Question 1

What was passed by Congress in 1890 to strictly limit monopoly power, prohibiting things like separation markets and fixing prices with intent to gain?

Accepted Answer

The Sherman Antitrust Act was passed by Congress in 1890 to strictly limit monopoly power, prohibiting things like separation markets and fixing prices with intent to gain.
Key Takeaway: The government has a series of antitrust laws that have been enacted over the past 150 years in order to limit monopoly power. The first passed was the Sherman Antitrust Act, followed by the Clayton Act in 1913, which outlawed tying contracts and price discrimination with the intent to reduce competition. The Federal Trade Commission was also founded in 1913 to help enforce the antitrust laws.

Question 2

Which of the following is not one of the factors that determine whether or not the demand for a particular good is elastic or inelastic in respect to the price?

Accepted Answer

How much the particular good costs is not one of the factors that determine whether or not the demand for a particular good is elastic or inelastic in respect to the price.
Key Takeaway: There are four main factors that help to determine whether or not the demand for a particular good is elastic or inelastic in respect to the price: how much of a consumer's budget is spent on the good, whether the good being bought is a luxury item or a necessity, if close substitutes for the good are available, and the amount of time in which the switch to another good is considered.

Question 3

Costs are minimized when all of the marginal products of all the inputs are _________.

Accepted Answer

Costs are minimized when all of the marginal products of all the inputs are equal.
Key Takeaway: Almost always, businesses operate at output levels in which marginal product is diminishing. As long as the marginal product of one input is even a little higher than all of the others, the business will perform better if it uses more of that input and fewer of others. At the time that all marginal products are equal, the business's costs will increase if they use more of one input at the expense of the other inputs.

Question 4

Which classical economist argued that investment demand does not depend so much upon interest rates, but rather about the expectations about the prosperity of the economy?

Accepted Answer

John Maynard Keynes argued that investment demand does not depend so much upon interest rates, but rather about the expectations about the prosperity of the economy.
Key Takeaway: Keynes was a British economist whose ideas greatly affect modern macroeconomics and economic policies of various governments around the world. His policies and research are the basis for the school of thought that is known as "Keynesian economics" and advocated the use of fiscal policies to help economies out of depressions and recessions.

Question 5

The figure shown depicts a shift in investment (Q0 to Q1) demand by consumers in response to a decrease in interest rates (r0 to r1). What does this shift indicate about consumers' business confidence?

Accepted Answer

The shift in investment indicates an increase in business confidence.
Key Takeaway: In an investment demand curve, interest rates are plotted against investment. In this curve, a decrease in interest rates is accompanied by an increase in consumer investment. This increase in consumer investment reflects an increase in business confidence.

Question 6

Why does the PPC slope downward?

Accepted Answer

The PPC slopes downward due to scarcity.
Key Takeaway: The production possibilities curve, sometimes shortened to PPC, refers to the graphical method of illustrating the complicated economic relationship between consumption and spending. It is typically used to answer a very basic question that every economy must answer: what should be produced?

Question 7

What is the correct term for a sustained decrease in the general price level within an economy?

Accepted Answer

Deflation is the correct term for a sustained decrease in the general price level within an economy.
Key Takeaway: The opposite of deflation is inflation, a sustained increase in the general price level within a given economy. Always keep in mind that an increase in the price of only one good would not necessarily signal inflation. Rather, it could be part of a broader societal increase that would be inflation. It is always important to look at the economy as a whole.

Question 8

What does MPC stand for?

Accepted Answer

MPC stands for "marginal propensity to consume."
Key Takeaway: Basically, MPC looks at the proportion of each dollar earned that will go toward individual consumption spending. MPS is, therefore, the marginal propensity to save. Remember that MPC + MPS for any individual consumer always equals one.

Question 9

How do economists compare how rich or poor different nations are?

Accepted Answer

Economists compare how rich or poor different nations are by measuring per capita GDP.
Key Takeaway: Because countries vary so much as far as land mass or population is concerned, economists prefer to look at GDP per capita (per person in the economy). This allows economists to analyze living standards across many nations.

Question 10

Look at the following data set:Total population = 60 millionPersons of proper working age (16-65) = 30 millionPersons employed = 20 millionPersons actively looking for work = 2 millionWhat is the size of the labor force for this economy?

Accepted Answer

The size of the labor force for this economy is 22 million.
Key Takeaway: According to the United States Department of Labor, the labor force is defined as the number of actual employed individuals, plus the number of people who are actively looking for work. In this scenario, the number of people employed is 20 million + 2 million looking for work = 22 million.

Question 11

Imagine that the consumer price index rises from 125 to 250. What can be concluded from this information?

Accepted Answer

In this scenario, all prices in the average consumer's market basket are doubled.
Key Takeaway: CPI is the term for the economic indicator that measures change in price over time, using a fixed market basket of average services and goods. To calculate the Consumer Price Index (CPI), you need to set up a ratio between the cost of the market basket of goods in the given year to the cost of those same goods in the base year.

Question 12

Economics is the study of how people:

Accepted Answer

Economics is the study of how people allocate societal resources by purchasing goods and services.
Key Takeaway: Economics is the study of how a society produces, distributes, and consumes goods and services. Economic analysis is conducted throughout a number of disciplines, including politics, business, education, sociology, law, and health.

Question 13

Which of the following is the term for the economic indicator that measures change in price over time, using a fixed market basket of average services and goods?

Accepted Answer

CPI is the term for the economic indicator that measures change in price over time, using a fixed market basket of average services and goods.
Key Takeaway: CPI is the economic indicator that measures change in price over time, using a fixed market basket of average services and goods. To calculate the Consumer Price Index (CPI), you need to set up a ratio between the cost of the market basket of goods in the given year to the cost of those same goods in the base year.

Question 14

What is the system in the United States in which only a portion of total deposits is reserved and the rest is lent out?

Accepted Answer

The fractional reserve banking system is the system in the United States in which only a portion of total deposits is reserved and the rest is lent out.
Key Takeaway: Fractional reserve banking refers to the practice by which a bank lends out most of the deposited funds and keeps the rest in a reserve. This practice is performed by all modern commercial banks and is necessary to keep the market running smoothly. Remember that the equation for the reserve ratio is the bank's reserves divided by the bank's total deposits.

Quiz 12: Economics