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Questions for Chapter 12

Questions for Chapter 12 Fill-in-the-blanks: 1. ______________________ policy is changes in the money supply to achieve macroeconomic goals. 2. The ______________________ of money is the average number of times that a dollar is spent annually. 3. ______________________ is a decrease in the price level. Multiple Choice: ___ 1. If nominal GDP is $16,150 billion and the money supply is $1,900 billion, the velocity of money is: a. .118 b. .85 c. 8.5 d. 11.8 ___ 2. The velocity of money is equal to: a. the CPI divided by the money supply b. nominal GDP divided by the money supply c. Real GDP divided by the CPI d. the money supply times the CPI ___ 3. According to classical monetary theory: a. the velocity of money is constant b. there is no relationship between the money supply and the price level c. Both of the above d. Neither of the above ___ 4. If the money supply increases by 10%, Real GDP is constant, and velocity is constant, the price level must: a. remain constant b. increase by 10% c. decrease by 4% d. increase by about 3% ___ 5. If the money supply increases by 10%, Real GDP increases by 3%, and velocity decreases by 4%, the price level must: a. remain constant b. increase by 10% c. decrease by 4% d. increase by about 3% ___ 6. A difference between monetarism and classical theory is: a. monetarism holds that velocity is constant b. monetarism holds that AD affects Real GDP in the long run c. monetarism holds that AD affects Real GDP in the short run d. All of the above FOR REVIEW ONLY - NOT FOR DISTRIBUTION 12 - 11 Monetary Policy

___ 7. According to the Keynesian monetary transmission mechanism: a. an increase in the money supply leads to an increase in interest rates b. an increase in interest rates leads to an increase in investment c. an increase in investment leads to an increase in Total Expenditures d. All of the above ___ 8. The Keynesian monetary transmission mechanism: a. is indirect b. may fail because investment may be interest-insensitive c. may fail because of the liquidity trap d. All of the above ___ 9. If investors are insensitive to a decrease in interest rates: a. an increase in the money supply may have no effect on investment. b. an increase in the money supply may have no effect on Real GDP. c. Both of the above d. Neither of the above ___ 10. The liquidity trap: a. may cause interest rates to fall below zero b. means that interest rates will only fall so low c. may cause an increase in the money supply to have no effect on interest rates d. Both b. and c. above ___ 11. Expansionary monetary policy: a. means an increase in the money supply b. according to Keynesian theory, would cause interest rates to decrease c. would be used to close an inflationary gap d. Both a. and b. above ___ 12. Contractionary monetary policy: a. means an increase in the money supply b. according to Keynesian theory, would cause interest rates to decrease c. would be used to close an inflationary gap d. Both a. and b. above ___ 13. Which of the following is true? a. Keynesians put more confidence in monetary policy than in fiscal policy b. Monetarists are generally opposed to activist policies c. Monetarists favor rapid growth in the money supply to maximize economic growth d. All of the above ___ 14. A monetary rule: a. would return the economy to the gold standard b. would link money supply growth to Real GDP growth c. would require rapid growth in the money supply to keep interest rates low d. would require rapid growth in the money supply to maximize economic growth ___ 15. When the Fed wants to make a change in monetary policy: a. it must first obtain the approval of the President b. the proposed change must be approved by a majority of the Senate c. Both of the above d. Neither of the above FOR REVIEW ONLY - NOT FOR DISTRIBUTION Monetary Policy 12 - 12

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    PRINCIPLES OF ECONOMICS JEFF HOLT S

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    Principles of Economics, 6th Editio

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    16. Study Guide for Chapter 7 17. C

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    11. Appendix: Book Review - “The

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    20. Appendix: The NCAA Cartel 21. S

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    Introduction: A Brief History of U.

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    In the twentieth century, per capit

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    Appendix: The 35 Largest National E

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    Multiple Choice: ___ 1. The Jamesto

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    2. Describe the economic cost of th

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    Chapter 1 Scarcity and Choices The

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    Example 5B: At the end of 1982, the

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    Example 11: When Cindy quits her jo

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    consequences may result in failure

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    An upward sloping curve (as in Exam

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    In making decisions, humans tend to

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    5. ______________________ _________

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    ___ 13. If the value of one variabl

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    Y Point X Y A 0 1 B 3 3 C 6 5 D 9 7

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    Chapter 2 Trade and Economic System

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    Example 4B: The following quantitie

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    1. An increase in the quantity of r

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    3. For whom to produce? This is det

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    The graph below illustrates the shi

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    The two primary economic systems ar

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    ___ 12. The capitalist vision sees

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    ___ 25. According to the book “Ca

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    Chapter 3 Demand, Supply, and Equil

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    . For inferior goods, income and de

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    The same information can be placed

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    Not only does a free market elimina

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    $7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3

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    Example 17: The graph below illustr

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    Questions for Chapter 3 Fill-in-the

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    ___ 12. Assuming a market originall

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    $8 - 7 - 6 - 5 - Price 4 - 3 - 2 -

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    Chapter 4 Inflation and Unemploymen

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    Computing the Rate of Inflation The

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    Full Employment Though unemployment

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    3. Cyclical unemployment - due to d

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    During the Great Depression, the ec

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    Appendix: Think Like an Economist -

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    Answer questions 8. and 9. based on

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    ___ 25. The extension of unemployme

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    Chapter 5 Measuring Total Output: G

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    5. Leisure. Leisure time is by defi

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    The U.S. is a high per capita GDP c

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    Example 17: In “An International

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    The simple circular flow diagram be

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    ___ 3. Which of the following would

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    2. Explain what nonproduction trans

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    Chapter 6 The Aggregate Market The

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    Example 2C: Assume the same facts a

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    Example 5B: The price of crude oil

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    Price Level Real GDP SRAS AD 2 AD 1

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    Appendix: Why the Aggregate Demand

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    ___ 3. DEF Company can invest in ne

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    2. List and explain the two factors

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    Chapter 7 Classical Economic Theory

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    Notice that the investment demand c

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    Long-Run Equilibrium If Real GDP is

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    Example 6B: When the economy is in

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    Laissez-faire If the economy is sel

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    ___ 5. According to Say’s Law: a.

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    3. On the graph below, draw an aggr

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    Chapter 8 Keynesian Economic Theory

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    Example 2B: The graph below illustr

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    Example 5: Assume that the table be

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    Notice on the graph on the previous

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    According to Keynesian theory, a ch

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    “The General Theory” also inclu

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    ___ 8. If the consumption function

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    3. If the MPC is .667, and investme

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    Chapter 9 Fiscal Policy The basic e

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    Keynesian Fiscal Policy Theory and

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    Example 5A: The federal government

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    The Laffer Curve What will happen t

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    Appendix: The Importance of Incenti

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  • Page 168 and 169: Demand-side One-shot Inflation Exam
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  • Page 184 and 185: Low Mortgage Interest Rates Mortgag
  • Page 186 and 187: Relaxed Standards for Mortgage Loan
  • Page 188 and 189: The Bursting of the Housing Bubble
  • Page 190 and 191: On February 17, 2009, the federal g
  • Page 192 and 193: Fed policies caused short-term inte
  • Page 194 and 195: ___ 10. The Fed’s most important
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  • Page 198 and 199: Chapter 12 Monetary Policy The basi
  • Page 200 and 201: 2. A change in aggregate demand (AD
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  • Page 204 and 205: 3. Borrowers do not have to seek ou
  • Page 206 and 207: Appendix: Book Review - “The Age
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  • Page 214 and 215: Chapter 13 Taxes, Deficits, and the
  • Page 216 and 217: Example 5: In 2015, Taxpayer A had
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  • Page 220 and 221: The complexity of the tax law also
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  • Page 228 and 229: 3. How would eliminating the loopho
  • Page 230 and 231: Chapter 14 Economic Growth The basi
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  • Page 236 and 237: An improvement in technology (e.g.
  • Page 238 and 239: The table below shows the economic
  • Page 240 and 241: will increase both Real GDP and per
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  • Page 246 and 247: Chapter 15 Less Developed Countries
  • Page 248 and 249: Example 8: Countries A, B, C, and D
  • Page 250 and 251: Obstacles to Economic Development f
  • Page 252 and 253: c. Restrictions on international tr
  • Page 254 and 255: Appendix: Book Review - “The Powe
  • Page 256 and 257: Example 25: In Brazil, about half t
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    Study Guide for Chapter 15 Chapter

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    ___ 13. Among the counterproductive

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    4. List four ways that governments

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    Chapter 16 International Trade The

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    Other Benefits of Free Internationa

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    Example 6: The graph below illustra

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    competitive disadvantage. But dumpi

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    is only 25% as productive as before

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    Smith was skeptical of government a

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    ___ 4. For Country X, what is the o

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    ___ 18. Frédéric Bastiat’s “P

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    4. On the graph below: (1) What is

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    Chapter 17 Elasticity We are often

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    Example 4A: What is price elasticit

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    Example 5A: Gertie’s Gas and Go i

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    Example 10A: When the price of Good

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    Example 13B: On the graph below, su

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    $7 - 6 - 5 - Price 4 - 3 - 2 - 1 -

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    In the long run, would the deadweig

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    ___ 7. The factors that determine w

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    3. a. Which price (or prices) from

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    Chapter 18 Utility The basic econom

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    Nonetheless, society generally assu

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    Example 9: Capital City operates a

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    Marginal rate of substitution - the

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    The diamond-water paradox is the ob

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    Complete the table below to answer

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    4. The graph below shows indifferen

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    Chapter 19 The Firm The basic econo

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    than contributing to team productio

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    1. Difficulty in raising large amou

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    Corporations also use self-financin

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    Example 24: A blacksmith who produc

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    For financing needs, proprietorship

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    ___ 13. Corporations: a. are comple

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    5. List two things that the absence

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    Chapter 20 Production and Costs The

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    In Example 5B, Birdwell finds that

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    variable cost initially decreases,

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    Quantity TC MC AFC AVC ATC 0 240 X

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    If the scale of operation is increa

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    average total cost. Average fixed c

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    ___ 11. Concerning the cost curves:

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    5. Complete the following cost tabl

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    Chapter 21 Perfect Competition The

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    Even though a perfect competitor ca

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    Example 6C: This example builds on

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    At what price will there be neither

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    Appendix: Perfect Competition in th

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    Multiple Choice: ___ 1. A perfect c

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    ___ 17. Perfect competition: a. req

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    Answers for Chapter 21 Fill-in-the-

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    Chapter 22 Monopoly Of the four mar

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    3. Exclusive ownership of an essent

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    maximizing quantity (4 units) creat

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    $22 - 20 - 18 - 16 - 14 - Deadweigh

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    2. Negotiating, beginning at a high

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    Legal barriers are created by gover

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    ___ 8. The slope of the demand curv

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    Price Quantity 3. List some of the

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    Chapter 23 Monopolistic Competition

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    For Percomp (the perfect competitor

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    Example 7A: The graph below represe

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    Example 9: The Organization of the

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    Example 12 illustrates the dilemma

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    its current price and quantity. The

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    ___ 14. Game theory: a. is a method

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    Answers for Chapter 23 Fill-in-the-

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    Chapter 24 Factor Markets The basic

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    $ $240 - 200 - 160 - 120 - 80 - 40

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    Since producers will attempt to equ

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    2. Differences in nonmoney aspects

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    were his strikeouts, walks, and hom

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    ___ 3. To maximize profits, a produ

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    ___ 19. According to the book, “M

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    Multiple Choice: 1. a. 8. c. 15. d.

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    Chapter 25 Labor Unions The primary

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    The elasticity of demand for union

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    Example 4A: Assume that the graph b

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    Notice from the graph in Example 6

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    Wage Factory A Quantity of Labor S

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    As a cartel, a labor union faces a

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    ___ 10. For a monopsony: a. there i

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    3. The graph below represents a lab

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    Chapter 26 Interest, Present Value,

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    An increase in expected rates of re

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    An asset is valuable because we exp

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    Example 13B: General Ordnance prove

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    Appendix: Present Value Table One f

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    ___ 4. An increase in expected rate

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    Problems: 1. List and explain the t

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    Chapter 27 Market Failure The basic

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    External Benefit If a market genera

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    Example 2: To encourage the consump

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    $100 - 90 - 80 - MSC 70 - $ 60 - 50

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    A common good is nonexcludable. Non

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    Study Guide for Chapter 27 Chapter

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    ___ 5. What government policy would

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    4. Based on the information on the

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    Chapter 28 Public Choice and Govern

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    Candidates and the Median Voter Mod

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    Example 8: According to State and F

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    Example 10: When Elvis Presley was

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    4. Pessimistic bias. This is the te

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    ___ 5. An elected official will: a.

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    2. If a certain policy will yield s

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    Chapter 29 Government Regulation of

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    underproduction is the amount that

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    micromanagement results in business

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    market. They may agree with their c

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    Questions for Chapter 29 Fill-in-th

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    ___ 10. The public interest theory

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    4. List the four types of costs imp

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    Chapter 30 Agriculture and Health C

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    weather may cause bumper crops. Bad

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    Security and Rural Investment Act o

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    Example 12: From 1960 to 2013, the

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    1. NHI would provide universal heal

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    d. Insurance providers are not allo

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    Study Guide for Chapter 30 Chapter

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    Answer questions 7. through 10. by

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    ___ 21. If there were no individual

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    Chapter 31 Income Distribution and

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    Income is more equally distributed

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    over a typical career is the accumu

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    Ideal Income Redistribution The ide

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    Poverty - a family whose income fal

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    Appendix: Income Inequality around

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    How is this story an analogy for th

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    ___ 2. In 2013, the Lowest Income 6

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    Problems: 1. Explain the two primar

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    Absolute advantage - when one natio

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    Fiat money - money by government de

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    Nonrivalrous good - a good for whic

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    Absolute advantage, 16-9 Absolute e

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    “Company town”, 25-6 Comparativ

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    Eli Lilly and Company, 22-1 Emergen

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    Houston, Texas, 15-10 Human capital

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    Market, 3-1, 3-8-9 Market basket, 4

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    Political bias, 9-4, 12-7 Political

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    Short run production, 20-2-3 Short-

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    Upturns, 9-4 USDA, 27-9, 30-1-2, 30

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