Exam 2 Macroeconomics

Standard of Living

A comparative measure of material well-being in an economy.

Non-Production Transaction

A market exchange of used goods that were already accounted for in GDP of a previous year.

Peak

A point of maximum output in the economy.

Trough

A point of minimum output in the economy.

Leisure

Activities of consumers that provide utility but do not include the purchase of produced output.

When Total Expenditure in the economy decreases, _____ will _____ in the aggregate market.

Aggregate Demand, decrease

Economic Growth

An increase in total output of products in an economy over time.

Steve is a teacher at a public school in Oklahoma. Steve buys a bookshelf from a furniture manufacturing company in Michigan and puts it in his living room for books and decorations. This purchase by Steve is classified as:

Consumption

When income decreases, _____ will _____.

Consumption, decrease

When income increases, _____ will _____.

Consumption, increase

Inflationary Gap

Economic condition in which Real GDP is greater than Natural Real GDP and resulting in an unemployment rate that is lower than the Natural Rate of Unemployment and an inflation rate that is higher than the ideal rate.

Recessionary Gap

Economic condition in which Real GDP is less than Natural Real GDP and resulting in an unemployment rate that is higher than the Natural Rate of Unemployment and an inflation rate that is lower than the ideal rate.

Mary is a bookkeeper for the National Parks Service, a U.S. government agency. Mary arranged the purchase of 20 meals from Chick-fil-A last week for a meeting her boss was having at his office with some important local decision makers. This purchase is classified as:

Government Spending

Which of the following will cause Total Expenditure to increase in the economy?

Increase in Consumption Increase in Investment Increase in Government Spending Increase in Net Exports

Amy customizes furniture and then sells her creations on the internet. Amy buys a bookshelf from a furniture manufacturing company in Michigan. She plans to paint the bookshelf with special images for a customer. This purchase by Amy is classified as:

Intermediate Good

When expected return on investment increases, _____ will _____.

Investment, increase

Possible economic output is called [ Select ] and actual economic output is called [ Select ] .

Natural Real GDP, The Business Cycle

Carlos is a manager at a local Chick-fil-A restaurant. He needs to have his house painted, but he actually used to be a house painter before becoming a manager, so he decides to paint his house by himself (on Sundays). This activity of painting his own house is classified as:

Non-Market Production

Underground Production

Output from suppliers that is secretly sold and not documented or accounted for by the government.

Economic Bads

Output in an economy that results in disutility (negative utility).

Imports

Output produced in another economy (foreign) but consumed in this economy (domestic).

Exports

Output produced in this economy (domestic) but consumed in another economy (foreign).

Non-Market Production

Output that is the result of individuals making products for themselves instead of buying them from a supplier for a price.

Contraction

Period of decrease in economic output in the economy.

Expansion

Period of increase in economic output in the economy.

When the economy experiences a beneficial supply shock, _____ will _____.

Production Costs, decrease

When worker wages decrease in the economy, _____ will _____.

Production Costs, decrease

When the cost of capital increases in the economy, _____ will _____.

Production Costs, increase

When worker wages increase in the economy, _____ will _____.

Production Costs, increase

Intermediate Goods

Production output that will be purchased by a firm to be used as an input in the production of another product and is not purchased for final use.

Short Run Equilibrium

The aggregate market equilibrium between aggregate demand and short run aggregate supply which determines the price level and Real GDP in an economy and determines the business cycle over time.

Per Capital Real GDP

The average amount of output/utility experienced by each person in an economy.

Gross Domestic Product

The economic indicator used to measure economic growth in an economy as the sum of the money value of all products produced in an economy in time period.

Aggregate Market

The economy-wide cluster of the dynamics and forces of all buyers and sellers of all products for final use in a society.

Natural Rate of Unemployment

The ideal unemployment rate that results in an ideal inflation rate in which there is no cyclical unemployment and ideal amounts of frictional and structural unemployment.

Natural Real GDP

The level of economic output that results in Full Employment and Price Level Stability and is unaffected by changes in the price level because it is purely determined by productive capacity.

Business Cycle

The pattern of economic output/activity resulting from fluctuations in economic output over time.

Nominal GDP

The sum of the money value of all output in prices current to the year of production (value of all output in the prices of the time).

Real GDP

The sum of the money value of all output without the effects of inflation/deflation (value of all output leaving out changes in the price level).

Net Exports

The sum of the nominal prices of all products produced in this economy but sold for final use in another economy minus the sum of the nominal prices of all products produced in another economy but sold for final use in this economy.

Investment

The sum of the nominal prices of all products sold for final use in an economy to firms/businesses.

Government Spending

The sum of the nominal prices of all products sold for final use in an economy to government organizations.

Consumption

The sum of the nominal prices of all products sold for final use in an economy to individuals and households.

Total Expenditure

The sum of the nominal prices of all products sold for final use in an economy.

Long Run Aggregate Supply

The total quantity of products for final use that producers are capable of producing and selling in an economy based on overall productive capacity.

Aggregate Demand

The total willingness and ability of all buyers of all products for final use in an economy to buy different quantities at different price levels.

Short Run Aggregate Supply

The total willingness and ability of all producers of all products for final use in an economy to produce and sell different quantities at different price levels.

Okun's Law

There is an inverse, or negative, relationship between Real GDP and the unemployment rate.

Long Run Equilibrium

When the aggregate market equilibrium equals long run aggregate supply and equilibrium Real GDP equals Natural Real GDP.

When Natural Real GDP exceeds Real GDP, the economy is experiencing a __________ ______ .

a Recessionary Gap

The economy is in [ Select ] when actual economic output is less than possible economic output.

a recessionary gap

When Long Run Real GDP exceeds Short Run Real GDP, the economy is in

a recessionary gap

The economy is in [ Select ] when possible economic output is less than actual economic output.

an inflationary gap

When Short Run Real GDP exceeds Long Run Real GDP, the economy is in

an inflationary gap

As equilibrium quantity in product markets decreases overall, Real GDP in the short run will [ Select ] .

decrease

When there is a decrease in consumer income in the economy, Aggregate Demand will _____ and the Unemployment Rate will _____.

decrease, increase

When there is an increase in interest rates in the economy, Total Expenditure will _____ and the Unemployment Rate will _____.

decrease, increase

When there is an increase in the cost of capital in the economy, Short Run Aggregate Supply will _____ and the Unemployment Rate will _____.

decrease, increase

When the economy experiences an adverse supply shock, Short Run Aggregate Supply in the economy will _____ and it could close a(n) _____ gap.

decrease, inflationary

When there is a decrease in Consumption in the economy, Total Expenditure in the economy will _____ and it could close a(n) _____ gap.

decrease, inflationary

When there is a decrease in Short Run Aggregate Supply in the economy, Real GDP in the economy will _____ and it could close a(n) _____ gap.

decrease, inflationary

When there is an increase in Interest Rates in the economy, Aggregate Demand in the economy will _____ and it could close a(n) _____ gap.

decrease, inflationary

(C) The economy is in long run equilibrium when the level of output is equal to 100% capacity utilization.

equal to

A beneficial supply shock could cause _____ to increase and _____ to decrease.

factor productivity, factor prices

(B) The economy is in an inflationary gap when the level of output is less than 100% capacity utilization.

greater than

During an inflationary gap: (i) the unemployment rate is less than the Natural Rate of Unemployment, (ii) the inflation rate is high, and (iii) economic growth is

high

As equilibrium quantity in product markets increases overall, Real GDP in the short run will [ Select ] .

increase

When foreign economies are experiencing economic expansion, Total Expenditure in this country will _____ and the Unemployment Rate will _____.

increase, decrease

When the cost of capital in the economy increases, CPI will _____ and Real GDP will _____.

increase, decrease

When there is an increase in Net Exports in the economy, Aggregate Demand will _____ and the Unemployment Rate will _____.

increase, decrease

When Income increases in the economy, CPI will _____ and Real GDP will _____.

increase, increase

When the value of the U.S. dollar decreases relative to foreign currencies, CPI will _____ and Real GDP will _____.

increase, increase

When there is a decrease in Interest Rates in the economy, Real GDP in the economy will _____ and it could close a(n) _____ gap.

increase, recessionary

When there is an increase in Expected Return on Investment in the economy, Total Expenditure in the economy will _____ and it could close a(n) _____ gap.

increase, recessionary

(A) The economy is in a recessionary gap when the level of output is greater than 100% capacity utilization.

less than

Real GDP in the long run does not fluctuate up and down over time,

long

The economy is in [ Select ] when possible economic output is equal to actual economic output.

long run equilibrium

When Short Run Real GDP equals Long Run Real GDP, the economy is in

long run equilibrium

Natural Real GDP is based on Real GDP in the [ Select ] and [ Select ] fluctuate over time.

long, does not

Real GDP in the _______ run has no fluctuations in output over time and is primarily determined by _____________ _____________

long, productive capacity

During a recessionary gap: (i) the unemployment rate is greater than the Natural Rate of Unemployment, (ii) the inflation rate is low , and (iii) economic growth

low

There is a _____ relationship between the unemployment rate and the inflation rate. Whenever the inflation rate is high, the unemployment rate is _____.

negative, low

As equilibrium quantity in product markets decreases overall, Real GDP in the long run will [ Select ] .

not change

As equilibrium quantity in product markets increases overall, Real GDP in the long run will [ Select ] .

not change

Real GDP in the short run fluctuates with high and low points over time,

short

Actual Real GDP is Real GDP in the ______ run and Natural Real GDP is what we are _________ _____ _________ in the economy.

short, capable of producing

The Business Cycle is based on Real GDP in the [ Select ] and [ Select ] fluctuate over time.

short, does

Real GDP in the _______ run has high and low fluctuations in output over time and is primarily determined by ___________ .

short, price