Economics exam #3

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One method employed by the World Bank to assist developing countries is

infusion of new machinery, the promotion of universal education, and increased foreign aid

induced innovation

innovations come about through inventive activity designed specifically to reduce costs.

The length of time that Congress takes to formulate a tax bill to help the economy is part of the

inside lag

3 sources of growth

land, labor, capital

Many economists believe that technological progress in the United States would be accelerated if

less money were spent in funding research and development in defense-related areas and more money were spent in other areas.

In the short run, the primary determinant of output of firms is the

level of demand

technological progress

more efficient ways of organizing economic affairs that allow an economy to increase output without increasing inputs y=f(K, l, a)

Increased investments in infrastructure or public capital would

most likely increase economic growth.

Which of the following is NOT an assumption in the Solow Model?

no depreciation

labor productivity

output produce per hour of work.An important source of increasing labor productivity is an increase in the ratio of capital to labor dividing GDP by the number of hours worked by all workers in a given year

The length of time from when households receive tax rebate checks to the time they spend the checks is part of the

outside lag

Auction prices

prices that adjust on a nearly daily basis example: fresh fish

Governments in developing countries can hinder economic growth by

promoting policies that tax exports

Assuming a constant level of capital in the economy, a rapid increase in population is likely to

raise real GDP, but lower real GDP per capita.

Real GDP per capita

real GDP / population size

contractionary fiscal policy

reductions in government expenditure or an increases in taxes; aggregate demand curve to the left example: increasing taxes

In an economy with no government or foreign sector, it is always true that

saving equals investment

The basic idea of the fiscal multiplier is that an initial increase in government spending will have more than a one-to-one impact on

short-run aggregate supply

Historical economic research shows that the accumulated investment in human capital during the last 300 years has produced

taller workers, more productive workers, and heavier workers

In an open economy, the government can accelerate growth by

taxing consumption and using the tax revenues for capital formation.

If the capital stock remains fixed while the supply of labor increases, it is likely that

the average product of labor will fall.

Inside lags associated with fiscal policy are due to all of the following EXCEPT

the delayed response of the firms to a tax cut

Education can contribute to economic growth through

the faster discovery of new technologies, the faster adaptation of existing technologies, a better integration of technology and workers' skills.

human capital

the knowledge and skills that workers acquire through education, training, and experience.

growth rate

the percentage rate of change of a variable from one period to another. (GDP yr 2 - GDP yr 1/GDP yr 1)

In the Solow Model, an increase in the saving rate will NOT result in an increase in

the population

convergence

the process by which poorer countries close the gap with richer countries in terms of real GDP per capita

fiscal policy

the spending and taxing policies used by the government to influence the economy

In the long run, the amount of output that the economy can produce will depend on

the supply of labor and capital

If prices are slow to adjust, then it is possible that

there will be a supply shortage, some markets will not be in equilibrium, and there will be a demand surplus

In the long run, an increase in the money supply will cause output

to remain the same

According to the Solow Model, an increase in technology will always result in an increase in output.

true

Large source if Norway wealth

oil

stabilization policy

the move the economy closer to full employment

Countries that devote a large share of GDP to investment tend to have high growth rates.

true

Foreign investment can increase a country's capital stock.

true

Growth that cannot be explained by increases in capital and labor must be caused by technological progress.

true

Investment in both private and public capital is conducive to economic growth and higher productivity

true

Wages are classified as custom prices, because they do not adjust very quickly.

true

Which of the following outcomes hinder economic growth?

uncertain financial environment

In fiscal policy, outside lags

usually take a much shorter time than inside lags

When output exceeds the full employment level of output, we expect that the

wages and prices increase as the short-run aggregate supply curve shifts upward over time.

economic growth allows a society to consume

a wider variety of goods, more goods per person, and higher quality of goods

per capita GDP decreases when?

GDP does not change and the population increases

The economy moves from a short-run equilibrium to the long-run equilibrium through

adjustments in wages and prices

stabilization policy

A government policy action that moves the economy closer to full employment or potential output

New Growth Theory

A theory of economic growth that examines the factors that determine why technology, research, innovation, and the like are undertaken and how they interact.

In fiscal policy, inside lags can take a long time because

Both changes in taxes and government spending require approval from Congress and the president and macroeconomic data take time to gather and can be unreliable are correct.

If saving is negative, which must be true?

Consumption is greater than income.

monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates. example: congress increases government spending

during the 1960-2011 period, the fastest growing country during the whole period was

Japan

Creative destruction, the notion that innovation is promoted by the competitive desire to break production monopolies, can be traced back to

Joseph Schumpeter

If a country uses trade deficits to finance consumption, then the country will experience

a decline in real GDP per capita in the future, a smaller portion of GDP in the future used for a capital deepening, and no capital deepening

growth accounting

a method to determine the contribution to economic growth from increased capital, labor, and technological progress

Rule of 70

a rule of thumb that says output will double, divide 70 by the percent of growth (70/x)

Using a production possibility curve, economic growth is represented as

a shifting of the curve upward

Fiscal policy shifts the

aggregate demand curve

An increase in taxes or a decrease in spending will shift the

aggregate demand curve to the left

Expansionary fiscal policy shifts the

aggregate demand curve to the right

Based on growth accounting, which of the following would cause an increase in output?

an increase in employment, capital stock, and the number of hours worked

Best measure of economic growth

an increase in real GDP per capita

capital deepening

an increase in the stock of capital per worker; one source of rising labor productivity

In fiscal policy, inside lags

are longer than outside lags

Diminishing (marginal) returns to labor implies that

as labor increases, labor productivity decreases.

In the Solow Model, the an increase in the saving rate will result in an increase in the

capital stock

If the protection of intellectual property rights were to be reduced, say by shortening patent terms, it is likely that

competition would increase but innovation would decrease

Governments in developing countries can promote economic growth by

creating the proper legal and economic environment

sticky prices

custom prices;Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded

saving

income not used for consumption; saving must equal investment

If the government wants to reduce unemployment, government spending should be ________ and/or taxes should be ________.

increased; decreased

expansionary fiscal policy

increases aggregate demand

Which of the following is an example of an expansionary fiscal policy?

decreasing taxes

The lags associated with fiscal policy can

depress output below full employment, stimulate output beyond full employment, and magnify economic fluctuations

The "short run" in macroeconomics is a period in which prices

do not change off change very little

If the economy is in a recession, the prices and wages will ________, causing the short-run AS curve to shift ________ until the economy reaches its long-run equilibrium.

drop; right

what is economic growth?

economic growth means an expanded production possibilities curve

An increase in capital stock

enhances labor productivity, increases the demand for labor, and causes economic growth

In an open economy, a country can accelerate growth by

increasing the trade deficit and importing investment goods.

Fiscal policy affects aggregate demand because

government purchases is a category of aggregate demand, taxes affect disposable income and so consumption, and taxes affect corporate spending and so investment

Which of the following will NOT lead to greater economic growth?

government taxation of the private sector in order to engage in consumption spending


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