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c. Restrictions on international trade. Governments in LDCs often impose severe barriers (tariffs and quotas) to international trade. Research indicates that high trade barriers are associated with low or negative economic growth. Governments in LDCs also often maintain a fixed exchange rate that overvalues the domestic currency. This has the effect of acting as a tax on exporters. Research indicates that a fixed exchange rate that significantly overvalues the domestic currency is associated with low or negative growth rates. d. Excessive inflation. Governments in LDCs often pursue rapid money supply growth (in an attempt to keep interest rates low, or to pay for a large budget deficit, or to impose an “inflation tax”). (See the appendix at the end of Chapter 10 on seignorage and inflation.) Rapid money supply growth leads to high inflation. Research indicates that periods of high inflation are associated with low or negative economic growth. During periods of high inflation, governments in LDCs often place price ceilings on nominal interest rates. Price ceilings on nominal interest rates during periods of high inflation can cause real interest rates that are negative. Negative real interest rates have a devastating effect on financial markets. Research indicates that periods of negative real interest rates are associated with low or negative economic growth. e. A large government. LDCs often have governments that are large relative to the size of the nation’s economy. The large government may be caused by a large military (and/or secret police force), or by an excessively large civil service, with positions granted for political patronage purposes. The large government often leads to large budget deficits. Research indicates that large budget deficits are associated with low or negative economic growth. The large government also necessitates high tax rates (discussed earlier). f. Poor provision of public services. Governments in LDCs often provide poor public roads, unreliable electricity delivery, unreliable water delivery, unreliable phone service, and inadequate public health services. The poor provision of public services hinders economic growth. Appendix: U.S. per capita Real GDP (Base 2000) at Different Growth Rates Year 1.0% 1.5% 2.0% 2.5% 2000 $34,759 $34,759 $34,759 $34,759 2010 38,396 40,339 43,218 45,607 2020 42,413 46,815 52,683 58,381 2030 46,850 54,332 64,220 74,732 2040 51,751 63,053 78,285 95,663 2050 57,166 73,176 95,428 122,188 2060 63,147 84,924 116,326 156,756 2070 69,753 98,557 141,801 200,660 2080 77,051 114,390 172,854 256,862 2090 85,112 132,743 210,709 328,806 2100 94,017 154,053 256,853 420,899 Appendix: Corruption and Standard of Living The table on the next page contains information for selected countries from the Corruption Perceptions Index for 2013, released by Transparency International. The lower the Corruption Perceptions Index number, the greater the perceived corruption in a country. The table also contains information on per capita GDP for 2013 from the CIA World Factbook. The Top 12 (least corrupt) countries on the table have an average per capita GDP of $42,117. The Bottom 12 (most corrupt) countries on the table have an average per capita GDP of $3,967. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 15 - 7 Less Developed Countries
Nation Corruption Perceptions Index per capita GDP Denmark 91 $37,800 New Zealand 91 30,400 Sweden 89 40,900 Singapore 86 62,400 Netherlands 83 43,300 Australia 81 43,000 Canada 81 43,100 Germany 78 39,500 United Kingdom 76 37,300 Belgium 75 37,800 Japan 74 37,100 United States 73 52,800 Chile 71 19,100 France 71 35,700 United Arab Emirates 69 29,900 Botswana 64 16,400 Israel 61 36,200 Taiwan 61 39,600 Poland 60 21,100 Spain 59 30,100 South Korea 55 33,200 Malaysia 50 17,500 Turkey 50 15,300 Saudi Arabia 46 31,300 Italy 43 29,600 Brazil 42 12,100 South Africa 42 11,500 China 40 9,800 Colombia 36 11,100 India 36 4,000 Philippines 36 4,700 Thailand 35 9,900 Argentina 34 18,600 Mexico 34 15,600 Ethiopia 33 1,300 Tanzania 33 1,700 Egypt 32 6,600 Indonesia 32 5,200 Vietnam 31 4,000 Pakistan 28 3,100 Russia 28 18,100 Bangladesh 27 2,100 Kenya 27 1,800 Iran 25 12,800 Nigeria 25 2,800 Congo, D.R. 22 400 Myanmar (Burma) 21 1,700 Venezuela 20 13,600 Haiti 19 1,300 Iraq 16 7,100 Sudan 11 2,600 Afghanistan 8 1,100 North Korea 8 1,800 Somalia 8 600 FOR REVIEW ONLY - NOT FOR DISTRIBUTION Less Developed Countries 15 - 8
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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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___ 4. A decrease in government exp
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2. Explain what automatic stabilize
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Chapter 10 Money, Money Creation, a
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Example 4B: The castaways on Gillig
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Looking at the balance sheet below,
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Demand-side One-shot Inflation Exam
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4. Inflation increases uncertainty
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life; it came into existence not by
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calculated by using the potential d
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___ 12. If the required-reserve rat
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4. Referring to the balance sheet f
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Chapter 11 The Federal Reserve Syst
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5. After Bank X sells the $300,000
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Low Mortgage Interest Rates Mortgag
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Relaxed Standards for Mortgage Loan
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The Bursting of the Housing Bubble
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On February 17, 2009, the federal g
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Fed policies caused short-term inte
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___ 10. The Fed’s most important
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___ 25. In response to the recessio
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Chapter 12 Monetary Policy The basi
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2. A change in aggregate demand (AD
Page 202 and 203: Monetarist Transmission Mechanism C
Page 204 and 205: 3. Borrowers do not have to seek ou
Page 206 and 207: Appendix: Book Review - “The Age
Page 208 and 209: Questions for Chapter 12 Fill-in-th
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Page 212 and 213: 7. According to Alan Greenspan, wha
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
Page 222 and 223: the current government spending and
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Page 228 and 229: 3. How would eliminating the loopho
Page 230 and 231: Chapter 14 Economic Growth The basi
Page 232 and 233: 2. Labor. Labor can contribute to e
Page 234 and 235: estricting international trade (e.g
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 244 and 245: ___ 26. The opinion that economic g
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 254 and 255: Appendix: Book Review - “The Powe
Page 256 and 257: Example 25: In Brazil, about half t
Page 258 and 259: Study Guide for Chapter 15 Chapter
Page 260 and 261: ___ 13. Among the counterproductive
Page 262 and 263: 4. List four ways that governments
Page 264 and 265: Chapter 16 International Trade The
Page 266 and 267: Other Benefits of Free Internationa
Page 268 and 269: Example 6: The graph below illustra
Page 270 and 271: competitive disadvantage. But dumpi
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Page 274 and 275: Smith was skeptical of government a
Page 276 and 277: ___ 4. For Country X, what is the o
Page 278 and 279: ___ 18. Frédéric Bastiat’s “P
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Page 282 and 283: Chapter 17 Elasticity We are often
Page 284 and 285: Example 4A: What is price elasticit
Page 286 and 287: Example 5A: Gertie’s Gas and Go i
Page 288 and 289: Example 10A: When the price of Good
Page 290 and 291: Example 13B: On the graph below, su
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Page 294 and 295: In the long run, would the deadweig
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Page 298 and 299: 3. a. Which price (or prices) from
Page 300 and 301: 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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