UOP ECO 561 Final Exam Guide (New, 2017)

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of barriers to entry 5 All else equal, a large decline in the real interest rate will shift the: investment demand curve rightward investment demand curve leftward investment schedule upward investment schedule downward 6 In order for mutually beneficial trade to occur between two otherwise isolated nations: each nation must be able to produce at least one good relatively cheaper than the other each nation must face constant costs in the production of the good it exports one nation's production must be labor-intensive while the other nation's production is capital-intensive each nation must be able to produce at least one good absolutely cheaper than the other 7 If the Federal Reserve System buys government securities from commercial banks and the public: the money supply will contract commercial bank reserves will decline it will be easier to obtain loans at commercial banks commercial bank reserves will be unaffected 8 Normal profit is: the average profitability of an industry over the preceding 10 years determined by subtracting explicit costs from total revenue the return to the entrepreneur when economic profits are zero determined by subtracting implicit costs from total revenue 9 The term "recession" describes a situation where: an economy's ability to produce is destroyed output and living standards decline inflation rates exceed normal levels Government takes a less active role in economic matters 10 If an unintended increase in business inventories occurs at some level of GDP, then GDP: is too low for equilibrium entails a rate of aggregate expenditures in excess of the rate of aggregate production is too high for equilibrium
may be either above or below the equilibrium output 11 The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that: a nation's production possibilities and trading possibilities lines coincide the production possibilities curves of any two nations are identical a nation's trading possibilities line lies to the right of its production possibilities line a nation's production possibilities line lies to the right of its trading possibilities line 12 In the theory of comparative advantage, a good should be produced in that nation where: its cost is least in terms of alternative goods that might otherwise be produced its absolute cost in terms of real resources used is least its absolute money cost of production is least the production possibilities line lies further to the right than the trading possibilities line 13 Why are economists concerned about inflation? Inflation lowers the standard of living for people whose income does not increase as fast as the price level Real GDP is necessarily falling when there is inflation Inflation generally causes unemployment rates to rise Inflation increases the value of peoples' saving and encourages overspending on goods and services 14 Two major virtues of the market system are that it: results in an equitable personal distribution of income and always maintains full employment results in price level stability and a fair personal distribution of income allocates resources efficiently and allows economic freedom eliminates discrimination and minimizes environmental pollution 15 Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that:
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UOP ECO 561 Final Exam Guide (New, 2017)

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