ECON 202 Exam 2
Bankruptcy and burdening future generations
False Concerns
Okun's Law
GDP gap = -2.0 x (actual unemployment rate - natural unemployment rate)
Capital goods and durable consumer durable goods
The industries or sectors of the economy in which business cycle fluctuations tend to affect output the most are
increased savings by households during an economic downturn may worsen the recession.
The so-called paradox of thrift is that ____________
Cyclical Unemployment
Typically begins in the recession phase of the business cycle. As the demand for goods and services decreases, employment falls and unemployment rises. Cyclical unemployment results from insufficient demand for goods and services and is exacerbated by the downward stickiness of wages in the economy
Savers to borrowers
Unanticipated inflation redistributes income from
Under 16, institutionalized, not in labor force, employed, unemployed
Unemployment measurements
Giving a hug, solving a mystery, telling a story, and making a sandwich
What are the four things people can do that robots can't?
Changes in consumer spending, investment spending, government spending, and net export spending
What can cause the AD demand curve to shift
Changes in input prices, productivity, and the legal-institutional environment
What can cause the AS curve to shift
Consumption is usually stable while investment is volatile, rising and falling often
What does your textbook say about the stability of consumption and investment in the economy?
Aggregate demand would increase
What impact does a substantial increase in household borrowing to finance auto purchases have?
Aggregate demand would decrease because of an increase
What impact would a 5-year increase in the minimum age for collecting Social Security benefits have?
The U.S. transcontinental railroads being completed
What is one factor that had a positive impact on aggregate supply in the U.S., causing aggregate supply to increase?
Both Social Security and Medicare confront funding shortfalls
What is the status of Social Security and Medicare?
Cutting government spending $100 billion and increasing income taxes by $100 billion
What would be the most effective in reducing demand-pull inflation?
Nondiscretionary
When changes to taxes and spending occur in the economy without explicit action by the federal government, such policy is
An increase in the cost of acquiring capital goods
Which would decrease investment demand?
An increase in wealth
Which would shift the consumption schedule upward?
U.S. individual citizens
Who holds the largest share of the U.S. public debt?
Flexible-income receivers and debtors
Who is helped/unaffected by inflation?
Fixed-income receivers, savers, creditors
Who is hurt by inflation?
Frictional Unemployment
"In between jobs"
Recession
A period of decline in total output, income, and employment that lasts at least six months.
Any time real GDP falls over six months or more
A recession is officially defined as
Demand pull inflation
A shortage of microchips has slowed the production of new vehicles, causing prices for new and used vehicles to increase. This is an example of
Not in the labor force
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is
Had a federal budget that was balanced
As discussed in the textbook, from 2005 to 2021 the United States never
Consumption and saving both decrease
As disposable income decreases
It increases
As real interest rates fall, what happens the amount of investment demand by businesses?
Provides built-in stability for the economy
As the economy declines, the collection of personal income tax revenues automatically falls. This relationship best describes how the progressive income tax system
Full Employment
Because frictional and structural unemployment are largely unavoidable in a dynamic economy, this employment is something less than 100 percent employment of the labor force. Economists say that the economy is "fully employed" when it is experiencing only frictional and structural unemployment. That is, this employment occurs when there is no cyclical unemployment.
Political events, financial instability, irregular innovation, productivity changes, monetary factors
Causes of business cycles
Demand Pull Inflation
Characterized by "too much spending chasing too few goods"
Cyclically adjusted budget
Compares actual government spending with the tax revenues that would have occurred if the economy had achieved full employment GDP
Expansionary Fiscal Policy
Consists of increases in government spending, reductions in taxes, or both, and is designed to expand real GDP by increasing aggregate demand.
The decline in the real interest rate
Consumption, Savings & Investment: What can cause them to shift?
Decrease in aggregate supply
Cost-push inflation is shown by a
Part-time employment
Counted as fully employed
Increase in aggregate demand
Demand-pull inflation is shown by an
Consumption exceeds income
Dissaving occurs where
Contractionary Fiscal Policy
Entails decreases in government spending, increases in taxes, or both, and is designed to reduce aggregate demand and slow or halt demand-pull inflation.
AD & AS Equilibrium
Equilibrium occurs at the price level that equalizes the amounts of real output demanded and supplied.
Core Inflation
Excludes food and energy items
Cost Push Inflation
Explains rising output prices in terms of factors that raise per-unit production costs at each level of spending. Rising per-unit production costs squeeze profits and reduce the amount of output firms are willing to supply at the existing price level. As a result, the economy's supply of goods and services declines, and the price level rises.
APC + APS = 1
Given the definitions of the average propensity to consume (APC), the average propensity to save (APS), the marginal propensity to consume (MPC) and the marginal propensity to save (MPS), which of the following is correct?
The Crowding-Out Effect
Government borrowing increases interest rates and thereby reduces private investment spending
A shift in aggregate demand
If C, (consumption) I, (Investment) G, (Government purchases of goods and services) or Xn,(net exports) change, it will cause
Shortage and the price level will rise
If at a particular price level, real domestic output from producers is greater than real domestic output desired by purchasers, there will be a
Expansionary fiscal policy
If the Congress passes legislation to cut taxes to counter the effects of a severe recession, then this would be an example of a
Fall
If the MPS rises, then the MPC will
It decreases
If the marginal propensity to consume increases, what happens to the spending multiplier?
Aggregate demand would decrease
If widespread pessimism arises about future business conditions and sales revenues, what impact does that have?
Unemployment: discouraged workers
In January 2013, the United States had a labor force of 155.8 million out of which 143.3 million, or 92.0 percent were employed. By December of that year, the United States had a labor force of 155.0 million out of which 144.7 million, or 93.4 percent were employed. Most of the decline in the __________________ rate was due to increased numbers of _________________________. They wanted to give the remaining workers raises.
Increase aggregate demand
In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to
Nominal income rises by 8 percent, and the price level rises by 10 percent
In which of the following cases would real income rise?
Expansion
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
Structural
Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is
CPI
Main measure of inflation in the United States. The government uses this index to report inflation rates each month and each year. It also uses this to adjust Social Security benefits and income tax brackets for inflation. The CPI reports the price of a "market basket" of some 300 consumer goods and services that are purchased by typical urban consumers.
Fiscal policy
Manipulation of government spending and taxes to stabilize domestic output, employment, and the price level
MPC
Numerical value of the slope of the consumption schedule
MPS
Numerical value of the slope of the saving schedule
Structural Unemployment
Occurs when the composition of the labor force does not respond immediately or completely to the new structure of job opportunities. Workers whose skills and experience have become obsolete or unneeded thus find that they have no marketable talents. They are structurally unemployed until they develop skills that employers want.
Multiplier Effect
Reveals that an initial change in spending can cause a larger change in domestic income and output. The multiplier is the factor by which the initial change is magnified: multiplier = change in real GDP/initial change in spending.
Inflation
Rise in the general level of prices
Discouraged workers
Stopped actively searching for work
3 percent
Suppose the nominal annual interest rate on a two-year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is
Actual GDP and potential GDP
The GDP gap measures the difference between
Change in income that is spent
The MPC (marginal propensity to consume) can be defined as that fraction of a
The US Public Debt
The accumulation of all past federal deficits and surpluses
Budget deficit
The amount by which government expenditures exceed revenues during a particular year is the
The aggregate demand and supply curves intersect
The equilibrium price level and level of real output occur where
Increase U.S. imports and decreases U.S. exports
The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will