Exam 2: Thinking Like an Economist

In a simple circular-flow diagram,firms own the factors of production and use them to produce goods and services.

A production possibilities frontier can shift outward if

The Council of Economic Advisors has as its duties both advising the President of the United States and formulating monetary policy.

Macroeconomics is the study of

Using this outline,draw a circular-flow diagram representing the interactions between households and firms in a simple economy.Explain briefly the various parts of the diagram.

The prairie dog has always been considered a problem for American cattle ranchers.They dig holes that cattle and horses can step in and they eat grass necessary for cattle.Recently,ranchers have discovered that there is a demand for prairie dogs as pets.In some areas prairie dogs can sell for as high as $150.Cattlemen are now fencing off prairie dog towns on their land so these towns will not be disturbed by their cattle. Draw a production possibilities frontier showing a rancher's production option between cattle production and prairie dog production showing increasing opportunity cost and show what would happen in each of the following situations.(Use a separate graph for each situation.) a.The outcome is efficient, with ranchers choosing to produce equal numbers of cattle and prairie dogs. b.As a protest against the government introducing the gray wolf back into the wild in their state, ranchers decide to withhold 25 percent of the available grassland for grazing. c.The price of prairie dogs increases to $200 each, so ranchers decide to allot additional land for prairie dogs. d.The government grants new leases to ranchers, giving them 10,000 new acres of grassland each for grazing. e.A drought destroys most of the available grass for grazing of cattle, but not for prairie dogs since they also eat plant roots.

Any point on a country's production possibilities frontier represents a combination of two goods that an economy

Figure 2-1 -Refer to Figure 2-1.Which arrow shows the flow of land,labor,and capital?

A duty of economists at the Department of Labor is to

Which markets are represented in the simple circular-flow diagram?

One thing economists do to help them understand how the real world works is as follows:

For economists,substitutes for laboratory experiments often come in the form of

In the simple circular-flow diagram,

When an economy is operating at a point on (rather than inside)its production possibilities frontier,then

Suppose a nation is currently producing at a point inside its production possibilities frontier.We know that

Another name for goods and services produced by firms is

Which of the following statements about the circular-flow diagram is correct?

Some,but not all,government economists are employed within the administrative branch of government.Which of the following government agencies employs economists outside of the administrative branch?

An economy can produce at any point on or outside the production possibilities frontier,but it cannot produce at points inside the frontier.

Figure 2-6 -Refer to Figure 2-6.If this economy put all available resources into the production of bananas,it could produce