ECO561 Economics

University of Phoenix

ECO561 Week 1 Influence of Economics on

Household Decision Making
Purpose of Assignment
To locate, retrieve, and evaluate the effects of macroeconomic indicators on your own decision
making.
Assignment Steps
Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft® Office
website. There are also additional tutorials via the web offering support for Office products.
Scenario: Consider your last big purchase such as a car, appliances, home repairs, home purchase,
computer equipment, college tuition, or another “big-ticket” item, which are often purchased using
loans/financing (by borrowing money). Also consider your decision-making process that led you to
choose a particular make, model, or brand of the product (or service) you purchased and whether it
was the right time to make the purchase given economic conditions at the time of your purchase.
While analyzing your decision, keep in mind everything from interest rates to the prices of
complementary and substitute goods are driven by human economic behavior.
Develop a minimum 1,050-word analysis of your decision-making process in which you include the
following:
• Retrieve statistics on Real Gross Domestic Product (GDP) and on Real Personal Consumption
Expenditures (PCE) by year for the last ten years. You can retrieve those statistics from
internet sources including, but not limited to, the Federal Reserve of St. Louis's FRED web
site, the U.S. Department of Commerce's Bureau of Economic Analysis (BEA) web site, or
another credible source of your choice. Post these statistics in a single worksheet of an
Excel® workbook and submit your Excel® file with your report. In your report, discuss the
latest 10-year trends in both GDP and PCE. Also discuss how the trends in GDP compare with
trends in PCE. You are encouraged to include graphs of these statistics in your report; you
could create the graphs in Excel® and copy them into your report.
• Retrieve statistics on the Effective Federal Funds Rate and on the Consumer Price Index: All
Items Less Food and Energy by year for the last 30 years. You can retrieve those statistics
from internet sources including, but not limited to, the Federal Reserve of St. Louis's FRED
web site, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) web site, or other
credible sources of your choice. Post these statistics in a single worksheet of an Excel®
workbook and submit your Excel® file with your report. In your report, discuss how the
trends in the Effective Federal Funds Rate compare with trends in inflation. If you took out a
loan to pay for your “big-ticket” purchase, what was the interest rate on your loan? Were
interest rates rising or falling at that time? Were interest rates relatively high or low at that
time? You are also encouraged to include graphs of these statistics in your report.
 • Discuss the influence of any Federal government or state government programs, such as tax
credits or tax deductions for energy-saving/efficiency purchases, on your decision to make
your last big purchase; or if government incentives did not factor into your decision, explain
why not.
• Develop conclusions about the economy's influence on personal and business decision-
making relative to purchases of big-ticket items, investments, or other major purchases.
Cite a minimum of three peer-reviewed sources. Note: The Federal Reserve of St. Louis, the Bureau
of Economic Analysis, and the Bureau of Labor Statistics can be cited to fulfill this requirement.

ECO561 Week-2 Government Interventions

vs. Market Based Solutions
Purpose of Assignment

The theory of market economies emphasizes freedom of choice and limited government
intervention. The classic argument for government intervention is market failure – the
inability of the market economy to correct itself from a dysfunctional state (such as the Great
Depression). Students will examine articles from the University library to analyze real-world
examples of U.S. government intervention programs and apply current week readings to
make intelligent conclusions about the economic policies.

Assignment Steps

Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft®
Office website. There are also additional tutorials via the web offering support for Office
products.

Using the University Library, EBSCOhost, or ProQuest data bases, locate up to three
different articles/publications and/or use The Economist Online from the University Library
to examine one case of significant government intervention as it relates to your current
industry of employment or an industry in which you are interested in working. You may
access EBSCOhost, ProQuest or The Economist Online through the University Library
homepage:

1. Click on the Library tab.

2. Click on University Library.
3. Click on the tab to Databases A-Z.
4. Click on “E”.
5. Scroll down to Economist.com.

Examples of intervention programs you may select, but are not limited to:
 • US agriculture support programs
• Low income support programs (Food Stamps, Earned Income Tax Credit, Child Tax
Credit, and Temporary Assistance to Needy Families)
• Medicaid, Children's Health Insurance Program, The Affordable Care Act
(Obamacare)
• Low-income rent controls and housing vouchers
• Government promotion of renewable energy sources to discourage use of fossil fuels
such as coal and oil
• Unemployment Insurance
• Bailout of U.S. banks and other financial institutions during the Great Recession
• Bailout of U.S. auto makers during the Great Recession
• Social Security retirement benefits

Develop a minimum 10-slide Microsoft® PowerPoint® presentation including detailed

speaker notes or voiceover including the following:

• Describe the intervention and detail its history.

• Analyze the arguments for government intervention as opposed to arguments for
market-based solutions. Hint: See the information in our course textbook on market
failures.
• Examine who may be helped and who may be hurt by the selected government
intervention.
• Examine externalities and/or unintended consequences of such intervention.
• Determine the cost trend of the intervention program since its implementation
including whether costs are increasing, decreasing, or vary with the state of the
economy.
• Evaluate the success or failure of the intervention in achieving its objectives and
develop conclusions.
• Recommend whether the program should be continued as is, discontinued, or
modified and defend your recommendation.

Note: The use of tables and/or charts to display economic data over the time period discussed
is highly encouraged. However, if your source includes the copyright symbol, which looks
like this: ©, then you should not copy any table and/or charts from that source. You could
use, but are not required to use, charts/graphs retrieved from the Federal Reserve Bank of St.
Louis FRED web site as long as the data sources used by FRED to create those charts are
government sources such as the Bureau of Economic Analysis or the Bureau of Labor
Statistics.

Cite a minimum of three scholarly, peer-reviewed references.

ECO561 Week 3 Research Analysis

for Business
Purpose of Assignment
The purpose of this assignment is the creation of a research analysis. Every day, consumers make
millions of decisions that impact the marketplace and influence firms' decisions. Firms use economic
concepts, models, and other “tools” of economics to help determine pricing, output, and profit
maximization. As an MBA student of economics, you can apply the “tools” of economics to
microeconomic and macroeconomic data to create recommendations for how firms can maximize
revenue, profit and market share.
Assignment Steps
Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft® Office
website. There are also additional tutorials via the web offering support for Office products.
Scenario: Imagine you are a business consultant to a firm of your choice. You have been asked to
analyze, advise, and create recommendations on how the firm can ensure its future success in its
current market.
Work with your instructor to choose a firm that matches the following criteria: a publicly-traded
company operating in the U.S. market. Note: A publicly-traded company is a private-sector firm
owned by its shareholders/stock holders.
Prepare a minimum 1,050-word analysis of economic data and business data to explain how the
core economic principles impact the sustainability of the firm and what actions the firm can take to
ensure success.
Address the following:
• Identify the market structure your chosen firm operates in, analyze your chosen firm's
current market share, and identify the firm's local/global competitors. Analyze the barriers
to entry in this market to illustrate the potential for new competition and its impact on your
firm's future in the market. Hints: Be sure you review the barriers to entry discussed in the
course text. You might consider presenting the data graphically.
• Identify and explain trends in current macroeconomic indicators for last three years
including:
o Current stage of the business cycle.
o Real gross domestic product (GDP).
o Inflation as measured by the consumer price index (CPI).
o Unemployment rate.
o Federal funds rate.
o Current rate for borrowing funds such as the so-called “prime rate.” Note: A
requirement of the Week 1 Influence of Economics on Household Decision Making
report was to gather data on the CPI, GDP, and interest rates, so you should consider
reviewing the feedback you received on the Week 1 report.
• Evaluate trends in demand over last three years and explain their impact on the industry and
the firm. Include quarterly (last two quarters) and annual sales (last three years) figures for
the product your firm sells. Create business strategies by analyzing information and data
related to the demand for and supply of your firm's product(s) to support your
recommendation for the firm's actions. Remember to include a graphical representation of
the data and information used in your analysis.
 • Examine available, current data and information, such as pricing and the availability of
substitutes, and explain how you could determine the price elasticity of demand for your
firm's product. Assess how the price elasticity of demand impacts the firm's pricing decisions
and revenue growth.
• Apply the concepts of variable and fixed costs to your firm for informing its output decisions.
For instance, analyze how different kinds of costs (labor, research and development, raw
materials) affect the firm's level of output.
• Based on the data gathered and analysis performed for this report write a conclusion in
which you:
o Create business strategies, including price and non-price strategies, based on your
market structure to ensure the market share and potential market expansions and
explore global opportunities for your business in a dynamic business environment
and provide recommendations.
o Develop a recommendation for how the firm can manage its future production by
synthesizing the macroeconomic and microeconomic data presented.
o Propose how the firm's position within the market and among its competitors will
allow it to take your recommended action.
o Recommend strategies for the firm to sustain its success going forward by evaluating
the findings from demand trends, price elasticity, current stage of the business cycle,
and government policies.
Cite a minimum of three peer-reviewed references and a minimum of two government economic
data sources/references.

ECO561 Week 4 Inflation and Analyses of

Monetary Policies
Purpose of Assignment
This assignment will introduce students to the U.S. Department of Labor's Bureau of Labor Statistics
(BLS) data and provide students with the skills to calculate inflation and interpret the Consumer
Price Index (CPI). Note: The BLS is the primary source of information on inflation, but their data is re-
posted in other sources, such as the St. Louis Federal Reserve FRED site, among others.
Assignment Steps
Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft® Office
website. There are also additional tutorials via the web offering support for Office products.
Use an internet search or the University Library to locate information on the Consumer Price Index
(CPI). Internet sites you might find useful include the Bureau of Labor Statistics (BLS) and the Federal
Reserve of St. Louis FRED web site although you are allowed to use other sources.
Develop a minimum 700-word analysis of inflation by including the following:
 • Choose a product or service you currently consume/use, such as apparel or educational
services, that is included in the CPI's “market basket.” Find the annual CPI index numbers for
your chosen good or service for the years 1995, 2005, 2010, and 2015. Enter those index
numbers in an Excel® file and calculate the percent change (inflation rates) in those index
numbers from 1995 to 2005, from 1995 to 2010, and from 1995 to 2015.
• Analyze the trends in overall inflation over the last five years and whether your income has
kept pace with inflation. How has inflation over the last five years affected you and/or your
family?
• Discuss how a business manager, such as a human resources manager, might use CPI
statistics.
Cite a minimum of three scholarly, peer-reviewed references.

ECO561 Week 5 Effectiveness of the

Counter-Cyclical Policies
Purpose of Assignment

This assignment addresses how both monetary and fiscal policies have been used during the so-
called Great Recession, which began in December 2007 and ended in June 2009, to the present
to moderate the business cycle.

Assignment Steps

Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft® Office
website. There are also additional tutorials via the web offering support for Office products.

Create a minimum 10-slide PowerPoint® presentation, including detailed speaker notes or

voiceover, in which you analyze your choice of one the following markets or industries:

• The housing market

• Financial markets
• Commodity and stock markets
• An industry of your choice, such as the automobile industry, the airline industry, retail
trade, or any other major industry that suffered heavy losses during the Great Recession

Your analysis will extend from the beginning of the Great Recession, which was December 2007,
to the present and should include the following:

• An Excel® workbook with the following datasets:

o One dataset related to the U.S. housing industry such as housing starts, the
FHFA housing price index, or another dataset of your choice related to the
housing market.
o One dataset related to personal or household income or to personal or household
saving.
 o One dataset related to the labor market such as the unemployment rate, initial
claims for unemployment insurance, or another dataset of your choice related to
the U.S. labor force.
o One dataset related to production and business activity within the market or
industry you choose to analyze.
• Find your datasets by using different internet data sources, including, but not limited to,
the Federal Reserve Bank of St. Louis's FRED site, U.S. Dept. of Commerce's Bureau of
Economic Analysis (BEA), U.S. Dept. of Labor's Bureau of Labor Statistics, U.S. Census
Bureau, and The Organization for Economic Co-operation and Development
(OECD). Using data results analyze the economic and sociological forces that drove the
market equilibrium to unsustainable heights, commonly referred to as “bubbles,” and the
shocks that brought the markets back down.
• Discuss specific changes in supply and demand within the markets and/or industries you
chose to analyze.
• Examine prior government policies and legislation that might have exacerbated the
impact of the shocks. Also, discuss government actions/regulations that might be
undertaken, and/or have been undertaken, to moderate the effects of extreme economic
fluctuations.
• Evaluate the actions of the federal government (fiscal policy) and the Federal Reserve
(monetary policy) to restore the economy and foster economic growth. Base your
evaluation on information available at Internet sources such as, but not limited to, the
Fed's The Economy Crisis and Response website as well as other appropriate sources
found on the Internet and in the University Library. Be sure you address the effectiveness
of those counter-cyclical policies.

Cite a minimum of three peer-reviewed sources and economic data not including the course text.
Submit the data results in a separate Microsoft® Excel® file.

ECO561 CHALLENGES OF EXPANSION

TO A FOREIGN LOCATION
Discuss the evidence that supports your recommendations.

Select a foreign market in which to expand your chosen product.

Write a 1,750-word paper (including any material you include from your paper on Market
Structure and Pricing Power assignment) detailing your findings. The use of tables and/or
charts to display economic data over the time period discussed is highly encouraged.

• Evaluate currentglobal economic conditions and their effect on local

macroeconomic indicators in your selected country. Consider forecasts for
population growth, GDP growth, GDP per capita growth, export growth, and sales
growth.

• Differentiate the competitors' existing production in the chosen country.

• Assess forecast sales in the selected country.

 • Prioritize the type of economy that exists in your selected country-closed, mixed,
or market. What is the difference between these types of economies and how might
this affect your expansion?

• Justify
how your chosen country's current credit market conditions affect
demand for your product or service and your planning or operating decision for
your production in that country.

• Analyze the role of the selected country's central bank on that country's
economy.

• Compare the availability, education, and job skills of the work force in the
selected country. Discuss the additional challenges of international production, such
as political stability, availability of government financing or other incentives, threat
of capital controls, and exchange rate risks.

• Explain any additional supply chain challenges you anticipate if attempting to

sell your product made in your chosen country to countries outside of that market.

• Recommend any comparative advantages your company will have over

competitors in that country.

• Defend your position, either for or against, expanding your company's

production into your chosen country based on your research.

Cite a minimum of three peer reviewed sources not including the textbook.

Foreign Market: India. Product: iPhone

ECO561 Week 6 Signature Assignment

Challenges of Expansion to a
Foreign Location
Purpose of Assignment
This week students will review and revise their Week 3 Research Analysis for Business Signature
Assignment based on economic analysis and the feedback provided by their facilitator. Students will
also expand their Week 3 analyses to evaluate the challenges of expanding their chosen company's
production to a foreign market.
About Your Signature Assignment
This signature assignment is designed to align with specific program student learning outcome(s) in
your program. Program Student Learning Outcomes are broad statements that describe what
students should know and be able to do upon completion of their degree. The signature assignments
might be graded with an automated rubric that allows the University to collect data that can be
aggregated across a location or college/school and used for program improvements.
Assignment Steps
Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft® Office
website. There are also additional tutorials via the web offering support for Office products.
Revise your Week 3 assignment, Research Analysis for Business, using the feedback provided by your
facilitator. This Week 6 report should only include one conclusion, so you will need to rewrite the
conclusion you included in your Week 3 assignment, Research Analysis for Business.
Select a foreign market in which to expand your chosen product. If you wish, you may use one of the
countries your team analyzed in their Week 5 Comparative and Absolute Advantage Assignment.
Prepare a minimum1,750-word report addressing the points listed below. The use of tables and/or
charts to display economic data over the time period discussed is highly encouraged, you may
submit any economic data in Microsoft® Excel® format in a separate file. You may use the U.S.
Department of Labor's Bureau of Labor Statistics (BLS), U.S. Dept. of Commerce's Bureau of
Economic Analysis (BEA), the Federal Reserve of St. Louis's FRED data, the CIA World Fact Book,
World Bank data, and World Trade Organization, or other appropriate sources you might find on the
Internet or in the University Library. The new sections of your report should:
• Evaluate current global economic conditions and their effects on macroeconomic indicators
in your selected country. Provide forecasts for population growth, gross domestic product
(GDP) growth, GDP per capita growth, export growth, and sales growth.
• Evaluate any competitors' existing production in the chosen country.
• Assess sales forecasts in the selected country by using the Federal Reserve of St. Louis's
FRED data, the CIA World Fact Book, World Bank data, World Trade Organization, or other
appropriate sources you might find on the Internet or in the University Library.
• Categorize the type of economy that exists in your selected country as closed, mixed, or
market. What is the difference between these types of economies and how might this affect
your expansion?
• Assess how your chosen country's current credit market conditions, especially interest rates
and the availability of financing, affect demand for your product or service and your planning
or operating decision for your production in that country.
• Analyze the role of the selected country's central bank on that country's economy.
• Compare the availability, education, and job skills of the work force in the selected country.
Discuss any additional challenges of international production, such as political stability,
availability of government financing or other incentives, threat of capital controls, and
exchange rate risks.
• Explain any additional supply chain challenges you anticipate if attempting to make your
product in your chosen country and selling the product in other countries.
• Based on the data gathered and analysis performed for this report write a conclusion in
which you:
 o Create business strategies, including price and non-price strategies, based on your
market structure to ensure the market share and potential market expansions and
explore global opportunities for your business in a dynamic business environment
and provide recommendations.
o Develop a recommendation for how the firm can manage its future production by
synthesizing the macroeconomic and microeconomic data presented.
o Propose how the firm's position within the market and among its competitors will
allow it to take your recommended action.
o Recommend strategies for the firm to sustain its success going forward by evaluating
the findings from demand trends, price elasticity, current stage of the business cycle,
and government.
o Recommend any comparative advantages your company will have over competitors
currently operating in that country, and defend your position, either for or against,
expanding your company's production into your chosen country based on your
research.
Integrate with the Week 3 Individual Assignment, and incorporate corrections and suggestions from
the instructor's feedback. The final report should be a minimum of 2,800 words.
Cite a minimum of three peer reviewed sources not including the textbook.
Include all peer-reviewed references and government economic data sources/references from Week
3.
Format your assignment consistent with APA guidelines.

ECO561 Final Exam Score 97 PERCENT

QUESTIONS MAY BE IN DIFFERENT ORDER.
Question 1
The fact that international specialization and trade based on comparative advantage can
increase world output is demonstrated by the reality that:
the production possibilities curves of any two nations are identical
a nation's production possibilities line lies to the right of its trading possibilities line
a nation's trading possibilities line lies to the right of its production possibilities line
a nation's production possibilities and trading possibilities lines coincide
Question 2
The business cycle depicts:

the phases a business goes through from when it first opens to when it finally closes
the evolution of technology over time
short-run fluctuations in output and employment (Probably wrong, not sure. Either answer
of question 1 is wrong or question2 is wrong)
fluctuations in the general price level
3. Which of the following have substantially equivalent effects on a nation's volume of
exports and imports?
Exchange rate depreciation and domestic inflation
Exchange rate depreciation and domestic deflation
Exchange rate appreciation and domestic deflation
Exchange rate appreciation and a decrease in the domestic supply of money
4 If an unintended increase in business inventories occurs at some level of GDP, then GDP:
may be either above or below the equilibrium output
is too high for equilibrium
is too low for equilibrium
entails a rate of aggregate expenditures in excess of the rate of aggregate production
5 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
Inflation increases the value of peoples' saving and encourages overspending on goods and
services
Inflation generally causes unemployment rates to rise
Real GDP is necessarily falling when there is inflation
6 Contractionary fiscal policy is so named because it:
involves a contraction of the nation's money supply
is aimed at reducing aggregate demand and thus achieving price stability
necessarily reduces the size of government
is expressly designed to expand real GDP
7 The term “recession” describes a situation where:
government takes a less active role in economic matters
output and living standards decline
inflation rates exceed normal levels
an economy's ability to produce is destroyed
8 Which of the following statements best describes the 12 Federal Reserve Banks?
They are privately owned and publicly controlled central banks whose basic goal is to earn
profits for their owners.
They are privately owned and publicly controlled central banks whose basic goal is to control
the money supply and interest rates in promoting the general economic welfare.
They are privately owned and publicly controlled central banks whose basic function is to
minimize the risks in commercial banking in order to make it a reasonably profitable
industry.
They are privately owned and privately controlled central banks whose basic goal is to
provide an ample and orderly market for U.S. Treasury securities.
9 The primary gain from international trade is:
tariff revenue
more goods than would be attainable through domestic production alone
increased employment in the domestic import sector
increased employment in the domestic export sector
10 If the prices of all goods and services rose, but the quantity produced remained
unchanged, what would happen to nominal and real GDP?
Nominal and real GDP would both rise
Real GDP would rise, but nominal GDP would be unchanged
Nominal GDP would rise, but real GDP would be unchanged
Nominal and real GDP would both be unchanged
11 Pure monopolists may obtain economic profits in the long run because:
of rising average fixed costs
of barriers to entry
of advertising
marginal revenue is constant as sales increase
12 Mrs. Arnold is spending all her money income by buying bottles of soda and bags of
pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal
utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40
per bag respectively. It can be concluded that:
the two commodities are substitute goods
Mrs. Arnold should spend more on soda and less on pretzels
Mrs. Arnold should spend more on pretzels and less on soda
Mrs. Arnold is buying soda and pretzels in the utility-maximizing amounts
13 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:
their marginal and total utilities are proportionate
their marginal utilities are the same
the income and substitution effects associated with each are equal
their total utilities are the same
14 Two major virtues of the market system are that it:
eliminates discrimination and minimizes environmental pollution
allocates resources efficiently and allows economic freedom
results in price level stability and a fair personal distribution of income
results in an equitable personal distribution of income and always maintains full employment
15 Macroeconomics approaches the study of economics from the viewpoint of:
the entire economy
governmental units
individual firms
the operation of specific product and resource markets
16 Which of the following will generate a demand for country X's currency in the foreign
exchange market?
The imports of country X
Travel by citizens of country X in other countries
The desire of foreigners to buy stocks and bonds of firms in country X
Charitable contributions by country X's citizens to citizens of developing nations
17 The simple circular flow model shows that:
households are on the buying side of both product and resource markets.
businesses are on the selling side of both product and resource markets.
businesses are on the buying side of the product market and on the selling side of the resource
market.
households are on the selling side of the resource market and on the buying side of the
product market.
18 Countercyclical discretionary fiscal policy calls for:
surpluses during both recessions and periods of demand-pull inflation
surpluses during recessions and deficits during periods of demand-pull inflation
deficits during recessions and surpluses during periods of demand-pull inflation
deficits during both recessions and periods of demand-pull inflation
19 If the Federal Reserve System buys government securities from commercial banks and the
public:
commercial bank reserves will decline
the money supply will contract
it will be easier to obtain loans at commercial banks
commercial bank reserves will be unaffected
20 The two basic markets shown by the simple circular flow model are:
product and resource
free and controlled
capital goods and consumer goods
household and business
21 All else equal, a large decline in the real interest rate will shift the:
investment demand curve rightward
investment demand curve leftward
investment schedule downward
investment schedule upward
22 Normal profit is:
determined by subtracting implicit costs from total revenue
the return to the entrepreneur when economic profits are zero
the average profitability of an industry over the preceding 10 years
determined by subtracting explicit costs from total revenue
23 In the theory of comparative advantage, a good should be produced in that nation where:
its absolute cost in terms of real resources used is least
its cost is least in terms of alternative goods that might otherwise be produced
the production possibilities line lies further to the right than the trading possibilities line
its absolute money cost of production is least
24 As output increases, total variable cost:
increases continuously at a decreasing rate
increases at a constant rate
increases more rapidly than does total cost
increases at a decreasing rate and then at an increasing rate
25 Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S.
securities from the public, which deposits this amount into checking accounts. As a result of
these transactions, the supply of money is:
directly increased by $4 million and the money-creating potential of the commercial banking
system is increased by $12 million.

directly increased by $4 million and the money-creating potential of the commercial banking
system is increased by an additional $16 million.
not directly affected, but the money-creating potential of the commercial banking system is
increased by $12 million.
directly reduced by $4 million and the money-creating potential of the commercial banking
system is decreased by an additional $12 million.
26 Buyers will opt out of markets in which:
standardized products are being produced
there are only foreign sellers
there are significant negative externalities
there is inadequate information about sellers and their products
27 In order for mutually beneficial trade to occur between two otherwise isolated nations:
each nation must be able to produce at least one good absolutely cheaper than the other
each nation must face constant costs in the production of the good it exports
each nation must be able to produce at least one good relatively cheaper than the other
one nation's production must be labor-intensive while the other nation's production is capital-
intensive
28 Research for industrially advanced countries indicates that:
the more independent the central bank, the higher the average annual rate of inflation
there is no relationship between the degree of independence of a country's central bank and
its inflation rate.
the more independent the central bank, the higher the average annual rate of unemployment.
the more independent the central bank, the lower the average annual rate of inflation
29 A monopolistically competitive industry combines elements of both competition and
monopoly. The monopoly element results from:
the likelihood of collusion
mutual interdependence
high entry barriers
product differentiation
30 Because the federal government typically provides disaster relief to farmers, many farmers
do not buy crop insurance even through it is federally subsidized. This illustrates:
the moral hazard problem
logrolling
the adverse selection problem
the special interest effect