Macro Test 2

Two examples of financial intermediaries are

Banks and mutual funds

an excess of tax revenue over govt spending also known as public saving and is positive

Budget surplus

What are the three public policies that shift demand and supply curves?

Saving incentives, investment incentives, and government budget deficits and surpluses

A claim to partial ownership in a firm is called a ______

Stock

an average of a group of stock prices. Example: Dow Jones Industrial Average.

Stock index

If the quality of a good improves while its price remains the same, then the value of a dollar______ and the cost of living ______.

rises; decreases

When the government reduces national saving by running a budget deficit, the interest rate ______ and investment ______

rises; falls

The inflation rate you are likely to hear on the nightly news is calculated from

the CPI

The CPI is better than GDP deflator at reflecting the goods and services bought by

consumers

In the calculation of the CPI, books are given greater weight than magazines if

consumers buy more books than magazines

The probability that the borrower will fail to pay some of the interest or principal is called_______

credit risk

The fall in investment because of government borrowing is called ______

crowding out

Institutions through which savers can directly provide funds to borrowers are called________

financial markets

The group of institutions that helps match the saving of one person with the investment of another is called_______

financial system

A capital investment that is owned and operated by a foreign entity is called__________

foreign direct investment

In the CPI, goods and services are weighted according to

how much consumers buy of each good or service

CPI formula

the price of the basket of goods and services in the given year divided by the price of the basket in the base year, then multiplied by 100; (price now/price base)(100)

In a particular production process, if the quantities of all inputs used double, then the quantity of output doubles as well. This means that

the relevant production function has the constant-returns-to-scale

________________ can be measured by the level of real GDP per person, but not _____________

the standard of living; productivity

Over extended periods of time, population growth has ___________ effects on the standard of living

uncertain

If the price of Italian shoes imported into the United States increases, then the consumer price index will _______, but the GDP deflator will _______

increase; not increase

Buy all rocks in a stock index

indexed funds

If a reform of the tax laws encouraged greater savings, the result would be _______ interest rates and _________ investments

lower; greater

Managed funds usually have a _______ return and ______ cost than indexed funds

lower; higher

Shareholders of _______ accept all the risk and return

mutual funds

The basket of goods in the consumer price index changes_________, whereas the group of goods used to compute the GDP deflator changes __________

occasionally; automatically

In the US, each year of schooling raises a worker's wage by_____(percentage)

10%

Rule of 70 formula

70 divided by the annual growth rate of the variable

Examples of what households do with saving

Buy corporate bonds or equities Purchase a certificate of deposit at the bank Buy shares of a mutual fund Let accumulate in saving or checking accounts

When a country starts off poor tend to grow more rapidly than countries that start of rich is called_________

Catch-up effect

_______is the purchase of new capital, structures and inventory

Investment

Who sells bonds?

Large corporations and governments

Sold by local and state governments. Interest not counted in federal income tax. Interest typically low because of this.

Municipal bonds

Institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bonds are called_____

Mutual funds

Real Interest Rate formula

Nominal Interest Rate-Rate of Inflation

The portion of households' income that is not used for consumption or paying taxes is called_____

Private saving

Suppose that the prices of dairy products have risen relatively less than the prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?

Substitution bias

Saving incentives increase the _______ of loanable funds and would cause a shift to the ________

Supply; right

Public saving formula

T-G

What is a good gauge of economic prosperity?

The level of real GDP per person

Given that a country's real output has increased, in which of the following cases can we be sure that its productivity also has increased?

The total number of hours worked stayed the same or fell

The consumer price index tries to gauge how much incomes must rise to maintain

a constant standard of living

What does rule of 70 measure?

a way to estimate the number of years it will take for a certain variable to double

If government spending exactly equals tax revenue, the government is said to have a _______

balanced budget

A certificate of indebtedness or an IOU is called a _____

bond

The length of time until the bond matures is called the _______

bond's term

An increase in the price of dairy products produced domestically will be reflected in

both the GDP deflator and the consumer price index

a shortfall of tax revenue from govt spending also known as public saving and is negative

budget deficit

Changing all inputs by the same percentage causes output to change by the percentage is called ________

constant-returns-to-scale

When the loan will be repaid is called the ______

date of maturity

Because the tax credit would reward firms that borrow and invest in new capital, it would alter investments at any given interest rate and , thereby, change the _______ for loanable funds

demand

accounting profits (revenue - explicit costs) paid out to shareholders are called____

dividends

Changes in the quality of a good can lead to

either an increase or a decrease in the value of the dollar

Real interest rates can be _____________ and nominal interest rates are ____________.

either positive or negative; always positive

Sale of stock is called ____

equity finance

The quantity of loanable funds demanded ______ as the interest rate rises

falls

Institutions through which savers can indirectly provide funds to borrowers are called _____

financial intermediaries

A capital investment financed with foreign money but operated by domestic residents is called____________

foreign portfolio investment

Long-term bonds usually pay _________ interest rates because they are riskier

higher

If a reform of the tax laws encouraged greater investment, the result would be ____ interest rates and _______ savings

higher; greater

An_________ gives tax advantage to any firm building a new factory or buying a new piece of equipment

investment tax credit

These policies attempt to increase productivity and living standards within the country by avoiding interaction with the rest of the world is called_______

inward-oriented policies

sold by financially shaky corporations. More risky, highest interest

junk bond

Types of bonds order from highest to lowest interest

junk bonds > corporate bonds > U.S. government bonds > municipal bonds

Human capital is the

knowledge and skills that workers acquire through education, training, and experience

For a given year, productivity in a particular country is most closely matched with that country's

level of real GDP divided by hours worked over that year

mutual funds run by money managers are called____

managed funds

Allows people with little money to diversify their holdings

mutual funds

Policies that integrate their country in the world wide trade and receive widespread support from economists are called ________

outward-oriented policies

By not taking into account the possibility of consumer substitution, the CPI does what to the cost of living?

overstates the cost of living

National savings is _______+__________

private saving+public saving; (Y-T-C)+(T-G)

A country that increases its saving rate increases its future ______________ and future ______________.

productivity; real GDP

The ability of people to exercise authority over the resources they own is called______

property rights

The tax revenue that the government has left after paying for its spending is called_____

public saving

A nation's standard of living is best measured by its

real GDP per person

Over the last ten years productivity grew faster in Mapoli than in Romeria while the population and total hours worked remained the same in both countries. It follows that

real GDP per person grew faster in Mapoli than in Romeria

Historically, the market prices of most natural resources (adjusted for inflation) have

remained stable or decreased

Profits not paid out to shareholders are called _____

retained earnings

Suppose lawnmowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawnmowers deteriorates while the price of lawnmowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal, the CPI will

rise

The quantity of loanable funds supplied ______ as the interest rate rises

rises

Who buys bonds?

savers

A change in the government budget balance represents a change in public savings and thereby, in the _________ of loanable funds.

supply

A budget deficit shifts the _____ curve for loanable funds to the ______

supply; left

An understanding of the best ways to produce goods and services is called

technology

Two alternative measures of overall level of prices are

the GDP deflator and consumer price index

Suppose that in 2010, the producer price index increases about 1.5 percent. As a result, economists most likely will predict that

the consumer price index will increase in the future

Growth rate formula

((real GDP per person current)-(real GDP per person previous)/(real GDP per person previous))*100

Inflation rate formula

(CPI this year-CPI last year)/(CPI last year)x100%

The average income in a rich country is more than _______ times that in a poor country. Further, people in rich countries have _______ life expectancy

10; longer

Over the past century in the United States, real GDP per person has grown, on average, by about

2 percent per year

According to Robert Fogel, what proportion of the British population in 1780 was so malnourished that they couldn't perform manual labor?

20%

According to Robert Fogel, what proportion of the increase in the standard of living in Britain between 1790 and 1980 can be accounted for by greater caloric intake?

30%

The relative importance of housing in the breakdown of consumer spending is (percentage)

41%

The benefit from an extra unit of an input declines as the quantity of the input increases is called________

Diminishing returns

What is a good gauge of economic progress?

Growth Rate of real GDP per person

Which policy effects the demand curve?

Investment incentives

What is the source of demand for loanable funds?

Investments

_____________ is the flow of resources available to fund private investment.

Loanable funds

National savings formula

S=Y-C-G

What is the source of the supply of loanable funds?

Saving

Private saving formula

Y-T-C