Econ Test 2

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Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate​ supply?

. Aggregate demand and potential real GDP decrease continuously.

Question Help The short run aggregate supply curve has​ a(n) ________ slope because as prices of​ ________ rise, prices of​ ________ rise more slowly.

. ​positive; final goods and​ services; inputs

According to the​ "Rule of​ 70", how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is​ 5%?

14 years

If the growth rate of real GDP rises from​ 3% to​ 4% per​ year, then the number of years required to double real GDP will decrease from

23.3 years to 17.5 years.

What is investment in a closed economy if you have the following economic​ data? Y​ = $10 trillion C​ = $5 trillion TR​ = $2 trillion G​ = $2 trillion

3 trillion

If real GDP per capita doubles between 2005 and​ 2020, what is the average annual growth rate of real GDP per​ capita

4.7%

If real GDP per capita measured in 2009 dollars was​ $6,000 in 1950 and​ $48,000 in​ 2016, we would say that in the year​ 2016, the average American could buy​ ________ times as many goods and services as the average American in 1950.

8 times

If you invest​ $10,000 in a bond that earns​ 8% interest per​ year, how many years will it take to double your​ money?

8 years and 9 months

Which aggregate supply curve has a positive​ slope?

short run only

The​ ________ curve has a positive slope because as prices of final goods and services​ rise, prices of inputs rise more slowly.

short−run aggregate supply

If Ebenezer Scrooge spends rather than saves his vast wealth he will

slow economic growth because he is reducing the amount of funds available for investment.

Potential GDP is

sometimes​ greater, sometimes​ less, and sometimes equal to actual real GDP.

which of the following best describes creative destruction

technological changes creates new products that drive old products out of the market

What two factors are the keys to determining labor​ productivity?

technology and the quantity of capital per hour worked

According to Douglass​ North, the Industrial Revolution occurred in England because

the British Parliament took control of the government and could credibly commit to upholding property rights

Human capital refers to which of the​ following?

the accumulated knowledge and skills workers acquire from education and training or from their life experience

Which of the following advances does your text describe as having contributed to the​ "New Economy" of the midminus−​1990s?

the increased use of the Internet in selling products and services the lower cost and increased availability of laptop computers expanded cell phone use D.all of the above

Capital can be differentiated between physical capital and human capital. Human capital is Which of the following is the best example of human​ capital?

the knowledge and skills workers acquire from education and training or from their life experiences a worker gets a college degree

Potential GDP refers to

the level of GDP attained when all firms are producing at capacity.

What is potential​ GDP?

the level of real GDP in the long run

The economic growth model predicts that

the level of real GDP per capita in poor countries will grow faster than in rich countries.

The position of the​ long-run aggregate supply​ (LRAS) curve is determined by

the number of​ workers, the amount of​ capital, and the available technology.

Increases in real GDP since 1900 can actually underestimate growth in the standard of living for Americans since 1900 because

the quality of health care that exists today was not available in 1900.

Equilibrium in the loanable funds market determines

the real interest rate

An increase in the price level results in​ a(n) ___________ in the quantity of real GDP demanded because​ ___________.

​decrease; a higher price level reduces​ consumption, investment, and net exports

When the price level in the United States falls relative to the price level of other​ countries, ________ will​ fall, ________ will​ rise, and​ ________ will rise.

​imports; exports; net export

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise

C. SRAS and AD do not shift.

Property rights have been determined to be a major factor that helps countries sustain economic growth. Governments can change laws and policies in order to give individuals and firms more freedom. By doing​ so, government can help promote growth because greater property rights

give entrepreneurs more incentive to take risks that create new​ products, ideas, and more technology.

​________ of unemployment during​ ________ make it easier for workers to​ ________ wages.

Low​ levels; an​ expansion; negotiate higher

Potential GDP

B. increases over time as technological change occurs. C. increases over time as the labor force grows.

Which of the following policies is designed specifically to directly promote technological change in an​ economy?

government subsidization of research and development

Crowding out occurs when

governments must borrow funds which causes interest rates to rise and thus private investment is reduced.

Other​ high-income countries have had trouble completely closing the gap in real GDP per capita with the United States because the United States has

greater flexibility in labor markets and greater efficiency in the financial system.

Robert​ Lucas, a Nobel laureate in​ economics, argues that there are increasing returns t

human capital

Question Help All of the following policies are ways for a country to promote​ long-run economic growth except

imposing stricter regulations to limit foreign direct investment

Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand​ curve?

They will shift the aggregate demand curve to the right.

The recession of 2007−2009 made many consumers pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand​ curve?

This will shift the aggregate demand curve to the left.

If the U.S. dollar decreases in value relative to other​ currencies, how does this affect the aggregate demand​ curve?

This will shift the aggregate demand curve to the right.

Why do economic growth rates​ matter?

When a country sustains high growth​ rates, life expectancy at birth increases. High levels of sustained economic growth reduce infant mortality. High growth rates coincide with improved living standards. D.All of the above.

Which one of the following is not true when the economy is in macroeconomic​ equilibrium

When the economy is at​ long-run equilibrium, firms will have excess capacity

Which of the following best describes the​ "wealth effect"?

When the price level​ falls, the real value of household wealth rises.

Economics arrives at the conclusion that economic growth will always improve economic​ well-being. Do you​ agree?

Yes, economic growth increases living​ standards, improves health and​ education, and builds a​ corruption-free society.

Suppose you are discussing global trade with a friend who insists a country would be better off by restricting trade and investment with other countries. Which of the following economic responses would be the most logical for your​ discussion?

`I am not sure I agree. Countries that allow more globalization have experienced higher rates of economic growth and typically can utilize greater levels of foreign direct investment to increase economic growth

During the expansion phase of the business​ cycle, which of the following eventually​ increases

income, production, employment all of the above

​"Saving money is not lending. How can it​ be? When I save my​ money, I put it in a bank. I​ don't loan it out to someone​ else." The statement is

incorrect. The supply of loanable funds is determined by household saving

There has been catchminus−up among​ ________, but there has not been catchminus−up among​ _______

industrialized countries such as​ Japan; all countries of the world

Which of the following increases labor​ productivity?

inventions of new​ machinery, equipment, or software

One concern with economic growth is that it may occur through a process Joseph Schumpter referred to as creative destruction. An issue that may arise with creative destruction

`is that the benefits of the creation of new​ goods, services, and industries may not be distributed evenly as some people lose their profits or employment in old services and industries.

Which of the following is an example of human​ capital

a college education

Which of the following would encourage economic growth through increases in the capital​ stock?

a decrease in the government deficit, a change from an income tax to a consumption tax, an increase in household savings all of the above

Countries with high rates of economic growth tend to have

a labor force that is more productive

The​ "interest rate​ effect" can be described as an increase in the price level that raises the interest rate and chokes off

investment and consumption spending.

The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase in future​ years, and these higher deficits might​ "pose a threat to the economy by crowding out business investment and threatening a spike in interest​ rates." This higher budget deficit would be represented graphically by

a shift in the supply curve for loanable funds to the left

Which of the following is not one of the three sources of technological​ change

additional amounts of existing capital

Which of the following would cause the short−run aggregate supply curve to shift to the​ left?

an increase in inflation expectations

Which of the following is a factor explaining why​ low-income countries have not experienced rapid economic​ growth?

many low income countries have wars and revolutions disrupting economic activity

From August 2009 to August​ 2015, the Standard​ & Poor's Index of 500 stock prices more than​ doubled, while the consumer price index increased by just over 10 percent. These changes would have caused

an increase in the real value of household​ wealth, which shifted the aggregate demand curve to the right

Milton Friedman argued that the Federal Reserve should adopt a​ ________ to reduce fluctuations in real​ GDP, employment, and inflation.

monetary growth rule

One of the lessons from the economic growth model presented in this chapter is that technological change is

more important than increases in physical capital in explaining​ long-run growth.

An increase in the price level will

move the economy up along a stationary short run aggregate supply curve.

Which of the following is not one of the key services provided by the financial​ system?

decreasing taxes

Actual real GDP will be above potential GDP if

firms are producing above capacity.

The financial system of a country is important for​ long-run economic growth because

firms need the financial system to acquire funds from household

the government policy that does not increase economic growth is

foreign trade policy that favors imposing a high tariff on imported​ high-tech goods

Longminus−run economic growth requires all of the following except

political instability.

​Full-employment GDP is also known as

potential GDP

The long run aggregate supply curve shows the relationship between the​ ________ and​ _______

price​ level; quantity of real GDP supplied

The only way the standard of living of the average person in a country can increase is if​ ________ increases faster than​ ________.

production; population

New growth theory LOADING... suggests that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal government intervene in the market to increase the amount of knowledge​ capital?

public education, patents, subsidies all of the above

​India's rapid growth can be explained by

reduced regulations and market based reforms

Recessions typically cause the unemployment rate to​ ________ and the inflation rate to​ ________.

rise; fall

Workers expect inflation to rise from​ 3% to​ 5% next year. As a result this should

shift the short run aggregate supply curve to the left.

Which of the following policies would not help promote economic​ growth?

A law requiring that the funds in an individual retirement account be taxed

In the dynamic aggregated demand and aggregate supply​ model, inflation occurs if

AD shifts faster than SRAS

Which of the following is one explanation as to why the aggregate demand curve slopes​ downward?

Decreases in the price level raise real wealth and increase consumption spending.

Which of the following are assertions made by opponents of​ globalization?

Globalization has contributed to multinational firms moving production to​ low-income countries so they can pay their workers very low wages. Globalization has contributed to multinational firms moving production to​ low-income countries to avoid safety and environmental regulations that​ high-income countries require such firms to follow. Globalization has undermined the distinctive cultures of many countries. D.All of the above are assertions made by opponents of globalization.

How do changes in income tax policies affect aggregate​ demand?

Higher taxes reduce disposable​ income, consumption, and aggregate demand.

Find out which one of the following is not one of the key differences between the basic aggregate demand and aggregate supply model and the dynamic aggregate demand and aggregate supply model.

In the dynamic​ AD-AS model, the economy does not experience​ long-run growth, whereas in the basic​ AD-AS model, the economy experiences both continuing inflation and growth.

The role of the entrepreneur becomes much more important in the new growth theory LOADING... long dash—the endogenous growth modellong dash—than in the traditional economic growth model LOADING... because

In the new growth​ theory, entrepreneurs play a key role in the development and adoption of new and sometimes untried technologies

When low income countries begin to experience economic​ growth, they often do so at rates much higher than current growth rates of industrial nations. Which of the following does not provide an explanation of this​ phenomenon?

Industrial countries have higher rates of growth in physical capital and developing countries are not able to invest in large quantities of capital.

If​ full-employment GDP is equal to​ $4.2 trillion, what does the​ long-run aggregate supply curve look​ like?

It is a vertical line at​ $4.2 trillion of GDP.

In a closed​ economy, the values for​ GDP, consumption​ spending, investment​ spending, transfer​ payments, and taxes are as​ follows: Y​ = ​$13 trillion C​ = ​$10 trillion I​ = ​$4 trillion TR​ = ​$3 trillion T​ = ​$4 trillion Using the information​ above, what is the value of private saving and public​ saving?

Private saving equals ​$2 trillion and public saving equals ​$2 trillion.

Which of the following is a true statement about​ long-run economic​ growth?

Small differences in economic growth rates result in big differences in living standards over time.

What is one difference between stocks and​ bonds?

Stocks represent partial ownership in a​ firm, while bonds do not.

German luxury car exports were hurt in 2009 as a result of the recession. How would this decrease in exports have affected​ Germany's aggregate demand​ curve?

The aggregate demand curve would have shifted to the left.

Milovia is a small open economy. The general price level in the economy has been increasing at a rate of about 7.5 percent each year. Jane​ Wilson, an industry​ analyst, is of the opinion that such high inflation is adversely affecting aggregate demand in the economy and therefore its ability to grow. Her​ colleague, Harry​ Gomes, however, disagrees. According to​ Harry, some amount of inflation is unavoidable in a growing economy. Higher prices for products help to increase the level of corporate profits and induce firms to increase aggregate output. ​Jane's argument is based on which of the following​ assumptions?

The purchasing power of nominal assets declines with an increase in the price level.

An economy that does not experience increases in technological progress

can experience economic growth by increasing​ capital, however, this will eventually stagnate and the economy will not continue to grow.

An economic growth model explains

changes in real GDP per capita in the long run.

An article in the Wall Street Journal notes that​ "raising productivity in the long run is the most effective way to elevate standards of​ living." ​Source: Greg​ Ip, "Politicians Should Pay Heed to Productivity​ Problem," Wall Street Journal​, July​ 22, 2015. The claim of this article is

consistent with economic theory that explains that​ long-run economic growth is dependent on increases in real GDP per capita.

In the long​ run, a country will experience an increasing standard of living only if it experiences

continuous technological change.

Economist Robert Gordon of Northwestern University has argued​ that: My interpretation of the​ [information] revolution is that it is increasingly burdened by diminishing returns. The push to​ ever-smaller devices runs up against the fixed size of the human finger that must enter information on the device. Most of the innovations since 2000 have been directed to consumer enjoyment rather than business​ productivity, including video​ games, DVD​ players, and iPods. iPhones are​ nice, but the ability to reschedule business meetings and look up corporate documents while on the road already existed by 2003. ​Source: Robert J. Gordon​, ​"U.S. Productivity Growth over the Past Century with a View of the​ Future, "National Bureau of Economic Research Working Paper​ 15834, March 2010. If​ Gordon's observations about the information revolution are​ correct, that implies

it will be difficult to sustain high growth rates in U.S. labor productivity in the future.

At the​ macro-economy level,

knowledge capital exhibits increasing returns and physical capital exhibits decreasing returns

According to new growth​ theory,

knowledge capital is subject to increasing returns.

Because of the slope of the aggregate demand curve we can say that a decrease in the price level

leads to a higher level of real GDP demanded

The American Trucking Association anticipates a shortage of trucker drivers in coming years as the number of retirees exceeds the number of new drivers who enter the profession. The number of train boxcars is also expected to fall by over 40 percent in coming years because federal regulations limit boxcars to 50 years of service and many currently in use will reach that limit by 2020. Lumber and paper producers that depend on boxcars for their shipments fear that they will have to depend more on trucks for​ transportation, which will cost as much as 20 percent more than shipping by rail. ​Sources: Lindsay Ellis and Laura​ Stevens, "International Paper Focuses on Improving Shipment​ Planning, Wall Street Journal​, July​ 30, 2015; and Bob​ Tita, "Why Railroads​ Can't Keep Enough Boxcars in​ Service," Wall Street Journal​, June​ 21, 2015. The reduction in the number of trucks and boxcars will

likely increase transportation costs and shift the​ short-run aggregate supply curve to the left.

Since​ 1950, expansions in the United States have become​ ________, while recessions have become​ ________.

longer; shorter

Shortly before the fall of the Soviet​ Union, the economist Gur Ofer of the Hebrew University of​ Jerusalem, wrote​ this: ​"The most outstanding characteristic of Soviet growth strategy is its consistent policy of very high rates of​ investment, leading to a rapid growth rate of​ [the] capital​ stock." ​Source: Gur​ Ofer, "Soviet Economic​ Growth, 1928-1985," Journal of Economic Literature​, December​ 1987, p.​ 1,784. This turned out to be a very poor growth strategy because

there were diminishing returns to capital.

Knowledge capital is nonrival in the sense that

two people can use the same knowledge to develop and produce a product.

​Typically, as an economy begins to emerge from a recessionary phase of the business​ cycle,

unemployment continues to rise.

Economists Mary​ Daly, Bart​ Hobijn, and Timothy Ni of the Federal Reserve Bank of San Francisco argue that​ "employers hesitate to reduce wages and workers are reluctant to accept wage​ cuts, even during​ recessions." ​Source: Mary C.​ Daly, Bart​ Hobijn, and Timothy​ Ni, "The Path of Wage Growth and​ Unemployment," Federal Reserve Bank of San Francisco Economic Letter​, July​ 15, 2013. Employers are hesitant to cut​ workers' salaries because wage cuts

upset workers and lower their productivity.


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