Macro Econ 2
unplanned inventory investment
occurs when actual sales are more or less than businesses expected, leading to unplanned changes in inventories
A share of ownership in a company
stock
Which example is not a source of economic growth
Increases in average hours of vacation
There are two aspects to efficiently that the equilibrium of market for loanable funds exhibits
Investment projects that are financed by savers have larger rates of return than projects that do not receive financing. Savers who lend money are willing to accept a lower minimum interest rate the potential savers who do not lend money.
Which of the statements best describes the idea of economic convergence
Lower GDP per capita countries will catch up with higher GDP per capita countries
How does funding from national savings differ from funding obtained from capital inflows
National savings are repaid domestically, whereas capital inflows are repaid to foreigners
The Keynesian cross was developed by
Paul Samuelson
As interest rate decreases, what happens to the quantity of loanable funds demanded?
Quantity demanded will increase
What effect will an increase in interest rates have on the quantity of loanable funds supplied?
Quantity supplied will increase
As a result of a stock market boom, individuals begin to feel richer and spend more while also saving less
Shift in supply
China decides to reduce its capital investment in the United States, as it expects low returns due to a weak U.S. economy.
Shift is supply
What does productivity, or labor productivity measure?
The amount of goods and services that can be produced by one worker in one hour of work.
If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the business considering the project act?
The business will not take out the loan.
An increase in government spending can crowd out private investment
True
Macroeconomic policy has a larger effect when the multiplier is higher
True
The national savings are the combined value of all private savings and the budget balance
True
finding alternatives to natural resources will be very important to long-term economic growth.
True
in the 19th century, countries with the highest per capita GDP were nearly always abundant in minerals and productive farming land
True
Long-run economic growth is unlikely to be sustainable because of finite natural resources
false
National budget deficits are NOT included in the calculation of national savings
false
Research and development funds from the government to private industry never pay off for the country as a whole; they only increase the profits of rich corporations
false
lower interest rates can lead to private investment being crowded out
false
financial markets
financial institutions through which savers can directly provide funds to borrowers
mutual fund
fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets
Outflows of funds can only be generated by countries with a larger GDP per capita than the country receiving the funds
False
pension fund
a type of mutual fund that holds assets in order to provide retirement income to its members
What accurately describes the impact of the Atlantic Investment Tax credit
Firms that find more investments are profitable and increase their demand for loanable funds. As a result, the interest rate rises.
If investment spending increase by $240 billion, the first round of GDP increase attributed to increased investment is equal to MPC x $240 billion
false
Loans vs Bonds
A loan obtains funding from a lender, like a bank or specific organizations. In contrast, bonds obtain money from the public when companies sell them. In either case, the corporation typically has to repay the borrowed money at a prearranged interest rate. To start, bonds usually have a lower interest rate than loans
Rand Capital, a financial industry conglomerate, pools together several hundred home mortgages and sells shares in them to groups of investors. However, many investors decide against this option because of the risk involved and the difficulty of assessing the quality of such a large number of individual mortgages
Floating a loan-backed security
If private savings is equal to private investment, then there is neither a budget surplus nor a budget deficit
false
funds that are kept in a bank that must be relinquished upon the owner's request
Bank deposit
Why do we use the nominal interest rate rather than the real interest rate?
Because in the real world, neither borrowers nor lenders know what the future inflation rate will be when they make a deal.
Why does funding from national savings and funding obtained from capital inflows differ?
Because national savings are repaid domestically, whereas capital inflows are repaid to a foreigner
A promise to pay issued by a borrower with annual interest payments and a principal payment at maturity
Bond
Which of these statements best summarizes the impact of the Fisher effect
Consumers consider future inflation
Natural resources
Differences in natural resources per worker account for some differences in the standards of living between countries
If the MPC is 0.65, the multiplier is 1.54
false
Cobb Douglas Equation
Y = AK^xL^x
Which of the following best defines a financial intermediary
a financial institution that transforms investor funds into financial assets
Bond
a formal contract to repay borrowed money with interest at fixed intervals
loan-backed securities
an asset created by pooling individual loans and selling shares in that pool
consumption function
an equation showing how an individual household's consumer spending varies with the household's current disposable income
Fisher effect
an increase in expected future inflation drives up the nominal interest rate, leaving the expected real interest rate unchanged
autonomous change in aggregate spending
an initial rise or fall in aggregate spending that is the cause, not the result, of a series of income and spending changes
financial intermediary
an institution that transforms the funds it gathers from many individuals into financial assets. From savers to borrowers
loaned back securities
assets created by pooling individual loans and selling shares in that pool
Random Walk Hypothesis
assumption that the unpredictability of factors suggests that the best predictor of tomorrow's prices is today's prices
financial assets
claims on the property and the income of the borrower
In order for fledgling industries in poor nations to thrive, they must receive protection from foreign trade
false
In the modern economy, countries that possess few domestic natural resources essentially have no chance to develop economically
false
In the modern economy, human and physical capital are generally less important in productivity than natural resources
false
A trade balance in surplus increase the supply of financial capital
false
An improvement in the budget balance increases the demand for financial capital
false
Countries with few natural resources will always be poor
false
According to the Solow growth model, which one of these would not increase economic output in a developing nation
increasing government ownership of agricultural land
Which of the terms acts as the "price" in the market for loanable funds?
interest rate
planned investment spending
investment spending that firms intend to undertake during a given period. Planned investments may differ from actual investment spending due to unplanned inventory investment.
The government saves when tax revenue
is more than government spending
An agreement between a lender and a borrower
loan
Caleb has developed a prototype garlic-peeling device that he hopes to sell to the public. He is having his startup issue securities that offer buyers the promise to pay a specified amount of interest each year plus the principal in five years.
selling bonds
Lyle and Shane start a business selling pencil sharpeners to elementary schools. Their company becomes an instant success, and they decide to allow people to start buying small shares of their company. This gives individuals who buy shares the right to vote in company decisions and a small percentage of the profits.
selling stock
Calopolis, a college town in Northern California, has for many years banned the presence of fast-food restaurants in the city limits. As of 2012, however, the city will allow several fast food companies the open franchised locations
shift in demand
Due to an increase in revenues after a tax hike, the United States is able to eliminate the deficit and begins to maintain a balanced budget for the first time in several decades
shift in demand
Audrey wants to buy a new car but does not have enough cash. She gets funding from her local bank with the promise that she will make monthly payments for the next three years to repay the original amount lent to her plus 6% interest.
taking out a loan
Jack decides to build a chateau in the mountains of Colorado and operate it as a ski resort. He secures funding from a local commercial bank after discussing his business plan with the bank. He promises to pay back the principal plus interest over the next 20 years.
taking out a loan
Liquidity
the ease with which an asset can be converted into cash
transaction costs
the expenses of negotiating and executing a deal
Marginal Propensity to Consume (MPC)
the increase in consumer spending when disposable income rises by $1. Calculated by change in consumer spending/ change in disposable income
Marginal Propensity to Save (MPS)
the increase in household savings when disposable income rises by $1. 1-MPC.
accelerator principle
the proposition that a higher rate of growth in real GDP results in a higher level of planned investment spending, and a lower growth rate in real GDP leads to lower planned investment spending.
aggregate consumption function
the relationship for the economy as a whole between aggregate current disposable income and aggregate consumer spending
actual investment spending
the sum of planned investment spending and unplanned inventory investment
the efficient market hypothesis
the theory that asset prices reflect all publicly available information about the value of an asset
planned aggregate spending
the total amount of planned spending in the economy; includes consumer spending and planned investment spending.
Multiplier
the total change in real GDP caused by autonomous change in aggregate spending to the size of that autonomous change
A lower multiplier leads to a more stable economy
true
An increase in private consumption may crowd out private investment
true
MPC + MPS = 1
true
New technological developments can help us adapt to depleting sources of natural resources
true
in general, people consume more than they save
true
the budget balance can be either positive or negative
true