Chp 14 qbank

Can an economy that is at long-run equilibrium adjust to produce real GDP which is greater than full-employment real GDP in the short run?

An increase in aggregate demand when the economy is operating at long-run equilibrium (at full employment) will increase both the price level and real GDP in the short run.

Which of the following factors is most likely to increase aggregate demand?

An increase in real wealth. While an increase in real wealth will shift the AD curve to the right, an increase in the real rate of interest will shift the AD curve to the left as consumers and businesses reduce their borrowing and spending. An expected decrease in prices will shift the AD curve to the left as households and businesses postpone their consumption in anticipation of lower prices in the future.

Which of the following factors is most likely to increase aggregate demand?

An increase in real wealth.While an increase in real wealth will shift the AD curve to the right, an increase in the real rate of interest will shift the AD curve to the left as consumers and businesses reduce their borrowing and spending. An expected decrease in prices will shift the AD curve to the left as households and businesses postpone their consumption in anticipation of lower prices in the future.

Which of the following is most likely to occur in the short run aggregate demand decreases due to a reduction in business and consumer optimism?

An increase in the rate of unemployment. If business and consumer optimism wanes, consumers will spend less and defer current consumption and save more of their disposable income. With reduced product demand, businesses will reduce their capital expenditures and investments. These actions will lead businesses to reduce their number of employees, thereby increasing the rate of unemployment. Moreover, current output will decrease and the price level will fall.

If money wages increase, other things equal, the most likely result is a:

An increase in the wage rate decreases short-run aggregate supply, leading to a short-run recessionary gap. (and not short-run inflationary gap)

Which of the following is least likely a reason that the aggregate demand curve slopes downward?

Because entitlements are adjusted for inflation, a rising price level forces government spending to increase. the reasons: Business investment declines as a rising price level increases interest rates. The wealth effect causes consumers to spend less when the price level rises. The aggregate demand curve plots real GDP against the price level. Rising entitlement payments that result from an increasing price level affect nominal GDP, but not real GDP. Both remaining choices describe reasons why the consumption and investment components of real GDP decrease when the price level increases.

Which of the following factors is most likely to increase long-run aggregate supply?

Factors that shift the long-run aggregate supply curve (LAS) to the right include improvements in technology and productivity, increases in the supply of resources, and institutional changes that increase the efficiency of resource use. An increase in the productivity of the average worker is likely to shift the LAS curve to the right. Wage rate changes shift the short-run aggregate supply curve (SAS) but not the LAS curve. A decline in consumer demand would represent a move down the LAS curve but not a shift in LAS.

Which of the following amounts is least likely to be subtracted from gross domestic product in order to calculate national income?

GDP:NI+CCA+Statistical discrepency. NI=GDP-CCA-STAT DISCREPENCY. Indirect business taxes is part of NI.

A country's labor force is projected to decrease by 2% while its labor productivity is projected to increase by 3% per year. Based on these projections, the country's sustainable annual economic growth rate:

Growth in potential GDP = growth in labor force + growth in labor productivity. In this example, -2% + 3% = 1% growth in potential GDP.

Which of the following events is most likely to increase short-run aggregate supply (shift the curve to the right)?

High unemployment puts downward pressure on money wages. Falling money wages would cause businesses to increase (profit-maximizing) output levels at each price level for final goods and services. Changes in the price level of goods and services are represented by a movement along a short-run aggregate supply curve, not a shift in the curve. A rise in resource prices will decrease aggregate supply. An increase in government spending will shift the aggregate demand curve but not the aggregate supply curve.

Total investment is one of the components of a country's GDP. Which of the following is least likely to be considered a source of funds for investment?

Household expenditures. Total investment is one of the major components of GDP (the others are consumption, government spending, and net exports). Investment is defined as expenditures allocated to fixed assets and inventory. The sources of funds for investment are national savings, foreign borrowing, and government savings.

In the short run, will an increase in the money supply increase the price level and real output?

In the short run, an increase in the money supply will increase aggregate demand. The new short-run equilibrium will be at a higher price level and a greater level of real output (GDP).

The sustainable growth rate of real GDP is most likely to be increased by:

Not: an increase in the propensity to consume by households. an increase in government spending. yes: the discovery of untapped oil fields. Sustainable growth in real GDP is defined as the growth rate in real GDP that is sustainable over the long term. The sustainable growth rate is positively affected by increases in the supply of natural resources, the supply of physical capital, or the supply or productivity of labor. An increase in government spending does not increase an economy's sustainable growth rate.

An economist calculates the following value: National income + transfer payments to households − indirect business taxes − corporate income taxes − undistributed corporate profits The most appropriate term for the value she has calculated is:

Personal income is calculated by adding transfer payments to national income and subtracting indirect business taxes, corporate income taxes, and undistributed corporate profits. Disposable income is personal income minus personal taxes. GDP is national income plus a capital consumption allowance and an adjustment for statistical discrepancy between the income and expenditure approaches.

Because some input prices do not adjust rapidly to changes in the price level, the short-run aggregate supply curve:

The short-run aggregate supply curve slopes upward (i.e., is not perfectly inelastic) because in the short run some input prices do not adjust fully to changes in the price level. Because firms can increase profit in the short run by increasing output in response to higher prices, there is a positive short-run relationship between the price level and quantity supplied.

Stagflation refers to an environment of:

Stagflation refers to an economic environment where high unemployment and high inflation exist at the same time.

If the GDP deflator is less than 100, then real GDP is:

The GDP deflator is calculated by dividing the value of nominal GDP by the value of real GDP. In most cases the GDP deflator is greater than 100; a value greater than 100 means prices have increased. A GDP deflator less than 100 shows that prices have decreased and the value of real GDP is greater than the value of nominal GDP.

The IS curve illustrates the:

The IS curve slopes downward and shows an inverse relationship between real interest rates and income equilibria.

The sustainable growth rate of real GDP is most likely to be increased by:

The answer is like LRAS. Sustainable growth in real GDP is defined as the growth rate in real GDP that is sustainable over the long term. The sustainable growth rate is positively affected by increases in the supply of natural resources, the supply of physical capital, or the supply or productivity of labor. An increase in government spending does not increase an economy's sustainable growth rate. also it is not the increase in prosperity to consume by households.

Consider an economy in which labor's relative share of national income is 60%. For which of the following sources of economic growth will a 1% increase result in the largest increase in potential GDP?

The contributions of technology, labor, and capital to potential GDP can be modeled as follows: Growth in potential GDP = growth in technology + WL(growth in labor) + WC(growth in capital), where WL is labor's relative share of national income, WC is capital's relative share of national income, and WL + WC = 1.

In the production function approach to analyzing economic growth, total factor productivity accounts for:

The production function as defined as Y = A × ƒ(L, K) where Y is the aggregate output; L = quantity of labor; K = amount of capital available; and A = total factor productivity. Total factor productivity represents output growth not directly attributable to changes in the quantities of either labor or capital, and is thought to primarily reflect technological advances.

When the sources of economic growth are stated as a production function, which factor is treated as a multiplier?

Total factor productivity. Economic output can be stated as a production function of the form Y = A × ƒ(L, K), where Y is economic output, L is the size of the labor force, K is the amount of capital available, and A is total factor productivity.

Can an economy that is at long-run equilibrium adjust to produce real GDP which is greater than full-employment real GDP in the short run?

Yes, if aggregate demand increas.An increase in aggregate demand when the economy is operating at long-run equilibrium (at full employment) will increase both the price level and real GDP in the short run.

If domestic savings are insufficient to finance domestic private investment and exports are greater than imports, it is most likely that the fiscal budget has:

a surplus that is greater than the trade surplus. The fundamental relationship among saving, investment, the fiscal balance and the trade balance is expressed as (S − I) = (G − T) + (X − M). If domestic savings (S) are not sufficient to finance private investment (I), then (S − I) is negative and the sum (G − T) + (X − M) must also be negative. With exports greater than imports, (X − M) is positive so (G − T) must be negative and larger than (X − M). If (G − T) is negative, taxes (T) are greater than government spending (G) and the government has a fiscal surplus.

A country GDP is:

equa to country's aggregate income. Why? Aggregate income and aggregate output (gross domestic product) must be equal for an economy as a whole.

Because some input prices do not adjust rapidly to changes in the price level, the short-run aggregate supply curve:

is more elastic than the long-run aggregate supply curve. The short-run aggregate supply curve slopes upward (i.e., is not perfectly inelastic) because in the short run some input prices do not adjust fully to changes in the price level. Because firms can increase profit in the short run by increasing output in response to higher prices, there is a positive short-run relationship between the price level and quantity supplied.

A collector of antique automobiles buys one for $180,000 in 20X1 and sells it for $200,000 in 20X3. That buyer then sells the automobile for $215,000 in 20X5. Do these sales increase gross domestic product in 20X3 and 20X5?

no. These transactions do not increase GDP for either of these years because the antique automobile was not produced during the periods. GDP includes expenditures on goods and services that were produced during a period.

An economist calculates the following value: National income + transfer payments to households − indirect business taxes − corporate income taxes − undistributed corporate profits The most appropriate term for the value she has calculated is:

personal income. Personal income is calculated by adding transfer payments to national income and subtracting indirect business taxes, corporate income taxes, and undistributed corporate profits. Disposable income is personal income minus personal taxes. GDP is national income plus a capital consumption allowance and an adjustment for statistical discrepancy between the income and expenditure approaches.

Gross domestic product includes the value of all goods:

produced during the measurement period. Gross domestic product (GDP) is the sum of the market values of all goods and services produced during a measurement period. Goods purchased during the measurement period that were produced earlier are not included in GDP. Goods produced during the measurement period but not purchased, such as goods produced for inventory, are included in GDP.

With respect to the IS-LM model, a change in the price level will shift:

the LM curve, but not the aggregate demand curve.Because an LM curve is constructed for a given level of the real money supply, a change in the price level (which affects the real money supply) will shift the LM curve. The aggregate demand curve is determined by changing the price level, which produces alternative LM curves. Changing price levels determines the aggregate demand curve from the intersections of alternative LM curves with the IS curve.

Over the last five years, in the country of Midlothian, both the labor supply and the real stock of physical capital have increased by 20% and real GDP increased 22%. The reason that real GDP growth was greater than input growth over the period is most likely that:

total factor productivity increased. Any excess of real GDP growth over the rate of growth in labor and capital indicates there has been an increase in total factor productivity.

Components of national income include:

wages and benefits, corporate profits, and indirect business taxes less subsidies.National income is the sum of employee wages and benefits, corporate and government enterprise profits before tax, interest income, unincorporated business owners' income, rental income, and indirect business taxes less subsidies. Capital consumption allowance is an estimate of depreciation during the measurement period. Statistical discrepancy is an adjustment to GDP when measured using the income approach, which accounts for differences from the data used to calculate GDP using the expenditure approach.