NAME: ______

UNIT TEST REVIEW: Introduction to Economics Test: Wed/ThursSeptember 10th or 11th 2008

Mandatory Homework: This first 3 pages of this review sheet is required of all students and is due the day of your unit Exam. Only review sheets which demonstrate considerable effort will be given credit.

______/30 points

1)Write 2-3 sentences stating the “formal definition” of the study ofEconomics. (this will be a short answer question!)

2)Explain why nothing is considered “free” in economics.

  1. Please give an example

3)List the 3 primary economic systems and provide an example of country which uses each system.

  • System Country

4)Every economic system must answerwhich3 basic economic questions:

5)Of the4 economic goals (GEES) which 2 most concern a market economy?

6)Draw the circular flow of our market economy. Label the flow with both arrows & Demand or Supply labels

  1. How would rising unemploymentchange consumers behavior in the circular flow of our economy.

7)Circle the correct answer;

  1. Rising Interest rates would increase speed of circular flow decrease speed of circular flow
  1. Falling Unemployment would:increase speed of circular flow decrease speed of circular flow
  1. Rising Consumer Confidence: increase speed of circular flow decrease speed of circular flow
  1. Rising Price of Oil: increase speed of circular flow decrease speed of circular flow

8)Write the equation forGross Domestic Product (GDP).

  1. List the % of GDP for 2 components of GDP
  2. State the “speed” limit for GDP and the reasons for both the high & low limit

9)Please circle the correct answer regarding the following events on GDP GDP

  1. Exports Increase Increase GDP Decrease GDP No Effect
  1. Business Investment falls Increase GDP Decrease GDP No Effect
  1. Government Spending rises Increase GDP Decrease GDP No Effect
  1. Imports Increase Increase GDP Decrease GDP No Effect
  1. Consumption falls Increase GDP Decrease GDP No Effect
  1. You buy a used Ford Car: Increase GDP Decrease GDP No Effect

10)Please circle the correct answer regarding Microeconomic events versus Macroeconomic events:

  1. Apple invents new I-pod Macroeconomic event Microeconomic event
  1. Interest rates Increase:Macroeconomic event Microeconomic event
  1. UnemploymentRateFallsMacroeconomic event Microeconomic event
  1. Rising Consumer Confidence: Macroeconomic event Microeconomic event
  1. Auto workers go on strike: Macroeconomic event Microeconomic event

11)Draw the business cyclefrom 2000 until September 2008.

  1. label points where an economy is contracting or expanding & at a peak or trough.
  2. Label what point is our economy today

12)All decisions have bothshort run and long run consequences (benefits & costs). Given an example of a decision that will have a positive short run impact and a negative long run impact.

13)Describe the theory of the market economic system as written byAdam Smith. (this will most likely be on your short answer test!)

  1. Hint: discuss theinvisible hand & how market economies “self-regulate”.

14)Explain how would a shortage of supply be corrected by the invisible hand?

15)What is the difference between private propertypublic property

  1. Provide an example of each.

16)Draw aconstant costProduction Possibilities Frontier {PPF}. Explain what this line represents to a country.

  1. (this will be on the short answer section!)
  2. Label points on, above and below line with the appropriate labels

17)Please circle the correct answer regarding PPF curves:

  1. Country discovers more oil Shifts right shifts left no shift
  1. Unemployment rate risesShifts right shifts left no shift
  1. Population risesShifts right shifts left no shift
  1. Investment made in Technology Shifts right shifts left no shift Shifts right in longrun

Other Factors you should understand for the test:

FORMAT: 50 Multiple choice and 3-4 Short Answers

Test will cover all lectures, handouts, current events and textbook reading.

Know all of the TERMS from your UNIT OUTLINE

YOU DO NOT NEED TO TURN IN THIS SECTION!

18)Current Events: Understand the 6 economic indicators assigned and know approximately where they are in relation to the current economy and recent economic history.

19)Stock Market Basics: why do companies issue stock (know this one!), what are the 3 stock indices, Bull vs. Bear markets, recent stock market history (2001-2008), understand how stocks are classified by market sector and market capitalization.

20)The Federal Reserve controls short term interest rates. Below is a recent history of their actions

  • Fed policy been between 2001-2004 lowering interest rates from 6% to 1% (to combat the 2001 recession)
  • Fed policy been between 2004-2006 raising interest rates from 1% to 5.25% (to “slow” the economy down”)
  • Fed Policy 2008: Lowered rates to 2.0% to help the housing problemHoH