macro test 2 for losers

extreme poverty is

$1.25 per day

sources that increase productivity

1) capital investment 2) research & development 3) improvements in labor quality

The gov't can influence economic growth by

1) contributing to physical capital, human capital & technology 2) enforcing contracts, protecting property rights & maintaining stable financial system (most important) 3) promoting free & competitive markets

determinants of investment in the Keynesian model

1) expectations about future revenues & return on investment 2) technology change 3) operating costs 4) capital goods on hand

3 ways economy can increase productivity

1) new discoveries or innovations 2) changes in gov't institutions 3) increase labor productivity

if the growth rate in the economy was 2%. the GPD will double in about

35 years

what share of US GDP is consumption?

70%

if gov't raises taxes, what will this do to the AD curve?

AD shifts left

4 factors of growth in the production function

Capital land ideas labor

what explains a poor country is able to achieve a high growth rate while a rich country struggles with low growth?

Catch-up effect developing countries can use existing technologies to make inputs more productive while developed countries must innovate to increase growth

T/F Free societies have more economic growth than totalitarian societies

False

in AD/AS model: if economy is below its long-run output, what will happen in the long run if the markets are left alone?

SRAS will shift right

simultaneous recession and deflation can be explained by

a decrease in aggregate demand

what is long run?

a period long enough that participants in the economy will have enough time to gain all relevant info & enough time to act correctly on that info

A 45-degree line in the aggregate expedientures model represents?

all consumption & no saving

export price effect of AD

as prices rise, exports become more expensive & exports drop

intrest rates effect of AD

as prices rise, people hold more money, pushing interest rates higher, reducing business behavior

wealth effect of AD

asa prices rise, purchasing power of wealth falls, reducing consumption

between 1990 and 2010, the number of people living in poverty has

been cut in half

frictionally unemployed

being unemployed for short amounts of time because switching jobs (students)

who is Thomas Malthus?

believe that society was doomed to poverty. population increased geometrically while food supply grew but he didn't account for innovation

investment is defined by spending by

businesses that adds to the productive capacity of the economy

determinants of short-run aggregate supply

changes in input prices taxes business & inflationary expectations

determinants of short run aggregate supply

changes in input prices technology & productivity taxes & regulation market power of firms inflationary expectations

leftward shift of long run aggregate supply curve depends on:

collapse of gov't labor quality goes down (war, sickness, ect) stop trading

what does NOT cause inflation

consumer confidence falls due to global economic concerns

determinants that shift AD curve

consumption gov't spending investment net exports

reducing gov't spending, reducing transfer payments, or raising taxes describes which policy?

contractionary fiscal policy

position of the long run aggregate supply curve depends on:

economy's capacity amount of available resources quality of labor force available technology

labor force includes

employed unemployed seeking work family members working for no money above the age of 16

the ability to use physical resources in creative ways to produce goods and services is

entrepreneurial ability, technology & ideas

determinants of investment demand

expectations about future revenues & return on investment technology change operating costs capital goods on hand

structurally unemployed

extended periods of unemployment

T/R from year to year, consumption fluctuates more than gross private domestic investment (GPDI)

false

gov't spending is determined by

federal state local

net exports are determined by

foreign income exchange rates

whats NOT a determinant of aggregate demand?

gov't saving

Determinants of AD

gov't spending consumption investment net exports

what group benefits from an unanticipated rise in the inflation rate?

homeowners with fixed rate mortgages

paradox of thrift

households save more, multiplier effect leads to reduced income, leading to less saving taxes have less direct impact on income than spending

determinants of consumption

income (principle) wealth expectation about future prices and income household debt taxes

for purchasing power to stay the same your wages must

increase at the same rate as inflation

recessionary gap

increase in aggregate spending necessary to to bring a depressed economy back to full employment

What will NOT shift AD curve?

increase in market power occurs in airline industry

what causes a decrease in aggregated demand?

increase in taxes

what brought the US out of the great depression

increase on spending in world war II

to have long term economic growth, the production function suggests:

increasing the availability of technology, capital & labor

The GDP divided by the multiplier yields the

inflationary or recessionary gap

investment is determined by

interest rates expected rate of return on investment business expectations

in the absence of copyright & patent laws

its difficult for innovators to profit from there efforts

increase in taxes will shift the AD curve to the

left and decrease output demanded

suppose energy prices spike, in the short run, output will------ in the long run output will------ from its starting point

long run output will decrease short run output will remain unchanged

physical capital includes

manufactured products that are used to produce other goods and services

capital-to-labor ratio

measures amount of physical capital available per worker a higher ratio equals greater labor productivity

how does economic freedom impact growth?

more freedom, more growth

when the economy is operating at the natural rate of unemployment

natural rate is zero

multiplier effect

occurs when an initial amount of spending causes income to grow by a larger amount the greater the marginal propensity to consume (MPC) the higher the spending multiplier

what was the classical model

pre 1930s laissez-fair (leave it alone) approach was better for the economy

cyclically unemployed

result of the business cycle the difference between the current unemployment rate & what it would be at full employment

human capital refers to

skills knowledge quality of workers

the classical form of the production function states that output is determined by

some function of available labor and capital

rightward shift of long run aggregate supply curve depends on:

technology improves (automation, digitalization) labor quality enhanced (more people pursue higher education) trade & globalization increase

investment spending...

tends to be volatile

long-run aggregate supply curve is vertical because

the economy will gravitate towards a position of full employment when all variables are flexible

nations with the least economic freedom have...

the lowest per capita GDP

aggregate demand

the output of all goods and services demanded in an economy at various price levels

In the US, our principle measure of inflation is

the producer price index

the index of economic freedom measures

the quality of a country's intangible infrastructure

T/F one reason real output declines when the aggregate price level rises is the reduction in the purchasing power of money

true

T/F the consumer price index is a cost-of-goods measure, not a cost-of-living measure

true

short run aggregate supply curve

upward sloping some input prices are slow to change, they get sticky when prices rise but input prices are sticky, profits increase & firms produce more, resulting in a short run increase in aggregate output

land and natural resources included:

water & minerals that come from the earth

in the Keynesian model, what helps determine consumption and saving

wealth

major factors of consumption

wealth debt taxes consumer confidence

macroeconomic equilibrium

when injections of spending (investment) equals withdrawls (saving)

price stickiness refers to

when prices are slow to adjust to economic shocks

substitution effect

when the price of the product falls, causing consumers to purchase more of that product and less of other products

which people save less money

younger people and low-income people