Principles of Economics (IN01 D089)
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Free Principles of Economics (IN01 D089) Questions
Which inflation rate is the major goal for the United States
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0%
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2%
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4%
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6%
Explanation
Correct Answer:
B. 2%
Explanation:
The Federal Reserve targets a 2% inflation rate as its long-term goal, which is considered a stable and sustainable rate. It allows for price stability while encouraging economic growth.
Why other options are wrong:
A. 0%: Zero inflation can lead to deflationary pressures, which harm the economy by discouraging spending and investment.
C. 4%: While higher inflation may temporarily boost some economic activity, it risks eroding purchasing power and creating instability.
D. 6%: This rate is too high and often leads to negative economic consequences, such as hyperinflation and uncertainty.
How is the four-firm concentration ratio calculated
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By adding the squares of the market share of each firm
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By multiplying the squares of the market share of each firm
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By multiplying the market shares of the four largest firms
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By adding the market shares of the four largest firms
Explanation
Correct Answer:
D. By adding the market shares of the four largest firms
Explanation:
The four-firm concentration ratio is calculated by summing the market shares of the four largest firms in an industry. This measure provides insight into the degree of market concentration and the level of competition within the market.
Why other options are wrong:
A. By adding the squares of the market share of each firm: This describes the Herfindahl-Hirschman Index (HHI), not the four-firm concentration ratio.
B. By multiplying the squares of the market share of each firm: This is not a recognized method for calculating any concentration measure.
C. By multiplying the market shares of the four largest firms: Multiplying the market shares does not provide meaningful information about market concentration.
How do you calculate GDP
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GDP = total income of all citizens in a country.
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GDP = the average income per capita in the economy.
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GDP = the sum of all government expenditures in a year.
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GDP = C + I + G + (X-M)
Explanation
Correct Answer:
D. GDP = C + I + G + (X-M)
Explanation:
GDP (Gross Domestic Product) is calculated using the expenditure approach, which sums up:
C: Consumption (spending by households on goods and services)
I: Investment (spending on capital goods that will be used for future production)
G: Government spending (expenditures on goods and services by the government)
(X-M): Net exports (exports minus imports).
This formula captures the total economic output of a country within a specific period.
Why other options are wrong:
A. GDP = total income of all citizens in a country: While GDP can indirectly reflect income, it is not limited to citizens’ income, as it includes business and government activities and foreign trade.
B. GDP = the average income per capita in the economy: This describes GDP per capita, which is GDP divided by the total population, not GDP itself.
C. GDP = the sum of all government expenditures in a year: Government expenditures are just one component of GDP, not the entire calculation.
Which term is used to describe the cost of time and effort that people will spend trying to counteract the effects of inflation
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Shoe leather costs
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Purchasing power
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Hyperinflation
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Menu costs
Explanation
Correct Answer:
A. Shoe leather costs
Explanation:
Shoe leather costs refer to the resources (time and effort) individuals use to minimize the impact of inflation, such as frequent trips to the bank to manage cash holdings due to the erosion of purchasing power. The term originates from the metaphorical idea of "wearing out your shoes" due to increased walking.
Why other options are wrong:
B. Purchasing power: This refers to the amount of goods and services that money can buy, which decreases during inflation but does not represent the effort to counteract it.
C. Hyperinflation: This is an extremely high and typically accelerating rate of inflation, but it is a broader phenomenon, not related to personal time and effort costs.
D. Menu costs: These are the costs businesses face when they frequently update prices (e.g., reprinting menus), not the individual effort to manage inflation impacts.
Which item is an example of a price ceiling
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Minimum wage
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Rent control
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Environmental taxes
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Agricultural price supports
Explanation
Correct Answer:
B. Rent control
Explanation:
A price ceiling is a government-imposed limit on how high a price can be charged for a good or service. Rent control is an example, as it places a cap on the amount landlords can charge tenants.
Why other options are wrong:
A. Minimum wage: This is an example of a price floor, which sets a minimum price for labor, not a maximum.
C. Environmental taxes: These are not price controls but rather financial penalties imposed to discourage harmful activities.
D. Agricultural price supports: These are also price floors, ensuring a minimum price for agricultural products.
What happens to the quantity demanded when the price of a good falls, according to the Law of Demand
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The quantity demanded increases.
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The quantity demanded becomes zero.
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The quantity demanded decreases.
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The quantity demanded remains the same.
Explanation
Correct Answer:
A. The quantity demanded increases.
Explanation:
According to the Law of Demand, as the price of a good decreases, consumers are willing and able to purchase more of it, leading to an increase in the quantity demanded.
Why other options are wrong:
B The quantity demanded becomes zero: A decrease in price generally increases demand; it does not reduce it to zero.
C The quantity demanded decreases: A decrease in price leads to an increase, not a decrease, in quantity demanded.
D The quantity demanded remains the same: Quantity demanded changes as the price changes, so it does not remain constant.
A candy company develops a new technology for producing chocolate bars faster. How does this affect the supply curve for chocolate bars
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The supply curve shifts to the right.
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The supply curve does not change, but there is movement down the curve to a new point.
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The supply curve does not change, but there is movement up the curve to a new point.
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The supply curve shifts to the left.
Explanation
Correct Answer:
A. The supply curve shifts to the right.
Explanation:
The new technology improves efficiency, reducing production costs and increasing supply at every price level. This causes the supply curve to shift to the right.
Why other options are wrong:
B. The supply curve does not change, but there is movement down the curve to a new point: This would occur with a change in price, not technology.
C. The supply curve does not change, but there is movement up the curve to a new point: Movement along the curve reflects price changes, not technological improvements.
D. The supply curve shifts to the left: A leftward shift indicates a reduction in supply, which is opposite to the scenario.
Lubbell Trains in Michigan has been experiencing downward-trending sales for the last 10 years and can no longer afford to pay the higher union salaries of its workers. Lubbell makes a strategic decision to relocate operations to Alabama where they can get cheaper facilities and cheaper labor. Lubbell has 63 employees at 2 different sites in Michigan and plans to lock the gates at both locations in two weeks and completely shut down operations in Michigan; Lubbell has already signed a lease and hired employees in Alabama. Which of the following regarding the WARN Act applies to Lubbell Trains
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Nothing, a company can close when business operations are failing.
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Nothing because Lubbell Trains does not have 100 employees.
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It will be guilty of violating the WARN Act because it did not give 60-days advance notice.
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It will be guilty of violating the WARN Act because it did not give 30-days advance notice.
Explanation
Correct Answer:
B. Nothing because Lubbell Trains does not have 100 employees.
Explanation:
The Worker Adjustment and Retraining Notification (WARN) Act requires employers to provide at least 60 days’ notice to employees in the event of a plant closing or mass layoff. However, the WARN Act only applies to employers with 100 or more full-time employees or 100 employees working a total of 4,000 hours per week. Since Lubbell Trains has only 63 employees across its two sites, it does not meet the WARN Act's threshold and is not legally required to provide 60 days’ notice.
Why other options are wrong:
A. Nothing, a company can close when business operations are failing: While it is true that companies can close when operations are failing, this does not account for the specific legal obligations under the WARN Act, which applies to certain employers. In this case, the exemption is due to the number of employees, not the company’s financial situation.
C. It will be guilty of violating the WARN Act because it did not give 60-days advance notice: This would be true if Lubbell Trains had 100 or more employees and failed to provide the required notice. However, since the company does not meet the WARN Act's threshold, it is not guilty of a violation.
D. It will be guilty of violating the WARN Act because it did not give 30-days advance notice: The WARN Act mandates 60 days’ notice, not 30. Furthermore, Lubbell Trains is exempt because it does not meet the required employee count.
How will the aggregate demand curve respond when the government conducts an expansionary fiscal policy
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Shifts to the left
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Becomes vertical
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Remains the same
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Shifts to the right
Explanation
Correct Answer:
D. Shifts to the right
Explanation:
Expansionary fiscal policy, such as reducing taxes or increasing government spending, raises consumption and investment. This increases aggregate demand, causing the AD curve to shift to the right.
Why other options are wrong:
A. Shifts to the left: A leftward shift would indicate a decrease in aggregate demand, which is contrary to the purpose of expansionary fiscal policy.
B. Becomes vertical: The AD curve cannot become vertical; this describes the long-run aggregate supply curve (LRAS), not the AD curve.
C. Remains the same: Expansionary fiscal policy directly increases aggregate demand, so the curve cannot remain unchanged.
Why do trade-offs exist in the production possibilities frontier model
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Resources are limited, and individuals have infinite wants.
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Opportunities costs are small, and resources are abundant.
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Opportunities costs are large, and individuals have limited wants.
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Resources are abundant, and individuals have unlimited wants.
Explanation
Correct Answer:
A. Resources are limited, and individuals have infinite wants.
Explanation:
Trade-offs exist in the production possibilities frontier (PPF) model because resources are scarce while human wants are unlimited. This forces choices to be made, resulting in opportunity costs when resources are allocated to one good over another.
Why other options are wrong:
B. Opportunities costs are small, and resources are abundant: If resources were abundant, trade-offs would not be as significant or necessary.
C. Opportunities costs are large, and individuals have limited wants: While opportunity costs are relevant, the key reason for trade-offs is the scarcity of resources, not limited wants.
D. Resources are abundant, and individuals have unlimited wants: If resources were abundant, trade-offs would not be required, making this statement inaccurate.
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Frequently Asked Question
Price elasticity of demand measures how responsive the quantity demanded of a good is to changes in its price. Learn more in-depth on the topic and practice questions on ULOSCA.com.
Taxes on goods, like sugary drinks, increase their price. This typically causes a leftward shift in the demand curve. Understand the mechanics behind this with additional resources at ULOSCA.com.
A shift in demand refers to a change in the entire demand curve due to factors like income or preferences, while a movement along the curve happens when the price changes but no other factors are at play. Learn more through practice questions at ULOSCA.com.
A rightward shift in the demand curve can occur when factors such as an increase in consumer income, favorable changes in tastes, or a reduction in the price of complementary goods cause consumers to demand more. Find relevant explanations on ULOSCA.com.
Complementary goods are products that are consumed together. For instance, coffee and sugar. Learn how price changes in one good affect its complement on ULOSCA.com.
'Elastic' demand means that the quantity demanded of a good changes significantly in response to a price change. Understand elasticity in detail with examples and exercises at ULOSCA.com.
Inelastic demand means that price increases do not significantly reduce the quantity demanded. Explore further examples and case studies at ULOSCA.com.