chapter 10
The defining characteristic of long-run economic growth is
rising productivity.
Potential GDP is
sometimes greater, sometimes less, and sometimes equal to actual real GDP.
Which of the following is a financial intermediary?
a bank
A government that collects more in taxes than it spends experiences
a budget surplus.
A defining characteristic of the business cycle is
alternating periods of expansion and recession.
Which of the following terms refers to the accumulated knowledge and skills that workers acquire from education and training or from their life experiences?
human capital
In determining whether or not to borrow funds, firms compare the rate of return they expect to make on an investment with
the interest rate they must pay to borrow the necessary funds.
Which of the following determines the supply of loanable funds?
the willingness of households and governments to save
A federal government budget deficit will
decrease the supply of loanable funds and increase the equilibrium real interest rate
Which of the following will ensure that an economy experiences sustained economic growth?
technological change
Which of the following does not cause the quantity of goods and services that can be produced by one worker, or in one hour of work, to increase?
an increase in the number of workers
The only way that the standard of living of the average person in a country can increase is by
increasing production faster than population growth.
The computation of the average annual growth rate of real GDP
is more complex when a long period of time is involved than when only a few years are included.
When it comes to raising the standard of living in a country, how important is the growth rate of real GDP?
Growth rates in real GDP are very important. Small differences in growth rates can have large effects over long time periods.
Which of the following will not cause an economy to grow in the long run?
a low minimum-wage rate
Which of the following are financial securities that represent promises to repay a fixed amount of funds?
bonds
How do firms acquire funds by using indirect finance rather than direct finance?
by borrowing from a bank
. Fill in the blanks. The _________ the interest rate, the more investment projects firms can profitably undertake, and the _________ the quantity of loanable funds they will demand.
lower; greater
Which of the following is not a service that the financial system provides for savers and borrowers?
protecting information or facts about borrowers from savers.
Because the focus of long-run economic growth is on the standard of living of the average person, we measure the standard of living in terms of
real GDP per capita.
If the government begins running a budget deficit, what impact will the deficit have on the loanable funds market?
The supply of loanable funds will decrease.
If technological change increases the profitability of new investment to firms, which of the following will occur?
The demand for loanable funds will increase.
What happens when government spending is greater than government tax revenues?
a. There is negative public saving. b. There is dissaving by government, and the national debt rises. c. The government issues more new bonds than the old bonds it pays off.
Which of the following government policies can help economic growth?
a. ensuring relative political stability and relatively little corruption b. promoting the existence of an efficient financial system c. protecting private property rights, allowing for freedom of the press, and having a democratic form of government
An increase in the real interest rate will
cause a movement along the demand curve for loanable funds.
In measuring changes in the standard of living in a country, economists rely heavily on comparisons over time of real GDP per capita because
despite its well-known flaws, it is the best means we have of comparing the performance of an economy over time
Which of the following equals the amount of public saving?
the government's tax revenue minus the sum of government purchases and transfer payments to households
What is the best use of the rule of 70 among those listed below?
to judge how rapidly real GDP per capita is growing over long time periods