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Which of the following terms describes a situation in which there is a reduction in the rate of inflation from 4% to 3% per year?
disinflation
 
The producer price index contains:
aggregate measures of price changes, organized by stage of processing
 
information from the consumer expenditure survey
a fluctuating bundle of consumer goods and services price indexes for approximately 500 mining and manufacturing industries
 
The GDP deflator is an index that includes prices of all but:
imports
 
In the United States, our principal measure of inflation is:
the consumer price index
 
_____ is a reduction in the rate of inflation
Disinflation
 
Inflation is a:
general rise in prices
 
Jennifer just got news that she is getting a 5% raise However, the Bureau of Labor Statistics just reported that prices are rising by 7%
Jennifer is losing purchasing power by 2%
 
Suppose the Bureau of Labor Statistics collects the data presented in the following table:
Year:                Cost of Basket
2010                $200
2011                $230
2012                $250
If 2010 is the base year, then the consumer price index for 2012 is:
125
 
Core inflation is found by removing _________ from the consumer price index
food and energy
 
Which of the following is NOT generally considered a problem with using the consumer price index to measure consumer prices?
Many federal benefits and income tax rates are indexed to the consumer price index
 
Dave brags to his dad that his $45,000 starting salary as a computer programmer is much higher than his dad's $28,000 starting salary some years ago If the consumer price index the year Dave begins work is 1805 and the year his dad started work it was 1108
Dave is mistaken Adjusting for price changes, his salary is less than his dad's salary
 
For your purchasing power to stay the same, your wages must:
increase at the same rate as inflation
 
Inflation has significant long-run effects on the economy because:
it distorts the price signal and produces incentives for speculation
 
Jordan Meadows lost his job as an airline pilot and has not been able to find another job as a pilot Since he is old enough to be eligible for his pension, he decides to retire and devote himself to caring for his elderly parents, According to the Bureau of Labor Statistics, Jordan is:
not in the labor force
 
Roughly half of unemployment normally consists of:
people who lost their job
 
According to the table, what is the unemployment rate of this economy?
14.3%
 
The unemployment rate is defined as the ________ divided by the ________
number unemployed; number in the labor force
 
_____ unemployment includes workers who voluntarily quit their jobs to search for better positions
Frictional
 
Full employment:
occurs if cyclical unemployment is zero
 
Economic policies often have effects that their architects did not intend or anticipate.
TRUE
 
Policymakers use taxes both to raise revenue for public purposes and to influence market outcomes.
TRUE
 
A price ceiling is a legal minimum on the price of a good or service.
TRUE
 
If a price ceiling of $2 per gallon is imposed on gasoline, but the market equilibrium price is $1.50, the price ceiling is
a binding constraint on the market.
FALSE
 
If a price ceiling is not binding, it will have no effect on the market.
TRUE
 
If a price ceiling is below equilibrium price, the quantity demanded will exceed the quantity supplied.
TRUE
 
Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at a lower
price.
FALSE
 
When free markets ration goods with prices it is both efficient and impersonal.
TRUE
 
Long gas lines in the United States after OPEC raised the price of crude oil in world markets were caused by the
higher prices of oil and gas.
FALSE
 
The housing shortages caused by rent controls are larger in the long run than in the short run because both the
supply of housing and the demand for housing are more elastic in the long run.
TRUE
 
Rent control may lead to lower rents for those who find housing, but the quality of the housing may also be lower.
TRUE
 
If the equilibrium wage rate is $4 per hour, and the minimum wage is $5.15 per hour, a shortage of labor will exist.
FALSE
 
A binding minimum wage in a competitive labor market creates unemployment.
TRUE
 
Most economists are in favor of price controls as a way of allocating resources in the economy.
FALSE
 
Rent subsidies and wage subsidies are better than price controls at helping the poor because they have no costs
associated with them.
FALSE
 
Economists use the term tax incidence to refer to who is legally responsible for paying the tax.
FALSE
 
If buyers of a product are required to pay a tax, the demand curve for the product will shift downward by exactly the
size of the tax.
TRUE
 
A government imposed tax on a market shrinks the size of the market.
TRUE
 
A tax on golf clubs will cause the equilibrium market price of golf clubs to increase, and the equilibrium quantity
sold to decrease.
TRUE
 
If a tax is imposed on the buyer of a product, the tax incidence will fall entirely on the buyer, causing the buyer to
pay more.
FALSE
 
A tax on sellers shifts the supply curve upward by exactly the size of the tax.
TRUE
 
The incidence of a tax depends on whether the tax is levied on buyers or sellers.
FALSE
 
Since half of the FICA tax is paid by firms, and the other half is paid by workers, the burden of the tax must fall
equally on firms and workers.
FALSE
 
Lawmakers can decide whether the buyer or the seller must send a tax to the government, but they cannot legislate
the true burden of a tax.
TRUE
 
Who pays the majority of a tax levied on a product depends on whether the tax is placed on the buyer or the seller.
FALSE
 
In general, a tax burden falls more heavily on the side of the market that is more inelastic.
TRUE
 
Most of the burden of a luxury tax falls on the middle class workers who supply luxury goods rather than on the
rich who buy them.
TRUE
 
Price controls are
a.used to make markets more efficient.
b.usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
c. nearly always effective in eliminating inequities.
d. established by firms with monopoly power.
 
Policymakers choose to enact price controls in a market because
a. they believe the market’s outcome to be unfair.
b.enacting price controls will directly increase tax revenues.
c. they are required by law to improve market conditions.
d. they believe that the market system is inefficient and their actions will improve efficiency.
 
Policymakers are led to control prices because
a. they view the market’s outcome as inefficient.
b. they view the market’s outcome as unfair.
c. all politicians enjoy exercising their power.
d. they are required to do so under the Employment Act of 1946.
 
Price controls
a. always produce an equitable outcome.
b.always produce an efficient outcome.
c. can generate inequities of their own.
d. produce revenue for the government.
 
5. Which of the following is a reason policymakers impose taxes?
a. to attempt to make markets more efficient
b.to influence market outcomes
c. to raise revenue for public use
d. All of the above are correct.
e. Both b and c are correct.
 
A legal maximum price at which a good can be sold is a price
a. floor.
b.stabilization.
c. support.
d. ceiling.
 
A government-imposed maximum price at which a good can be sold is called a price
a. floor.
b. ceiling.
c. support.
d. equilibrium.
 
A price ceiling
a. is a legal maximum on the price at which a good can be sold.
b.is a legal minimum on the price at which a good can be sold.
c. occurs when the price in the market is temporarily above equilibrium.
d. will usually result in a market surplus.
 
A legal minimum price at which a good can be sold is a price
a. cut.
b.stabilization.
c. ceiling.
d. floor.
 
A price floor
a. is a legal minimum on the price at which a good can be sold.
b.is a legal maximum on the price at which a good can be sold.
c. will generally result in a market shortage.
d. will benefit the consumer, but hurt the supplier.
 
A price ceiling will only be binding if it is set
a. equal to equilibrium price.
b. above equilibrium price.
c. below equilibrium price.
d. A price ceiling is never binding in a free market system.
 
12. A binding price ceiling causes
a. a shortage, which cannot be eliminated through market adjustment.
b.a surplus, which cannot be eliminated through market adjustment.
c. a shortage, which is temporary, since market adjustment will cause price to rise.
d. a surplus, which is temporary, since market adjustment will cause price to rise.
 
If a price ceiling is not binding,
a. the equilibrium price is above the ceiling.
b. the equilibrium price is below the ceiling.
c. it has no legal enforcement mechanism.
d. people must voluntarily agree to abide by it.
 
A price ceiling that is not binding will
a. cause a surplus in the market.
b. cause a shortage in the market.
c. cause the market to be less efficient.
d.  have no effect on the market price.
 
Binding price ceilings in a market cause quantity demanded to be
a. greater than quantity supplied.
b. equal to quantity supplied.
c. less than quantity supplied.
d. Any of the above are possible.
 
If a binding price ceiling is imposed in a market
a. there will be a surplus in the market.
b. the price will be legally forced toward equilibrium price.
c. there will be a shortage in the market.
d. market forces will guarantee that the price will be at equilibrium.
 
17. In the figure shown, a binding price ceiling is shown in
a. panel (a).
b. panel (b).
c. both panel (a) and panel (b).
d. neither panel (a) nor panel (b).
 
Which of the following is true?
a. We desire economic growth because it increases the nation's standard of living.
b. The GDP gap is the difference between full-employment real GDP and actual real GDP.
c. Discouraged workers are a reason critics say the unemployment rate is understated.
d. Economic growth is measured by the annual percentage increase in a nation's real GDP
e. All of the above answers are correct.
 
In which panel(s) in the figure shown would there be a shortage for CDs at the ceiling price?
panel (b)
 
According to the graph shown, a binding price ceiling would exist at a price of
$8.00.
 
According to the graph shown, if the government imposes a binding price floor of $14.00 in this market, the result  would be a
surplus of 40.
 
According to the graph shown, if the government imposes a binding price ceiling of $8.00 in this market, the result  would be a
shortage of 20.
 
According to the graph, a binding price floor would exist at
any price above $10.00.
 
Policymakers are led to control prices because
they view the market's outcome as unfair
 
The increase in unemployment associated with a recession is called
cyclical unemployment
 
A government-imposed maximum price at which a good can be sold is called
a price ceiling
 
A tax placed on the seller of a good
raises the price buyers pay and lowers the price sellers receive
 
A tax of $0.10 per bar on the sellers of Snickers will cause the
supply curve of Snickers to shift up by $0.10
 
A tax on the sellers of jewelry will cause the price the buyers pay
to rise and the effective price the sellers receive to fall
 
If a tax is imposed on a market with inelastic demand and elastic supply
buyers will bear most of the burden of the tax.
 
when policymakers impose price controls, they can hurt some people they are trying to help.
true
 
what is the drawback of rent control?
discourages landlords from maintaining their buildings and makes housing hard to find.
 
tax incidence
refers to how the burden of a tax is distributed among the various people who make up the economy.
 
What is an example of a price ceiling?
rent control
 
what is an example of a price floor?
minimum wage
 
what happens when the government levies a tax on a good?
the equilibrium quantity of the good falls.
 
what does the incidence of a tax depend on?
the price elasticities of supply and demand.
 
Suppose that the demand for picture frames is price inelastic and the supply of picture frames is price elastic. A tax of $1 per frame levied on buyers of picture frames will increase the equilibrium price paid by buyers of picture frames by
more than $0.50 but less than $1.00
 
The demand for salt is price inelastic and the supply of salt is price elastic. The demand for caviar is price elastic and the supply of caviar is price inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of these taxes will be paid by the
buyers of salt and the sellers of caviar
 
A price floor is binding if it is
higher than the equilibrium market price.
 
With a binding price floor the market price will
be lower than the price floor.
 
A binding price floor in a market sets price
above equilibrium price and causes a surplus.
 
A price floor is not binding if
the price floor is lower than the equilibrium market price.
 
A binding price floor causes
a surplus.
 
In the figure shown, which of the panels represents a binding price floor?
panel (b)
 
29. In panel (b), at the actual price there will be
a surplus of wheat.
 
If a price ceiling is a binding constraint on the market,
the equilibrium price must be above the price ceiling.
 
If a price ceiling is a binding constraint, the
actual price will equal the price ceiling.
 
The equilibrium wages of teenagers tend to be
low because teenagers are among the least skilled and least experienced workers.
 
The phase of the business cycle follows a recession
trough
 
A general rule is that economy is experiencing a recession when
real GDP declines for at least 6 months.
 
A person who has given up searching for work is called
a discouraged worker.
 
John Steinbeck's Cannery Row describes a character who takes his own life because of poor job prospects. If he was an unemployed person who gave up looking for work, he would be considered
a discouraged worker
 
Unemployment that is of a short duration to allow a person time to find a new job is
frictional unemployment
 
A person who voluntarily quits their job in New York and expects to get a similar job in Los Angeles is an example of
frictional unemployment
 
Frictional unemployment refers to
short periods of unemployment needed to match jobs and job seekers
 
Sam is a musician who is out of work because electronic equipment replaced live musicians. This is an example of
structural unemployment
 
Louise is unemployed due to a decrease in the demand for workers with knowledge of a certain word processing language. This is an example of
structural unemployment
 
Consider a broom factory that permanently closes because of foreign competition. If the broom factory's workers cannot find new jobs because their skills are no longer marketable, they are classified as structurally unemployed
 
The typical study on the effect of the minimum wage on teenage employment finds that a 10 percent increase in the  minimum wage
depresses teenage employment by 1 to 3 percent.
 
Researchers have found that a 10 percent increase in the minimum wage will
lower teen employment by 1 to 3 percent.
 
In general, advocates of the minimum wage
believe that adverse effects are small, and generally a higher minimum wage makes the poor better off.
 
Opponents of the minimum wage would argue each of the following EXCEPT it
targets only those with incomes below the poverty line.
 
Which of the following is NOT a function of prices in a market system?
Prices make an equitable distribution of goods and services among consumers possible.
 
When government imposes price ceilings and floors in a market
price no longer serves as a rationing device.
 
Which of the following is the most correct statement about price controls?
Price controls often hurt those they are designed to help.
 
Price controls imposed by policymakers
often hurt those they are trying to help.
 
Unlike minimum wage laws, wage subsidies
raise living standards of the working poor without creating unemployment.
 
One advantage of rent subsidies over rent control is that rent subsidies
do not lead to housing shortages.
 
One disadvantage of government subsidies over price controls is that subsidies
raise taxes.
 
The earned income tax credit is an example of
a wage subsidy.
 
Which is the most accurate statement about taxes and government?
All governments, federal, state, and local, rely on taxes to raise revenue for public purposes.
 
When binding price ceilings are imposed in a market
price no longer serves as a rationing device.
 
When binding price ceilings are imposed to benefit buyers
some buyers will not be able to buy any of the product.
 
A binding price ceiling is imposed on the market for peaches. At the ceiling price, the quantity demanded of peaches  will be
greater than the quantity supplied.
 
A binding price ceiling in the computer market will cause
a shortage of computers.
 
A binding price ceiling will make it necessary to
develop a way of rationing the product, because there will be a shortage.
 
Binding price ceilings result in each of the following EXCEPT
surpluses.
 
Rationing by long lines is
inefficient, because it wastes buyers’ time.
 
Price ceilings and price floors
cause surpluses and shortages to persist since price cannot adjust to the market equilibrium price.
 
In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that
the U.S. government had imposed a price ceiling on gasoline.
 
Other than OPEC, the shortage of gasoline in the U.S. in the 1970s could also be blamed on
government regulations in the form of a price ceiling.
 
When OPEC raised the price of crude oil in the 1970s, it caused the
supply of gasoline to decrease.
 
According to the graph shown, with a price ceiling present in this market, when the supply curve for gasoline shifts  from S1 to S2
a shortage will occur at the price ceiling of P2.
 
Without the price ceiling in this market for gasoline, when the supply curve shifts from S1 to S2 the price will
increase to P3 and the market will clear.
 
Water shortages caused by droughts can be most efficiently lessened by
allowing price to equate the quantity demanded of water with the quantity supplied of water.
 
Water shortages can be most efficiently eliminated even in times of drought if
the market is allowed to adjust freely.
 
California’s drought-emergency water bank
allows farmers to lease water during dry spells.
 
Rent control is
a common example of a price ceiling.
 
Over time, housing shortages caused by rent control
increase, because the demand and supply curves for housing are more elastic in the long run.
 
Economists generally hold that rent control is
a highly inefficient way to help the poor raise their standard of living.
 
In the housing market, rent controls cause quantity supplied to
fall and quantity demanded to rise.
 
In the figure shown, which panel(s) best represent(s) a binding rent control in the short run?
panel (a)
 
In the figure shown, which panel(s) best represent(s) a binding rent control in the long run?
panel (b)
 
Which of the following is NOT a mechanism of rationing used by landlords in cities with rent control?
price
 
Under rent control, bribery is a mechanism to
bring the total price of an apartment (including the bribe) closer to the equilibrium price.
 
Under rent control, tenants can expect
lower rent and lower quality housing.
 
Under rent control, landlords cease to be responsive to tenants’ concerns about the quality of the housing because
with shortages and waiting lists, they have no incentive to maintain and improve their property.
 
Which of the following is NOT a result of government imposed rent controls?
higher quality housing
 
Which of the following statements about rent control in New York City is accurate?
Many well-to-do people live in rent-controlled apartments.
 
The minimum wage is an example of
a price floor.
 
Minimum wage laws dictate the
lowest price employers may pay for labor.
 
The U.S. Congress first instituted a minimum wage in
1938.
 
The minimum wage was instituted in order to ensure workers
a minimally adequate standard of living.
 
In the United States, when minimum wage laws are established, employers must
pay a wage equal to or higher than the minimum wage.
 
As of 1999, the U.S. minimum wage according to federal law was
$5.15 per hour.
 
Which of the following is the most accurate statement about minimum wage laws?
Some states have legislation that establishes a higher minimum wage than the federal law.
 
Which of the following is a correct statement about the labor market?
Workers determine the supply of labor, and firms determine the demand for labor.
 
A minimum wage will
alter both the quantity demanded and quantity supplied of labor.
 
If the minimum wage is above the equilibrium wage,
the quantity demanded of labor will be less than the quantity supplied.
 
A minimum wage imposed above a market’s equilibrium wage will result in the quantity
supplied of labor being greater than the quantity demanded of labor and unemployment will occur.
 
A newly imposed minimum wage set above the equilibrium wage in a labor market will
cause some workers to get a raise and some workers to lose their job.
 
Workers with high skills and much experience are not affected by the minimum wage because
their equilibrium wages are well above the minimum wage.
 
The minimum wage has its greatest impact on the market for
teenage workers.
 
The term tax incidence refers to the
division of the tax burden between buyers and sellers.
 
The initial effect of a tax on the buyers of a good is on
the demand for that good.
 
If a tax is imposed on the buyer of a product the demand curve would shift
downward by the amount of the tax.
 
A tax placed on kite buyers will shift
demand downward, causing both equilibrium price and quantity to fall.
 
Assume that the demand and supply curves for cars are elastic. If the government imposed a $500 tax on the buyer  of each car, we can assume that the
equilibrium price of a car would decrease by less than $500.
 
A price ceiling will only be binding if it is set
below equilibrium price
 
If a price ceiling is not binding
the equilibrium price is below the ceiling
 
If a binding price ceiling is imposed in a market
there will be a shortage in the market
 
With a binding price floor the market price will
be lower than the price floor
 
A binding price floor causes
a surplus
 
When binding price ceilings are imposed in a market
price no longer serves as a rationing device
 
a binding price ceiling will make it necessary to:
develop a way of rationing the product, because there will be a shortage
 
Economists generally hold that rent control is
a highly inefficient way to help the poor raise their standard of living
 
Under rent control, tenants can expect
lower rent and lower quality housing
 
Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because
with shortages and waiting lists, they have no incentive to maintain and improve their property
 
The minimum wage is an example of
a price floor
 
Which of the following is a correct statement about the labour market
Workers determine the supply of labour, and firms determine the demand for labour
 
If the minimum wage is above the equilibrium wage
the quantity demanded of labour will be less than the quantity supplied
 
One advantage of rent subsidies over rent control is that rent subsidies
do not lead to housing shortages
 
Assume that the demand and supply curves for cars are elastic. If the government imposed a $500 tax on the sale of each car, we can assume that the
equilibrium consumer price of a car would increase by less than $500
 
Anytime a tax is placed on the buyers of a product it will
increase the equilibrium price and reduce the equilibrium quantity of that product