macro exam 3
During 2019, Simon's Recording Studio spent $40,000 on new machines. During the year, depreciation was $6,000. What was Simon's net investment in 2019?
$34000
Real GDP is $700 billion, average hours worked per week is 42 and aggregate hours 150 billion hours. What is the economy's labor
$4.67
During 2020, Simon's Recording Studio spent $35,000 on new machines. Simon's net investment on the machines at the end of the year was $27,000. What was Simon's depreciation on the machines in 2020?
$8,000 (35,000-27,000)
The table provides some data for an economy in 2017 and 2018. Calculate labor productivity in 2017 and 2018. >>> Answer to 2 decimal places. (a)Labor productivity in 2017 is $______ an hour. (b)Labor productivity in 2018 is $______ an hour.
(a and b) divide real gdp by Aggregate hours
The Classical macroeconomic model proposes that
markets work efficiently to produce the best macroeconomic outcomes.
What is the outcome of classical growth theory? According to classical growth theory, _______.
no matter how technology advances, real wage rates are always pushed back toward the subsistence level
What is predicted by new growth theory? According to new growth theory, _______.
our unlimited wants will lead us to ever greater productivity and perpetual economic growth
The law of diminishing returns states that
output decreases at a constant rate as more capital is added
According to the new growth theory, real GDP per person grows because
people make choices in pursuit of profits.
The level of real GDP the economy produces at full employment is called
potential GDP.
Which of the following statements about a minimum wage is true? A minimum wage _______.
that is above the equilibrium wage rate creates unemployment from job rationing
The Keynesian macroeconomic model states that
the economy is inherently unstable and government intervention is required to maintain continued economic growth.
The benefit to the firm of hiring another worker is
the extra output produced by the worker.
What occurs in the labor market when the real wage rate is above the full-employment equilibrium level? When the real wage rate is above the full-employment equilibrium level, _______.
the natural unemployment rate increases
The demand for labor curve shows the relationship between _______.
the quantity of labor businesses are willing to hire and the real wage rate
The labor market is in equilibrium whenever
the quantity of labor demanded equals the quantity of labor supplied.
On what does real GDP growth depend?
the quantity of labor growth and labor productivity growth
What is the outcome in a market with job rationing? In a market with job rationing, _______.
the quantity of labor supplied persistently exceeds the quantity demanded
The supply of labor is the relationship between _______.
the real wage rate and the quantity of labor supplied
Economic Growth is defined as
the sustained expansion of production possibilities
The figure shows a nation's production function. Point A is
unattainable given the state of the economy.
U.S. potential GDP is the value of the goods and services produced in the United States _______.
when the U.S. economy is at full employment
Suppose the price of a product is $4 and the nominal wage that the firm must pay is $20. Then the firm's real wage is
$5.
During 2009, Barbara earned $60,000 as a financial analyst, paid taxes of $5,000 and consumed $53,000. If Barbara's wealth was $4,000 at the beginning of 2009, at the end of 2009 Barbara's wealth was
$6,000.
Suppose firms become more optimistic about the economy's ability to avoid a recession and hence the expected profit increases. As a result, the demand for loanable funds curve shifts ________ and the real interest rate ________.
rightward; rises
In an expansion, how does a change in expected profit influence the demand for loanable funds? In an expansion, expected profit _______ and, other things remaining the same, the demand for loanable funds _______.
rises; increases
What are the preconditions for economic growth? The preconditions for economic growth are _______.
economic freedom, private property rights, and markets
What is the classical growth theory? (a)Classical growth theory _______. (b)Why does classical growth theory predict that economic growth will eventually end?
(a)predicts that the clash between an exploding population and limited resources will eventually bring economic growth to an end (b)A population explosion that leads to a fall in labor productivity and the return of real GDP per person to the subsistence level
What is the economic growth rate? How is it calculated? (a)The economic growth rate is the annual percentage change of _______. (b)Real GDP growth rate = _______.
(a)real GDP (b)[(Real GDP in current year−Real GDP in previous year)÷Real GDP in previous year]×100
What are the three types of financial markets? What is financial capital? (a)The three types of financial markets are _______. (b)Financial capital is _______.
(a)stock markets, bond markets, and loans markets (b)the funds used to buy physical capital
Bill's Lawn service starts the year with 20 lawn mowers. During the year, 3 mowers break and are not worth fixing. Bill also expands his business and buys 10 more mowers. Bill's net investment is ________ mowers.
10
Which of the following plays a role in new growth theory?
many people can use discoveries at the same time, and physical activities can be replicated
The table provides some data for an economy in 2017 and 2018. Calculate labor productivity in 2017 and 2018. What is the growth rate of labor productivity in 2018? (a)Labor productivity in 2017 is $______ an hour. (b)Labor productivity in 2018 is $______ an hour. (c)The growth rate of labor productivity in 2018 is ____ percent.
(a and b) divide real gdp by Aggregate hours (c) The growth rate of productivity in 2018= [(Labor productivity in 2018−Labor productivity in 2017)÷Labor productivity in 2017]×100
Lori is a student who teaches golf on the weekend and in a year earns $20,000 after paying her taxes. At the beginning of 2019, Lori owned $4,000 worth of books and golf clubs and she had $4,000 in a savings account at the bank. During 2019, the interest on her savings account was $280 and she spent a total of $10,000 on consumption goods and services. The market value of her books and golf clubs did not change. How much did Lori save in 2019? What is her wealth at the end of 2019?
(a) In 2019, Lori saved $10,280(20,000-10,000+280) (b)Lori's wealth at the end of 2019 is $18,280(10,280+4,000+4,000)
The graph shows the productivity curves in year 1 and year 2 for an economy. (a)Draw a point to show real GDP per hour of labor in year 1 if capital per hour of labor is $30. Label it 1. Draw a point to show real GDP per hour of labor in year 2 if capital per hour of labor is $40. Label it 2. (b)Describe what happened in the economy. The upward shift of the productivity curve is due to _______, and the increase in capital per hour of labor is due to _______.
(a) Put point 1 on PC1 at 30 Put point 2 on PC2 at 40 (b)an increase in human capital or a technological advance; an increase in saving or an increase in investment in physical capital
Suppose the CPI rises. What is the effect on the production function, the demand for labor, and the supply of labor? In what direction do the changes occur? (a)When the CPI rises, there is _______ in the U.S. production function, and _______ in the U.S. demand for labor. (b)There is _______ in the U.S. supply of labor.
(a) no shift;no change (b)no change
During the past 50 years, Singapore has seen huge changes: rapid population growth and the introduction of newer and newer technologies. Singapore has modest unemployment benefits, no minimum wage, and weak labor unions. Does Singapore's unemployment arise mainly from job search or job rationing? (a)Unemployment in Singapore mainly arises from job _______. (b)But some job _______ might arise from _______.
(a) search (b)rationing; efficiency wages
Calculate the change in the number of years it will take for real GDP per person in China to double if China's economic growth rate increases from 10.6 percent to 12.0 percent a year and its population growth rate changes from 1 percent to 2 percent a year. >>> Answer to 1 decimal place. (a)When China's economic growth rate is 10.6 percent a year and its population growth is 1 percent a year, real GDP per person doubles in _____ years. (b)When China's economic growth rate is 12.0 percent a year and its population growth is 2 percent a year, real GDP per person doubles in ____ years. (c)When China's economic growth rate increases from 10.6 percent to 12.0 percent a year and its population growth rate changes from 1 percent to 2 percent a year, real GDP per person doubles in _______.
(a)10.6-1=9.6 70/9.6 = 7.3 (b)12-2=10 70/10 = 7 (c)7.3-7 = 0.3 fewer years
Calculate the change in the number of years it will take for real GDP per person in India to double if real GDP per person increases from 8 percent a year to 10 percent a year. >>> Answer to 1 decimal place. (a)When real GDP per person grows at 8 percent a year, real GDP per person in India doubles in ______ years. (b)When real GDP per person grows at 10 percent a year, real GDP per person in India doubles in _____years. (c)When the growth rate of real GDP per person increases from 8 percent to 10 percent a year, real GDP per person will double ____ years earlier.
(a)70/8 =8.75 (b)70/10=7 (c)8.75-7=1.75
(a)Draw a demand for labor curve. Label it LD. (b)What is the reason for the slope of the demand curve? The slope of the demand for labor curve occurs because _______.
(a)Draw a negative curve(start on left top and end on bottom right) and label it LD (b)each additional hour of labor produces less additional output than the previous hour
Karrie is a golf pro, and after she paid taxes, her income from golf and interest from financial assets were $2,000,000 in 2018. At the beginning of 2018, she owned $700,000 worth of financial assets. The market value of her financial assets did not change during 2018. At the end of 2018, Karrie's financial assets were worth $1,600,000. How much did Karrie save during 2018 and how much did she spend on consumption goods and services?
(a)During 2018 Karrie saved $900,000(1,600,000-700,000) (b)During 2018 Karrie consumed $1,100,000(2,000,000-900,000)
Frank takes a summer job in telephone sales. During the summer, he earns an after-tax income of $1,500 and he spends $2,500 on goods and services. What was Frank's saving during the summer and the change, if any, in his wealth?
(a)Frank's saving during the summer is -1000 dollars. (b)The change in Frank's wealth is - 1,000 dollars.
Table 1 Production Function and Demand for Labor Schedules Quantity of labor demanded (billions of hours per year) 0 2 4 Real GDP (billions of 2012 dollars) 0 140 200 Real wage rate (2012 dollars per hour) 100 60 20 Table 2 Supply of Labor Schedule Quantity of labor supplied (billions of hours per year) 0 2 4 Real wage rate (2012 dollars per hour) 20 60 100 Use the information in the schedules above to draw this economy's production function. Label it. (a)Draw a point to show equilibrium employment and potential GDP. (b)At the full-employment quantity of labor, what is the real wage rate? The real wage rate is ______ an hour.
(a)Graph a curve on points (0,0), (2,140), and (4,200). label that curve PF Place point at (2,140) (b)$60
Who published The General Theory of Employment, Interest, and Money? In what year was it published? What was his theory? (a)_______ published The General Theory of Employment, Interest, and Money in _______. (b)His theory was that _______.
(a)John Maynard Keynes; 1936 (b)too little private spending is the cause of depression and recession
What type of macroeconomics holds the view that the market economy is inherently unstable and needs active government intervention to achieve full employment and sustained economic growth? (a)_______ macroeconomics is the view that the market economy is inherently unstable and needs active government intervention to achieve full employment and sustained economic growth. (b)According to Keynes, _______.
(a)Keynesian (b)too little private spending is the cause of depression and recession
Michael is an Internet service provider. On December 31, 2018, he bought an existing business with servers and a building worth $400,000. During 2019, he bought new servers for $300,000. The market value of his older servers fell by $100,000. What was Michael's gross investment, depreciation, and net investment during 2019? What is Michael's capital at the end of 2019?
(a)Michael's gross investment during 2019 was $300,000 (b)Michael's depreciation during 2019 was $100,000 (c)Michael's net investment during 2019 was $200,000 (d)Michael's capital at the end of 2019 was $600,000
It's time to start worrying about the National Debt The budget deficit this year is expected to reach $1 trillion. The government is financing this gap between its outlays and tax revenue by selling Treasury bills and bonds to American and international investors. Source: Valerie Ramey, The Wall Street Journal, August 23, 2019 Draw a graph of the loanable funds market to illustrate the situation described in the article. How will selling Treasury bills and bonds to American and international investors change the real interest rate and the quantity of saving in the United States? The graph shows the U.S. market for loanable funds. (a)Draw a point at the market equilibrium. Label it 1. Suppose that the U.S. government finances its deficit by selling Treasury bills and bonds in the loanable funds market. Draw a curve to show the effect of the government's action in the loanable funds market. Label it. Draw a point to show the new equilibrium real interest rate and equilibrium quantity of loanable funds. Label it 2. (b)When the U.S. government borrows in the loanable funds market, the quantity of U.S. saving _______ and the U.S. real interest rate _______.
(a)Plot point 1 at the intersection already there Plot the line DLF 1 above the line DLF Plot point 2 at the new intersection (b)increases; rises
The Bureau of Economic Analysis reported that the U.S. capital stock was $57.3 trillion at the end of 2016, $59.8 trillion at the end of 2017, and $62.9 trillion at the end of 2018. Depreciation in 2017 was $3.2 trillion, and gross investment during 2018 was $3.8 trillion. Calculate U.S. net investment and gross investment during 2017.
(a)U.S. net investment during 2017 was $2.5 trillion.(59.8-57.3) (b)U.S. gross investment during 2017 was $5.7 trillion.(3.2+2.5)
The Bureau of Economic Analysis reported that the U.S. capital stock was $57.3 trillion at the end of 2016, $59.8 trillion at the end of 2017, and $62.9 trillion at the end of 2018. Depreciation in 2017 was $3.2 trillion, and gross investment during 2018 was $3.8 trillion. Calculate U.S. net investment and depreciation during 2018.
(a)U.S. net investment during 2018 was $3.1 trillion.(62.9-59.8) (b)Depreciation during 2018 was $. 7 trillion.(3.8-3.1)
The table provides some data on real GDP and the population of Atlantis in 2017 and 2018. What is the economic growth rate in Atlantis in 2018? What is the growth rate of Atlantis's standard of living in 2018? (a)The economic growth rate in Atlantis in 2018 is _____percent. (b)The growth rate of Atlantis's real GDP per person in 2018 is ____.
(a)Use [(Real GDP in current year−Real GDP in previous year)÷Real GDP in previous year]×100 (b) Divide real gdp by corresponding population, then plug that into same formula
What does the production function separate? What does the shape of the production function illustrate? (a)The production function separates _______. (b)The production function _______.
(a)attainable combinations of labor hours and real GDP from unattainable combinations (b)displays diminishing returns
What do loanable funds finance? What is the source of loanable funds? (a)Loanable funds are used to finance _______. (b)Loanable funds come from _______.
(a)business investment, a government budget deficit, and international investment or lending (b)private saving, a government budget surplus, and international borrowing
According to classical growth theory, when does the population grow? (a)According to classical growth theory, when real GDP per person _______, the population grows. (b)What is the prediction of Malthusians? According to Malthusians, _______.
(a)exceeds the subsistence level (b)if today's global population reaches 11 billion by 2200, we will return to a primitive standard of living
What is economic growth? (a)Economic growth _______. (b)Does the standard of living increase whenever real GDP increases?
(a)is a sustained expansion of production possibilities (b)No, the growth rate of the population must be less than the growth rate of real GDP
What is the driving force of economic growth according to new growth theory? Why does it predict that economic growth will never end? (a)According to new growth theory, the driving force of economic growth is _______. (b)New growth theory predicts that economic growth will never end because _______.
(a)many people can use one discovery at the same time (b)our unlimited wants will lead us to make choices that will bring ever-greater productivity and perpetual economic growth.
What is the view of classical macroeconomics? (a)According to classical macroeconomics, _______. (b)Classical macroeconomics predicted that the Great Depression _______.
(a)no remedy by government can improve on the performance of the market (b)would eventually end but offered no method for ending it more quickly
Suppose U.S. labor unions negotiate wage hikes that affect all workers. What is the effect on the production function, the demand for labor, and the supply of labor? In what direction do the changes occur? (a)When U.S. labor unions negotiate wage hikes that affect all workers, there is ______ in the U.S. production function. (b)There is _______ in the U.S. demand for labor and _______ in the U.S. supply of labor.
(a)no shift (b)no change;no change
According to Ricardo-Barro, what is the effect of a government budget deficit in the loanable funds market?
According to the Ricardo-Barro effect, rational taxpayers know that a budget deficit today means that future taxes will be higher and future disposable incomes will be smaller.
What is the Ricardo-Barro effect? (a)The Ricardo-Barro effect is the proposition that _______. (b)The graph shows the supply of loanable funds and the demand for loanable funds in an economy. Suppose the government has a budget deficit of $0.2 trillion and the Ricardo-Barro effect holds. Draw the new demand for loanable funds curve. Label it. Draw the new supply of loanable funds curve. Label it. Draw a point that shows the equilibrium quantity of loanable funds and interest rate.
(a)the budget deficit has no effect on the real interest rate or investment (b)Plot the line DLF 1 above the line DLF Plot the line SLF 1 to the right of the SLF line Plot the point at the new intersection of SLF 1 and DLF 1
On January 1, 2020, Sophie's Internet Cafe owned 10 computer terminals valued at $8,000. During 2020, Sophie's bought 5 new computer terminals at a cost of $1,250 each, and at the end of the year, the market value of all of Sophie's computer terminals was $10,000. What was Sophie's gross investment, net investment, and depreciation?
(a)Sophie's gross investment during 2020 was $6250(1250x5) (b)Sophie's net investment during 2020 was $2000.(10000-8000) (c)Sophie's depreciation during 2020 was $4250.(6250-2000)
On January 1, 2019 Terry's Towing Service owned 7 tow trucks valued at $630,000. During 2019, Terry's bought 10 new trucks for a total of $1,000,000. At the end of 2019, the market value of all the firm's trucks was $1,441,000. What was Terry's gross investment? Calculate Terry's depreciation and net investment.
(a)Terry's gross investment during 2019 was $1,000,000 (b)Terry's depreciation during 2019 was $189,000($630,000+$1,000,000−$1,441,000) (c)Terry's net investment during 2019 was $811,000(1,000,000-189,000)
What is the effect of an increase in disposable income on the supply of loanable funds? What is the effect of the adoption of new technology that increases expected profit on the demand for loanable funds? If both of these events occur simultaneously, does the equilibrium real interest rate change? (a)An increase in disposable income will _______ the supply of loanable funds and the adoption of new technology that increases expected profit will _______ the demand for loanable funds. (b)
(a)increase; increase (b)rises, falls, or remains unchanged
The demand for loanable funds
****increases in an expansion and decreases in a recession.
According to the Ricardo−Barro effect, an increase in the government budget deficit
***does not change the real interest rate.
Which of the following events increases the amount of job-rationing unemployment?
An increase in the efficiency wage rate
The graph describes the labor market on Sandy Island. In addition, not shown in the graph, a survey tells us that when Sandy Island is at full employment, people spend 2,000 hours a day in job search. If the government introduces a minimum wage of $13 an hour, how much unemployment is created by job rationing? The amount of job rationing unemployment created by the minimum wage is _____ hours per day.
2,000 hours $12 would be the median, $13 is the new minimum wage Take 13-11=2
Assume the population growth rate is 2 percent and the real GDP growth rate is 5 percent. The change in standard of living, as measured by
3 percent
The graph describes the labor market on Sandy Island. In addition, not shown in the graph, a survey tells us that when Sandy Island is at full employment, people spend 1,000 hours a day in job search. If the government introduces a minimum wage of $22 an hour, how much unemployment is created by job rationing? The amount of job rationing unemployment created by the minimum wage is ______ hours per day.
4,000 hours The median is $20, the new minimum wage is $22 Take 22-18=4
If Country A's real GDP grows at a rate of 14 percent per year, about how many years will it take for Country A's real GDP to double?
5
Explain why, other things remaining the same, a country with a well-educated population has a faster economic growth rate than a country that has a poorly educated population.
A country with a well-educated population has more human resources to invest in expanding human capital, which can develop new and more productive technologies.
_______ macroeconomics is the view that the market economy works well, that aggregate fluctuations are a natural consequence of an expanding economy, and that government intervention cannot improve the efficiency of the market economy.
Classical
The tables set out information about the economy of Athabasca. Calculate the quantity of labor employed, the real wage rate, and potential GDP. The quantity of labor employed is nothing million hours.
Find the middle number of all categories
Which growth theory sees the economy as a perpetual motion machine? _______ sees the economy as a perpetual motion machine.
New growth theory
Which of the following statements about potential GDP is correct?
On average over the business cycle, real GDP equals potential GDP.
Show the effect on the real interest rate and equilibrium quantity of loanable funds of a decrease in the demand for loanable funds and a smaller decrease in the supply of loanable funds. Draw a demand for loanable funds curve. Label it DLF0. Draw a supply of loanable funds curve. Label it SLF0. Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1. Draw a curve that shows a decrease in the demand for loanable funds. Label it DLF1. Draw a curve that shows a smaller decrease in the supply of loanable funds. Label it SLF1. Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2.
Plot SLF 1 (top) and SLF 0(bottom) at a positive upward slope Plot DLF 0(top) and DLF 1(bottom) and a negative downward slope a lil spaced out from each other Plot point 1 at the intersection of DLF 0 and SLF 0 Plot point 2 at the intersection of DLF 1 and SLF 1
Show how a decrease in the supply of loanable funds and an increase in the demand for loanable funds can raise the real interest rate and leave the equilibrium quantity of loanable funds unchanged. Draw a demand for loanable funds curve. Label it DLF0. Draw a supply of loanable funds curve. Label it SLF0. Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1. Now draw a curve that shows an increase in the demand for loanable funds. Label it DLF1. Draw a curve that shows a decrease in the supply of loanable funds. Label it SLF1. Draw this curve in such a way that the equilibrium quantity of loanable funds does not change. Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2.
Plot line DLF 0 (bottom)and DLF 1 (top)at a negative downward slope Plot line SLF 1(top) and SLF 0(bottom) at a positive upwards slope Point 2 should be at the intersection of SLF 1 and DLF 1 Point 1 should be at the intersection of SLF 0 and DLF 0
In 2010, the Lee family had disposable income of $90,000, wealth of $360,000, and an expected future income of $90,000 a year. At a real interest rate of 2 percent a year, the Lee family saves $15,000 a year; at a real interest rate of 4 percent a year, they save $20,000 a year; and at a real interest rate of 6 percent, they save $25,000 a year. Draw a point to show the quantity of loanable funds supplied by the Lee family when the real interest rate is 1) 2 percent a year. Label it 1. 2) 4 percent a year. Label it 2. 3) 6 percent a year. Label it 3. Draw the Lee family's supply of loanable funds curve through the points. Label it.
Plot points at (2,15), (4,20) and (6,25) Plot at line through (2,15) and (6,25)
First Call, Inc. is a wireless service provider. It plans to build an assembly plant that costs $12 million if the real interest rate is 5 percent a year. If the real interest rate is 4 percent a year, First Call will build a larger plant that costs $14 million. And if the real interest rate is 6 percent a year, First Call will build a smaller plant that costs $10 million. Draw points to show the quantity of loanable funds demanded when the real interest rate is 1) 6 percent a year. Label the point 1. 2) 5 percent a year. Label the point 2. 3) 4 percent a year. Label the point 3. Draw First Call's demand for loanable funds curve through the points. Label it.
Plot points at (6,10), (5,12), and (4,14) Plot a line at (6,10) and (4,14)
Everything is identical in the countries of Qumar and Rohan except that Qumar has a smaller quantity of capital than the Rohan. Both countries increase their capital by the same amount. Which country experiences the greater increase in production?
Qumar has the greater increase in production.
What results in slow or absent economic growth? _______ results in slow or absent economic growth.
The absence of property rights
Calculate the approximate number of years it will take for real GDP per person to double if an economy maintains an economic growth rate of 12 percent a year and a population growth rate of 2 percent a year. It will take _______ years for real GDP per person to double.
The growth rate of real GDP per person equals the growth rate of real GDP minus the growth rate of the population. The growth rate of real GDP per person = 12 percent a year−2 percent a year, which is 10 percent a year. The Rule of 70 tells us that the number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth rate of the variable, which is 70÷10 = 7 years.
The equilibrium real wage rate is ________ and the equilibrium quantity of labor is ________ billions of hours per year.
The one where Quantity of labor demanded and Quantity of labor supplied are equal
Which of the following statements correctly describes the demand for labor?
The real wage rate influences the quantity of labor demanded because what matters to firms is how much output they must sell to earn the dollars they pay the workers.
According the Keynesian macroeconomic model, which of the following was responsible for starting the Great Depression?
Too little private spending.
The growth rate of real GDP equals
[(real GDP in current year - real GDP in previous year) ÷ real GDP in previous year] × 100.
A document that promises to pay specified sums of money on specified dates and is a debt to the issuer is called
a bond.
Human capital refers to the
accumulated skills and knowledge of human beings
For the world, what period of time experienced the fastest growth rate of real GDP per person?
after about 1750 AD
In the United States between the 1970s and the 2000s, the productivity of labor increased. This increase led to
an increase in the demand for labor.
Why does much of Africa experience slow economic growth? Much of Africa experiences slow economic growth because it lacks _______.
economic freedom, private property rights that are enforced, and markets that function well
Thomas Malthus was an economist who contributed to the ______ theory of growth.
classical
A decrease in people's disposable income
decreases saving.
What is the effect of an increase in the income tax rate and more generous unemployment benefits on the labor market? An increase in the income tax rate _______ and more generous unemployment benefits _______.
decreases the supply of labor; decrease the supply of labor
The production function displays
diminishing returns.
Is there a relationship between a financial asset and its interest rate? The interest rate on a financial asset _______.
falls as the asset price rises
Classical macroeconomics _______.
fell into disrepute during the Great Depression
The distinction between physical and financial capital is that
financial capital is used to purchase and operate physical capital.
The substantially larger real GDP per worker in the United States than in Europe is explained by
greater production per hour, better U.S. technology, longer work hours.
The total amount spent on new capital goods is called
gross investment.
For a government to add to the supply of loanable funds, it must
have a budget surplus.
The crowding−out effect is the tendency for
higher government budget deficits to decrease investment.
What are markets a necessary precondition for economic growth? Markets are a necessary precondition for economic growth because _______.
market prices send signals to buyers and sellers that create incentives
The supply of loanable funds is from
households and the government if it has a budget surplus.
In explaining economic growth, new growth theory stresses the role played by
human choices
What is the effect of a decrease in wealth on the supply of loanable funds? A decrease in wealth will _______ the supply of loanable funds and _______.
increase; and shift the supply of loanable funds curve rightward
Close to 100 percent of Canada's unemployed receive generous benefits compared to 38 percent in the United States. How do you think the natural unemployment rate and potential GDP would change if the United States adopted the level of unemployment benefits that Canada has? If the United States adopted the level of unemployment benefits that Canada has, we would expect the U.S. natural unemployment rate to _______ and U.S. potential GDP to _______.
increase; decrease
In 2020 the fall in the value of the stock market decreased people's wealth. As a result of this change alone, the supply of loanable funds
increased.
The natural unemployment rate _______.
increases if unemployment benefits become more generous
Sustained increases in real GDP per person depend on
increases in labor productivity
Job rationing _______.
increases the natural unemployment rate
Suppose that Australia has fully employed all of its resources. This situation means that Australia
is operating at its potential GDP.
Why is economic freedom crucial for achieving economic growth? Economic freedom is crucial for achieving economic growth because _______.
it allows people to make choices and gives the incentive to save, invest, expand human capital, and discover and apply new technologies
What can government in Africa do to encourage economic growth and raise the standard of living in their countries? If governments in Africa _______ they will encourage economic growth and raise the standard of living.
protect private property
The production function shows that potential GDP increases when the
quantity of labor employed increases.
What is the effect of an increase in expected profit, other things remaining the same, in the market for loanable funds? An increase in expected profit, other things remaining the same, _______ the equilibrium real interest rate and _______ the equilibrium quantity of loanable funds.
raises; increases
Suppose India wants to measure how much the standard of living has changed over the last decade. Which piece of data should India use?
real GDP per person
For a household, the opportunity cost of not working is the
real wage rate.
Between 1916 and 2016, the average growth rate of real GDP per person in the United States was 2 percent a year. What information does this fact give us about the growth rates of other variables? During this period, _______ grew at a faster rate than _______.
real GDP; the population
What is the effect of advances in technology and the growth of human capital on the productivity curve? Advances in technology and the growth of human capital _______.
shift the productivity curve upward and increase labor productivity
U.S. posts largest-ever monthly budget deficit in February The budget gap widened to $234 billion in February, compared with a gap of $215.2 billion a year earlier and surpassed the monthly record of $231.7 billion set seven years ago. Explain the effect of a large federal deficit and debt on economic growth. A large federal deficit and debt _______.
slows the growth of capital stock and labor productivity, and slows real GDP growth
What role do property rights play in encouraging economic growth? Property rights encourage economic growth by _______.
strengthening the incentive to work, save, invest, and accumulate human capital
What does job rationing create? Job rationing creates a _______.
surplus of labor
According to the Ricardo-Barro effect, what is the effect of a government budget deficit? According to the Ricardo-Barro effect, _______.
taxpayers increase their saving by an amount equal to the government budget deficit
If an effective minimum wage were abolished, what do you predict would happen to the equilibrium real wage rate and the quantity of labor employed? If an effective minimum wage is abolished, the equilibrium real wage rate _______ and the quantity of labor employed _______.
falls; increases
When does the supply of loanable funds increase? When does the supply of loanable funds increases when disposable income _______ or wealth _______.
increases; decreases
The slope of the production function becomes _______ steep as the quantity of _______ increases because of diminishing returns.
less; labor
What is the effect of a government budget surplus on the real interest rate and investment? A government budget surplus _______ the real interest rate and _______ investment.
lowers; increases
What is the effect of an increase in disposable income, other things remaining the same, in the market for loanable funds? An increase in disposable income, other things remaining the same, _______ the equilibrium real interest rate and _______ the equilibrium quantity of loanable funds.
lowers; increases
Graphene batteries may slash your phone recharge time to 15 minutes The world's first graphene battery pack puts more power in a smartphone and recharges in 13 to 15 minutes. Graphene also makes flexible screens possible, improves heart rate and fingerprint sensors, and holds the promise to revolutionize batteries for electric cars. Graphene is a new material that can be 1 atom thick. Which of the growth theories that you've studied in this chapter is best supported by this news clip? The _______ growth theory best corresponds to this news clip because _______.
new; it describes the manufacture of graphene as a perpetual motion machine
What is the effect of a government budget deficit on the real interest rate and investment? A government budget deficit _______ the real interest rate and _______ investment.
raises; crowds out