gap
AD
AS
Unemployment 1. Frictional a. quit b.
fired c. graduated d. seasonal 2.
Structural technological replaced by
machinery
3
E
FrictionalStruc.
Real GDP
6 YF YP YA 10 tr.
3. Cyclical downturn in business cycle real
unemployment
FE GDP Bulls Eye
E No INFLATIONARY or RECESSIONARY GAP
Y Potential output10 tr. equals actual
output10 tr. Actual unempl. rate6 equals
potential unempl. rate6
24
AD/AS Primer - Recessionary Gap
AD1
AS
AD2
3
FE GDP Bulls Eye
1
6 YF YP YA 10 tr.
FrictionalStructural
5 Cyclical(real) Unempl. 105x210
Negative Gap
11 YR YA 9 Tr.
Okuns Law
Arthur
Okun GDP Gap unemployment rate over 6 x 2
E2 Recessionary Gap(YR) Potential output (10)
exceeds actual output(9). Actual unemploy.
rate(11) exceeds Potential unemp. rate(6).

• Unemployment Lets say that Nominal GDP is
  100 billion. And if it were 200 billion?
• Rate
• 1. 7 real unemployment is __ gap is ___
  output forgone is ___ bil.
• 2. 8 real unemployment is __ gap is ___
  output forgone is ___ bil.
• 3. 13 real unemployment is __ gap is ___
  output forgone is ___ bil.
• 4. 14 real unemployment is __ gap is ___
  output forgone is ___ bil.

1
2
2
4
4
2
14
7
14
16
8
16
25
3 Types of Unemployment
1. Frictional short term a. Fired
b. Graduate but looking for
a job c. Quit or d. Seasonal
No job yet
2. Structural technological, long-term
unemployment. These jobs are never coming
back.
Slide Rule makers
3. Cyclical mainly durable goods jobs that
decline due to deficient AD downturn
in the business cycle. These jobs do
come back.
26
Greyhound
Natural Monopoly Competition would be chaotic.
It is natural to give it to one co. Ex
Utilities
Basic Cable Rate
Blue Jeans
Monopolistic Competition Element of monopoly
with product differentiation
Beauty Shops
Waste Management
TXU
Barber Shops
Forney High
Price Makers
Government Monopoly Owned operated by G Ex
U.S. Mail State Highways
Geographic Monopoly Only seller in a specific
area Example Remote Store
DART
Monopoly Oligopoly
Many 25-75 sellers Control over price Some Ex
Blue Jeans
U.S. Mail
Monopoly mono(1) poly (seller) Control over
price Total Product unique Ex Comcast Cable
TV
Rubiks Cube
Monopolistic Competition Perfect Competition
Technological Monopoly Patent Ex Rubiks Cube
Market buyer seller Structures How many
sellers
Most Competitive
Oligopoly Oliogo (few) poly (seller) A few
control 70 of market
Cable TV
Duopoly
Perfect Competition Very many 100s of
sellers
Perfect Competition Monopolistic Competition Oligo
poly Pure Monopoly
Control over price Fair Amount Differentiated or
Identical
Differentiated Oligopoly Differentiated
Products Autos Sneakers
Control over price None Products
Identical (Agricultural fishery)
Pure Oligopoly Identical Products (steel)
Reebok
undifferentiated
Price Taker
Control over Price
27
Dennis Rodman deposits 1 with A 10 RR
Rodmans
.10
90 cents
Excess Reserves
RR
Total (Actual) Reserves
One Dollar
One banks loan becomes another banks DD.
PMC M x ER, so 10 x .90 9 TMS PMC9
DD1 10 MS Currency DD of Public
28
Rodmans Bank Borrows 1 From The Fed 10 RR
Rodmans Bank
Fed
One Dollar
0
Excess Reserves
RR
Total(Actual) Reserves
One Dollar
PMC M x ER, so 10 x 1 10 TMS 10
PMC10 MS Currency DD of Public
29
Expansionary Easy Money Policy
DM
DI
MS1
MS2
Investment Demand
8 6 4 0
8 4 0
Nominal Interest Rate
6
Buy
If there is a RECESSION MS will be increased.
Money Market
QID1
QID2
AS
AD1
AD2
PL
I want a job as a Rockette
PL2
E2
PL1
E1
YR
Y
Real GDP
Fed
Buy Bonds
I.R.
QID
MS
Y/Emp/PL
AD
30
Contractionary Tight Money Policy
Dm
MS1
MS2
DI
Its cheaper to burn money than wood.
Investment Demand
10 8 6 0
10 8 6 0
Nominal Interest Rate
Sell
If there is INFLATION, MS will be decreased.
Money Market
QID1
QID2
AS
like money trees
AD1
AD2
PL
PL1
E1
PL2
E2
YI
Y
Fed
Sell Bonds
MS
I.R.
Y/Empl./PL
AD
QID
31
Money Supply DD Currency of the Public

PMC
PMC TMS
ER Loans Crea. In
Potential 10010 RR 1st Bank 1st
Bank System Total MS Banks/Public DD
100 90 90 900 1,000
Fed /Public/Banks DD100 90
90 900 1,000
Fed buys bonds from public who put the money
in their DD Banks/Fed Fed Loan100 100
100 1,000 1,000 or sells bonds
to Fed PMC
PMC TMS ER
Loans Crea. In Potential 100
20 RR 1st Bank 1st Bank System
Total MS Banks/Public DD 100 80 80
400 500 Fed/Public/Banks DD
100 80 80 400 500
Fed buys bonds from public who put the money
in their DD Banks/Fed Fed Loan100
100 100 500 500
or sells bonds to Fed
Long Run
Short Run
32
Money Creation Formulas Public
Student deposits 1.00 in a bank 1. RRERTR
TRRRER TRERRR 2. ER x MM PMC 3. PMC
1st DD TMS
MS Currency DD of public
Public
Fed

• No Public Fed gives 1.00 loan to a bank
• RRERTR TR-RRER TR-ERRR
• ER x MM PMC TMS

33
Money Creation
34
1,000 DD by Katy MSCurrencyDD of Public

Duck that can dance












New Deposits New Reserves DD
New Required Reserves RR50
DD Created By New Loans equal to new ER





Dance Lessons w. Laura Bush










Bank








5,000.00
2,500.00
2,500.00
A







2,500.00







B
1,250.00
2,500.00
1,250.00






Hunting with Dick Cheney







625.00
C
1,250.00







625.00






312.50
625.00
D
312.50






Prom Dance lessons with N. Dynamite

















5,000.00

PMC


PMC ER2,500 x M2









Katys DD PMC TMS



5,000.00 5,000.00 10,000.00

MS grows by multiple of 2








35
1,000 DD by Katy MSCurrencyDD of Public
400 to Michael Jackson for dance lessons












New Deposits New Reserves DD
New Required Reserves RR40
DD Created By New Loans equal to new ER















Bank








1,000.00
600.00
400.00
A
Prom date with Britney






600.00







B
240.00
600.00
360.00














144.00
C
360.00
Practice cigarette cessation lessons with Bruce
Willis






216.00






86.40
216.00
D
129.60





















1,500.00
PMC

Prom date with Napoleon Dynamite
PMC ER800 x M5












Katys DD PMC TMS




1,000.00 1.500.00 2.500.00
MS grows by multiple of 2.5







36
1,000 DD by Ann MSCurrencyDD of Public












New Deposits New Reserves DD
New Required Reserves RR10
DD Created By New Loans equal to new ER















Bank







Dog that can YoYo

1,000.00
900.00
100.00
A








900.00

One year all u can eat hot wings at Hooters






B
90.00
900.00
810.00













81.00
C
810.00







729.00

729.00 for a cat bodyguard





72.90
729.00
D
656.10















PMC









9,000.00
PMC ER900 x M10


Smoking cat






Lindsays DD PMC TMS






1,000.00 9,000.00 10,000.00




MS grows by multiple of 10








37

• RR is 25 Assets DD
  (Liabilities)
• TRRRER25 mil. 100
  million
• How much can this bank loan out? ______
• 2. If Pam Anderson puts 4,000 in this
• bank(DD),ER will increase by _______.
• 3. Possible Money Creation in the system could be
  _______.
• 4. Potential Total Money Supply could be as much
  as ________.

MS Currency DD of PUBLIC
0
3,000
12,000
16,000
38
RR is 20 Assets
DD(Liabilities) TRRRER 20
mil. 100 million 11. How much can Pams bank
loan out? ______ 12. If Pam Andersons Bank
borrows 1,000 from the Fed ER will
increase by _______. 13. Possible Money
Creation in the system could be _______. 14.
Potential Total Money Supply could be as much as
________.
TR 11-14 MS Currency DD of PUBLIC
0
1,000
Fed
Pam Andersons Bank
5,000
5,000
39
RR is 40 Assets DD
(Liabilities) TRRRER40
mil. 100 million 1. How much can this bank
loan out? ______ 2. If Cameron Diaz puts 10,000
in this bank(DD), ER will increase by
_________. 3. Possible Money Creation in
the system could be ________. 4. Potential
Total Money Supply could be as much as _________.
Extra Practice MS Currency DD of PUBLIC
0
6,000
15,000
25,000
40
Quiz 4 Commercial Bank Fed Public

• RR are 40 there are no ER in the Pineda Bank.
  Matt
• deposits (DD) 50.00 there. This one bank
  can increase
• its loans by a maximum of ______.
• 2. RR are 50 the Llewellyn Bank borrows 80,000
  from the Fed.
• This one bank can increase its loans by a
  maximum of ____.
• 3. RR are 50 the Fed buys 10,000 of
  securities from the Public.
• Potential Money Creation in the banking
  system could be ____.
• 4. The Thibodaux Bank has DD of 20 million
• RR are 40 RR ER are equal. TR are
  _____.
• 5. The Venable Bank, with no ER, borrows 20 M
  from the Fed.
• With a RR of 50, PMC in the banking system
  could be ___.
• 6. RR are 40 the Fed buys 100 M of securities
  from the Public.
• Potential Money Creation in the banking
  system could be ____.
• 7. RR are 50 the Cornell Bank borrows 100 M
  from the Fed
• this single banks ER are increased by
  _______.
• 8. RR are 50 Fed buys 10 billion of securities
  from the Public.
• Potential Total Money Supply (TMS) could be
  as much as ____.
• 9. The RR is 40 the Fed buys 50 M of bonds
  from a bank.
• Potential Money Creation in the banking
  system is _____.

30.00
80,000
10,000
16 M
40 M
150 M
100 M
20 M
125 M
48.00
41
Flat Tax on Income same of income, different
amounts, so Proportional Flat Tax on Products
same amount, different of income, so Regressive
35
33
28
Marginal Tax Rates
Progressive takes a larger from high income
groups
25
15
10
Single - no tax on 1st 7,550
I only have to pay the FICA tax.
28
25
10
15
33
35
71,950
326,450
7,550
29,700
150,150
326,450
0
Standard Deduction 5,150-dependent
7,550-single 10,750-HH
15,100-married filing jointly
42
Proportional Regressive Taxes
Proportional takes same 20 not amount from
all income groups
20
Example Medicare 1.45 on all income earned.
100,000
50,000
40,000
30,000
Pay 20,000
Pay 10,000
So, not same amount but same , 20
Take that, you low incomer.
30
Regressive takes a larger from low income
groups
20
Example Sales Tax
Im a low incomer.
10
40,000
50,000
30,000
43
What kind oftaxes are these?
Flat Tax on Income same of income, different
amounts, so proportional. Flat Tax on Product
same amount, different of income, so
regressive.

• Toll Road(1 per day)
• 10,000 50,000
• 200 200
• 2 .4

Flat Tax on Cigarettes Excise41 cents pack 1
pack day 1 pack day 10,000 100,000
1,000 1,000 10 1
Addicted
State 6.25 Excise Tax on Two Identical 20,000
Autos BO HO
10,000 100,000 1,250 1,250
12.5 1.25
44
Thank you for bringing me to Tims house not
Michael Vicks.
The End
45
Economics Final Exam Review
46
Regular Final Exam Review
1. The (President/Congress/Fed Chairman)
appoints the Fed's Board of Governors
for terms of l4 years. 2. Government
spending tax programs ("G" "T") designed to
stabilize the business cycle reduce
unemployment are called (monetary/fiscal)
policy. 3. A (sole proprietorship/corporation)
gets to keep all of the profits. 4. The Fed
is divided into (6/l2/25) districts. 5. The
__________ _______ is what is given up
(alternative foregone) when a choice is
made.(2nd Choice) 6. Things in nature used to
produce products are called (natural/human/capital
) resources. 7. The (sole
proprietorship/partnership/corporation) gives the
greatest management skills. 8. The
three basic questions every society must answer
are ________, _________, and ____ whom.
9. The (trade-off/opportunity cost) is the
decision (choice) you make when choosing
between two alternatives. l0. A product that
is a luxury, has many substitutes, or is
expensive would have (elastic/inelastic)
demand. 11. The last item (extra) consumed is
less satisfying than the one before it is the
"Law of _____________ ___________ utility".
("Utility" means _________________.
12. The factors of production are called _____,
______ capital resources.
opportunity cost
what, how
for
diminishing marginal
satisfaction
land, labor
47
Regular Final Exam Review
13. The market structure with the most
competition is _______ _______________. 14.
A ____________ is when one company absorbs
another. 15. This market structure(___________
) includes GM, Chrysler, Ford. 16. Price
leadership is involved with (oligopolies/monopolie
s). 17. The (geographic/natural/government)
monopoly exists in response to a public
need that the private sector has not met. (Postal
service)
perfect competition
merger
oligopoly
18. At what point can you get the most
consumer goods? _____ 19. What point
represents an advance in technology? ______
20. The curve rather than a straight line
indicates the two products are an
example of the "law of (increasing/constant)
cost." 21. What is given up when moving from
point "C" to "B"? __________ 22. At what point
is spending for capital goods the greatest?
_____ 23. At what point would there be the
most economic growth in the future if a
country were producing there today? _________
24. What point represents a recession?
(unemployment) _______
C
E
consumer goods
A
A
D
25. Which flow represents products being sold?
_____ 26. Which flow represents businesses
making payments? _____ (rent, wages,
interest, profits) 27. Which flow represents
consumer spending? _____ 28. Which flow
represents households selling resources? _____
1
3
2
4
48
Regular Final Exam Review

• 29. The (progressive/proportional/regressive) tax
  falls most heavily on families with low
• incomes.
• When product is exchanged for product no medium
  of exchange is needed,
• this is called ____________.
• 31. In addition to taxes, the federal government
  can increase revenue by (increasing/decreasing)
  its financial obligations.
• 32. In a long recession, the Fed should
  (increase/decrease) the money supply.
• 33. Banks create money when they (make/pay back)
  loans destroy money when they (make/pay back)
  loans.
• 34. The 3 roles of money are as a unit of
  account, store of value, and the most important,
  as a _____________ of exchange.
• 35. The highest interest rate that commercial
  banks charge their best (prime) customers for
  loans is the (discount/Federal/prime) lending
  rate.
• 36. A government-kept record of
  increases/decreases in the price level of
  consumer spending is the (producer/consumer)
  price index.
• 37. A three-year downturn in the economy is
  called a (recession/depression).
• 38. During a bad recession, the Fed should
  (raise/lower) the discount rate.
• 39. During an expansion (inflation), the Fed
  should (buy/sell) securities.
• 40. During a bad recession, the Fed should
  (raise/lower) the RR.
• 41. A (bond/stock) is a certificate of ownership
  in a corporation.
• 42. (Common/Preferred) stockholders can sell
  their shares vote at annual
• meetings.

barter
medium
49
Regular Final Exam Review
43. A (bond/stock) is a certificate of
indebtedness. 44. (Monetary/Fiscal) policy is
when the Fed uses open market operations, the
discount rate, the RR to control the money
supply. 45. (Natural/Human/Capital) resources
would include "brain" or "muscle" power. 46. If
AD (spending) is considered too low (recession),
the Fed should (increase/decrease) the
money supply. 47. 46 of our M1 money supply is
(time/demand) deposits. 48. The policy of the
Fed during a recession to stimulate the economy
would be a(n) (tight/easy) MS. 49. Buying
securities by the Fed means a (bigger/smaller)
supply (higher/lower) interest rates
selling securities means a (bigger/smaller)
supply and (higher/lower) interest rates.
50. Deposits which cannot be withdrawn before
maturity, without incurring a penalty,
earn higher interest are (time/demand)
deposits. 51. A (lower/higher) discount rate
makes it less expensive for banks to borrow from
the Fed. 52. The _____ includes M1
savings accounts MMAs and time deposits under
100,000. 53. The _____ includes M2 all
time deposits over 100,000. 54.
(Frictional/Structural/Cyclical) unemployment is
caused by technological breakthroughs. 55.
(Frictional/Structural/Cyclical) unemployment
results when workers lose their jobs due to
recessions. 56. (Frictional/structural/Cyclical)
unemployment is also called "search" unemployment
M2
M3
50
Regular Final Exam Review
57. The sales tax flat tax on products is a
(regressive/proportional/progressive) tax. 58.
The use of trade barriers to protect domestic
industries would be advocated by
(protectionists/free traders). 59. The point at
which the supply demand curves intersect is the
____________ point. 60. The (excise/sales)
tax is levied on the sale of particular products,
like cigarettes and alcohol. 61. Inflation
that results from an increase in labor or
resource cost is called
(cost-push/demand-pull) inflation. 62. Inflation
that results from "too many dollars chasing too
few goods" is (cost-push/demand-pull)
inflation. 63. A(n) (expansion/trough/peak/recessi
on) is a period of growth in the business
cycle. 64. A(n) (expansion/trough/peak/recession)
is a high point of a business cycle. 65. A(n)
(expansion/trough/peak/recession) is business
activity at its lowest point. 66. A(n)
(expansion/trough/peak/recession) is 2 straight
quarters when GDP contracts. 67. The
(regressive/progressive/proportional) tax takes a
larger percentage from high income
groups. 68. The (regressive/progressive/proportion
al) tax takes a larger percentage from
low income groups. 69. The (regressive/progressive
/proportional) tax takes the same percentage from
all income groups. 70. How
resources, products, money are exchanged is
demonstrated by the (PPC/circular flow)
equilibrium
51
Regular Final Exam Review
71. An example of (government/natural/technologica
l) monopolies would be a patent on new
products. 72. An example of (government/geographic
/technological) monopolies would be a remote
grocery store. 73. An example of
(government/natural/technological) monopoly would
be cable TV. 74. An increase in consumer incomes
will increase the demand for a
(normal/inferior) good. 75. The relationship
between QD and price is (direct/inverse). 76.
The relationship between QS and price is
(direct/inverse). 77. An improvement in
technology will shift the (demand/supply) curve
to the (right/left). 78. An increase in a
government subsidy will move the (demand/supply)
curve to the (right/left). 79. If the
price of corn (alternative output) increases the
supply for wheat (increases/decreases).
80. If some firms leave an industry, there will
be a (leftward/rightward) shift of the
(demand/supply) curve. 81. If there is an
increase in the number of consumers (market
size), then the (demand/supply) for Coke
(increase/decrease). 82. A new basketball league
would move the supply curve (more games) to the
(right/left). 83. Prices of related goods
substitutes complements affect the
(demand/supply) curve. 84. When the
supply curve shifts to the right, supply has
(increased/decreased).
52
Regular Final Exam Review
85. If the demand curve shifts left, this means
there has been a(n) (decrease/increase). 86
. An increase in income will (increase/decrease)
the demand for steak, but
(increase/decrease) the demand for spam. 87. If a
good has inelastic demand, insulin a price
increase will cause demand to
(increase/stay about the same). 88. Quantity is
normally on the (vertical/horizontal) line. 89.
Price is normally on the (vertical/horizontal)
line. 90. When the asking price is higher than
the equilibrium price, then a
(shortage/surplus) results. (QD/QS) exceeds
(QD/QS). 91. The following cause the dollar to
appreciate (increase/decrease) in price level
(increase/decrease) in interest rates
(incr/decr) in growth rate of a country
and (increase/decrease) in taste for that
countrys goods. 92. If the dollar price of the
yen increases, the dollar has (appreciated/depreci
ated), our goods are (more/less)
expensive, so our exports to Japan should
(incr/decr). 93. A (proportional/progressive/regr
essive) tax is a tax on consumption items
gasoline/toll road. 94. If a tax can be
transferred to another person cigarettes it is
called (benefits-received/ab
ility-to-pay). 95. RR of l0. Duck Bank borrows
100,000 from Fed. Its loans can be increased
by ____________. Potential MS in the
banking system may be increased by
_________. TMS is __________.
100,000
1 million
1 million
53
Regular Final Exam Review
96. Duck Bank has ER of 12,000 DD of
100,000. If RR is 20, what is the size
of the bank's TR _________. 97. When a
commercial bank borrows from the Fed, DD is
(increased/decreased/unchanged) and reserves
are (increased/decreased/unchanged). 98. The
cause-effect chain of tight money policy to
combat inflation is to (buy/sell) bonds,
which (increases/decreases) MS, which
(increases/decreases) interest rates,
which (increases/decreases) investment,
consumption, net exports, which
(increases/decreases) GDP. 99. When the RR is
increased(10 to 50), ER of banks are
(increased/decreased) the size of the
multiplier is (reduced/increased). l00. RR is
20 the Fed buys 10 million of bonds from the
public. The MS is increased by ______.
Possible money creation in the banking system is
__________? TMS is ________________? 10
1. If nominal GDP is 500 billion but
unemployment is l0, the GDP output gap
being foregone in this economy is ______ billion.
Each over 6 x 24 x 2
_____ 102. An increase in price will cause a(an)
increase in (QD/QS). 103. An increase in taste
will cause a(an) increase in (demand/supply).
104. An increase in resource cost will cause
a(an) (incr/decr) in (demand/supply).
32,000
10 mil.
40 mil.
50 mil.
40
8
54
Regular Final Exam Review
D
105. Which graph above shows a decrease in supply
resulting in a higher price? _____ 106. Which
graph above shows what happens when there is a
decrease in demand for a product?
_____ 107. Which graph above shows what happens
when there is an increase in demand for a
product? _____ 108. Which graph above shows
supply increases demand remains constant?____
B
A
C
5 Demand Shifters 5 Supply
Shifters 1. Taste direct 1. Resource
cost wages/raw materialsinverse 2. Income
normal-direct inferior-inverse 2.
Alternative output price changes inverse 3.
Market size ( of consumers-direct) 3.
Technology direct 4. Expectations (Consumer)
availability-inverse 4. Number of suppliers
direct Future income-direct future
price-direct 5. Expectations producer
about future inverse 5. Related good price
changes 6. Subsidies
direct substitutes-direct
complements-inverse 7. Taxes inverse
55
Mexicos PPF (tons)
U.S. PPF (tons)
60
90
Product A B C D E Avocados
0 30 33 60 90 Soybeans 30 20 19
10 0 DCC 1S costs ___A ___ S
costs 1A
Product A B C D E Avocados
0 20 24 40 60 Soybeans 15 10 9
5 0 DCC 1S costs ___A ___ S
costs 1A
A
A
4
3
¼
1/3
0
30
S
0
15
S
Terms of Trade 1S ___ A
3.5
109. In Mexico, the opportunity cost of 1S is
(1/3 or 4 or 5 ) avocados. 110. If these 2
nations specialize, Mexico will produce
(avocados/soybeans) the U.S. will
produce (avocados/soybeans). 111. Mexico has an
absolute disadvantage in (avocados
only/soybeans only/both avocados and soybeans).
112. If both produced at combination C prior
to specialization, what would be the gains
after trade? (0/3/2/10) tons of avocados and
(1/3/2/10) tons of soybeans. 113. The terms of
trade would be 1 ton of soybeans for (1/3/4/3.5)
tons of avocados.
DCC Djibouti 1C costs ___ W ___C costs 1W
DCC Canada 1C costs ___ W ___C costs 1W
Djibouti Caviar 10 hours Wheat 5
hours
Canada Caviar 18 hours Wheat 6 hours
2
3
½
1/3
Going to turn inputs into outputs
Terms of Trade 1C ___ W
2.5
114. (Djibouti/Canada) has an absolute advantage
in both commodities. 115. (Djibouti/Canada) has a
comparative advantage in producing wheat. 116.
(Djibouti/Canada) has an absolute disadvantage in
both commodities. 117. Djibouti/Canada) has a
comparative advantage in caviar. 118. Trade can
occur between the two when 1 caviar is exchanged
for(1/2.5/3) wheat.
56
Practice Quiz 1
57
Final Exam Practice Quiz 1 Regular
B
C
___1. At what point would there be the most
economic growth in the future if a
country were producing there now?
D
C
Capital Goods
A
___2. What is given up when moving from "C" to
"D"?
E
A
Consumer Goods
a. capital goods b. consumer
goods ___3. Which of the following will not cause
a change in demand for apples ? a.
increase in consumer incomes b. decrease in
price of pears c. change in the price
of apples d. change in taste for
apples ___4. A decrease in the price of wheat
would shift the supply curve for corn to
the a. left b. right ___5. A shortage
of rollerblades will normally occur if their
price is a. below equilibrium
b. above equilibrium ___6. The supply curve
would shift to the right if a.
consumer incomes increase b. some sellers
left the market c. price of
product decreased d. resource cost
decreased ___7. An increase in income if X is a
normal good, will a. incr D, incr P,
incr Q b. incr D, incr P, decr Q c. incr S,
incr P, incr Q d. decr D, decr
P, decr Q
C
D
B
E
A
D
A
___8. The average price in the market is higher
under monopolistic competition than under
perfect competition because a. price
leadership b. price competition c. price
differentiation ___9. If our price level is
increasing faster than that of Djibouti, the
Djiboutian franc will
(appreciate/depreciate) their exports to the
U.S. will (increase/decrease). a.
appreciate/increase b. depreciate/decrease
c. depreciate/increase d.
appreciate/decrease
C
D
58
___10. If the dollar price of the euro increases,
then the dollar (appreciates/depreciates)
and European exports to the U.S. will
(increase/decrease). a.
appreciate/increase b. depreciate/decrease
c. depreciate/increase d.
appreciate/decrease ___11. Monetary policy
(change the RR, DR, buying/selling bonds)
during a depression would be more
effective if you? A. raise, raise,
sell B. lower, lower, buy ___l2. During
a recession, an easy money policy means
(buy/sell) bonds, which (incr/decr) the
MS, which (incr/decr) the I.R., which (incr/decr)
investment, which (incr/decr) GDP. a.
sell/increase/decrease/increase/increase b.
buy/increase/decrease/increase/increase ___l3. RR
is 20 Fed buys 50 million of bonds from the
Public. The MS is increased by
_____? Possible money creation in the banking
system is ________? a. 40 mil, 200
mil b. 50 mil, 200 mil c. 50 mil, 250
mil ___l4. Suppose the Lynch Bank has ER of
20,000 and DD of 100,000. If the RR is 40
what is the TR? a. 40,000 b.
60,000 c. 80,000 d. 120,000
B
B
B
B
B
___l5. Assume the RR is 20 the Lynch Bank
borrows 100,000 from the Fed. As a result
this one bank's ER are increased by _____?
And PMC in the banking system is _______?
a. 80,000, 500,000 b. 100,000, 500,000
c. 80,000, 400,000 ___l6. If nominal GDP is
100 billion unemployment is 12, then the GDP
output gap being foregone is a. 6
billion b. 12 billion c. 18
billion ___l7. A decrease in price will
cause a. increase in D b. decrease
in S c. decease in QS D. decrease in
QD ___l8. A 20 cent excise tax on gasoline is
what type of tax a. progressive
b. proportional c. regressive
B
B
C
C
59
___l9. Which of the following will cause an
increase in QS? a. increase in price
b. decrease in of suppliers c. decrease in
resource cost ___20. Which of the following will
not shift the supply curve? a.
decrease in of suppliers b. increase in the
price c. decrease in resource cost
A
Fin Ex Quiz 1
B
Spain A B C D DCC
Spain China A B C
D DCC China Apples 0 20 40 60
1P __ A Apples 0
20 40 60 1P __ A Plums 60
40 20 0
Plums 15 10 5 0 ___ P
1A
21. In China, the opportunity of cost of
1 ton of plums is (1/3/4/5) tons of apples. 22.
Spain has an absolute advantage in
(apples/plums). 23. If trade occurs, Spain will
export (apples/plums) China will export
(apples/plums). 24. For Spain, the opportunity
cost of one ton of plums is (1/3/4/2.5) tons of
apples. 25. Prior to specialization and trade,
China chose C and Spain chose B. Now each
specializes according to comparative advantage.
The resulting gains from trade will be
(0/10/15/25) tons of apples and (0/20/15/25) tons
of plums.
1
4
1/4
60
60
Spains PPF
Terms of Trade 1Plum _______ Apples
Chinas PPF
2.5
Apples
Apples
0 Plums 60
0 P 15
26. If interest rates are increasing faster in
the U.S. compared to those in Bangladesh, the
dollar will (appreciate/depreciate) our
exports to Bangladesh will (increase/decrease).
27. If our price level is decreasing compared to
Mexico, the dollar will (appreciate/deprecia
te) and our imports from Mexico will
(increase/decrease). 28. If Russia decides to
buy 50 million Fuzzy Wuzzies from the U.S., the
Russian ruble would (appreciate/depreciate)
and our imports from Russia would
(increase/decrease). 29. If the Djiboutian Franc
price of the dollar increases, then the
Djiboutian Franc has (appreciated/depreciat
ed) and Djiboutis exports to the U.S. should
(increase/decrease). 30. If our growth rate
(income) is increasing faster than that of
Mexico, the Mexican peso will
(appreciate/depreciate) and their exports to the
U.S. will (increase/decrease).
60
Practice Quiz 2
61
Final Exam Practice Quiz 2 Regular
D TIMER QD price
change of product (inverse) ___1. Which of the
following will cause an Increase in Demand for
digital cameras? a. decr in price of dig.
cameras b. decr in income c. incr in income
incr in price of dig cameras ___2. Which of the
following will cause an Increase in QD for
computers? a. decr in price of computers
b. decr in income c. incr in income d. incr
in price of computers ___3. Which of the
following will cause a Decrease in Demand for
Lincoln logs? a. incr in price of Lincoln
logs b. decr in price of Lincoln logs c.
decrease in of consumers (market size) ___4.
Which of the following will cause a Decrease in
QD for camcorders? a. incr in price of
camcorders b. decr in price of camcorders c.
decr in of consumers (market size)
S RATNEST QS price change of
product (direct) ___5. Which of the following
will cause an Increase in Supply for DVDs?
a. decr in price of DVDs b. incr in price of
DVDs c. decr in resource cost d. expectations
of price increase ___6. Which of the following
will cause an Increase in QS for DVDs?
a. decr in price of DVDs b. incr in price of
DVDs c. decr in resource cost d. expectations
of price incr ___7. Which of the following will
cause a Decrease in Supply for DVDs? a.
incr in price of DVDs b. decr in price of DVDs
c. subsidies to suppliers of DVDs d.
expectations of incr ___8. Which of the
following will cause a Decrease in QS for
digital cameras? a. increase in camera
prices b. decrease in camera prices c.
subsidies to suppliers of cameras ___9. Which of
the following will cause an "Increase in D"?
a. decrease in price b. increase in price
c. decrease in taste d. increase in market
size ___10. Which of the following will cause an
"Increase in QD"? a. decrease in price
b. increase in price c. decrease in taste d.
increase in market size
C
A
C
A
C
B
D
B
D
A
62
Fin Ex Quiz 2
___11. Which of the following will
cause a "decreas