macro final
Strong property rights are important for modern economic growth because
people are more likely to invest if they don't fear that others can take their returns on investment without compensation.
The unemployment rate is the
percentage of the labor force that is unemployed.
In a private closed economy, when aggregate expenditures equal GDP,
planned investment equals saving.
In a mixed open economy, the equilibrium GDP exists where
Ca + Ig + Xn + G = GDP.
Dissaving means
that households are spending more than their current incomes.
The cyclically adjusted budget tells us
what the size of the federal budget deficit or surplus would be if the economy was at full employment.
Which of the following statements is most accurate about modern economic growth?
Modern economic growth is characterized by sustained and ongoing increases in living standards.
Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?
Reductions in federal tax rates on personal and corporate income.
Demand-pull inflation
occurs when total spending exceeds the economy's ability to provide output at the existing price level.
If consumers expect prices to rise and shortages to occur in the future, then there will be a shift
of the consumption schedule upward and of the saving schedule downward.
With a marginal propensity to save of 0.4, the marginal propensity to consume will be
1.0 minus 0.4.
In 1998, living standards in the United States were nearly ______ times higher than those in Africa.
20
If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was
20 percent higher than the average price in the base period 1982-84.
Which of the following statements is correct?
Built-in stability only partially offsets fluctuations in economic activity.
For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of
Okun's law.
Which of the following best describes the idea of a political business cycle?
Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
Increases in household and business spending are a demand factor in economic growth. Tf
True
Recurring upswings and downswings in an economy's real GDP over time are called
business cycles.
The investment demand curve will shift to the right as the result of
businesses becoming more optimistic about future business conditions.
An appropriate fiscal policy for severe demand-pull inflation is
a tax rate increase.
The GDP gap measures the difference between
actual GDP and potential GDP.
In a private closed economy, _____ investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where _____ investment is equal to saving.
actual; planned
If the dollar appreciates in value relative to foreign currencies,
aggregate demand decreases because net exports decrease.
Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward
an excess of government expenditures over tax receipts.
Which one of the following will cause a movement up along an economy's saving schedule?
an increase in disposable income
The interest-rate effect suggests that
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
Given the expected rate of return on all possible investment opportunities in the economy,
an increase in the real rate of interest will reduce the level of investment.
Other things equal, which of the following would increase the rate of economic growth, as measured by changes in real GDP?
an increase in the size of the working-age population
As disposable income goes up, the
average propensity to consume falls.
In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output?
capital goods
Economic growth is best defined as an increase in
either real GDP or real GDP per capita.
Discretionary fiscal policy will stabilize the economy most when
deficits are incurred during recessions and surpluses during inflations.
Fiscal policy refers to the
deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.
The size of the multiplier associated with an initial increase in spending will be
diminished if inflation occurs.
In the aggregate expenditures model, it is assumed that investment
does not change when real GDP changes.
The aggregate demand curve is
downsloping because of the interest-rate, real-balances, and foreign purchases effects.
A competitive market system
encourages growth by allowing producers to make profitable investment decisions based on market signals.
Free trade
encourages growth by promoting the rapid spread of new inventions and innovations.
Other things equal, a decrease in the real interest rate will
expand investment and shift the AD curve to the right.
The determinants of aggregate demand
explain shifts in the aggregate demand curve.
A decline in the real interest rate will shift the investment demand curve to the right. tf
false
A decrease in per-unit production costs will shift the aggregate supply curve leftward. tf
false
An increase in business taxes will tend to shift the investment-demand curve rightward. tf
false
Because of the recent rise in the average rate of productivity growth, the business cycle is dead. tf
false
Built-in stability is synonymous with discretionary fiscal policy. tf
false
Equal increases in government expenditures and tax collections will leave the equilibrium GDP unchanged. tf
false
The crowding-out effect refers to the possibility that deficit spending may motivate people to increase their saving in anticipation of higher future taxes. tf
false
The production of durable goods is more stable than the production of nondurables over the business cycle. tf
false
Prices and wages tend to be
flexible upward but inflexible downward.
The natural rate of unemployment is the
full-employment unemployment rate.
10-3
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11-14
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12-12
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9-4
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Which of the following best measures improvements in the standard of living of a nation?
growth of real GDP per capita
In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to
increase aggregate demand.
Which combination of fiscal policy actions would most likely offset each other?
increase both taxes and government spending
Rising real wages for women in the U.S. workforce since the 1960s have
increased the opportunity cost of staying at home.
Exports have the same effect on the current size of GDP as
investment
All else equal, a large decline in the real interest rate will shift the
investment schedule upward.
If the expected rate of return on investment decreases, then most likely the
investment schedule will shift downward.
An exchange rate
is the price that the currencies of any two nations exchange for one another.
If an unintended increase in business inventories occurs at some level of GDP, then GDP
is too high for equilibrium.
A contractionary fiscal policy is shown as a
leftward shift in the economy's aggregate demand curve.
The most important determinant of consumption and saving is the
level of income.
Most economists agree that the immediate determinant of the volume of output and employment is the
level of total spending.
The presence of discouraged workers
may cause the official unemployment rate to understate the true amount of unemployment.
Structural unemployment
may involve a locational mismatch between unemployed workers and job openings.
Other things equal, a decrease in the real interest rate will
move the economy downward along its existing investment demand curve.
Cost-push inflation
moves the economy inward from its production possibilities curve.
An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the
multiplier effect.
Graphically, demand-pull inflation is shown as a
rightward shift of the AD curve along an upsloping AS curve.
As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system
serves as an automatic stabilizer for the economy.
Other things equal, an improvement in productivity will
shift the aggregate supply curve to the right.
The aggregate demand curve
shows the amount of real output that will be purchased at each possible price level.
An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because
some of the tax increase will be paid out of income that would otherwise have been saved.
The factor accounting for the largest increase in the productivity of labor in the United States has been
technological advance.
The consumption schedule shows
the amounts households intend to consume at various possible levels of aggregate income.
The Industrial Revolution and modern economic growth resulted in
the average human lifespan more than doubling.
The public debt is the amount of money that
the federal government owes to holders of U.S. securities.
Human capital refers to
the skills and knowledge that enable a worker to be productive.
A recessionary expenditure gap is the amount by which aggregate expenditures must increase in order to reach the full-employment level of GDP. tf
true
A specific investment will be undertaken if the expected rate of return, r, exceeds the interest rate, i. tf
true
Economists who are willing to accept mild inflation consider it to be a necessary by-product of high and growing spending that produces high levels of output, full employment, and economic growth. tf
true
Exports are added to, and imports are subtracted from, aggregate expenditures in moving from a closed to an open economy. tf
true
Positive net exports increase aggregate expenditures beyond what they would be in a closed economy and thus have an expansionary effect on domestic GDP. tf
true
The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output. tf
true
There tends to be a positive correlation between real wages of workers and the productivity of labor in the economy. tf
true
Total output for an economy is basically equal to total work-hours multiplied by labor productivity. tf
true
Unanticipated inflation benefits debtors at the expense of creditors. tf
true
Core inflation measures
underlying increases in the CPI after removing volatile food and energy prices.
When aggregate expenditure is greater than GDP, then there will be an
unplanned decrease in inventories and GDP will increase.
If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy would tend to be
weaker.