Macroecon 2
Compounding is the
ability to grow on previous growth
MPS and MPC will always equal
1
Consumer Price Index is a measure of
A measure of the average change in prices paid by urban consumers for a typical market basket of consumer goods and services
A payment made by you to your doctor is an example of
CPI
Price of gasoline is included in
CPI
__________ occurs when the periodic emergence of innovation boosts the econ
Creative destruction
GDP per capita is a country's
GDP divided by its population
Which component of GDP includes inventory change?
Investment
Price of feed corn is included in
PPI
What are the four phases of a business cycle?
Peak, Recession, Trough/Bottom, Recovery
Real GDP per capita is the
Real GDP divided by population. Provides a rough estimate of a country's standard of living, what economic growth is usually measured by
What of the following is NOT a criticism of the dating of business cycles by the NBER?
The NBER is sometimes manipulated by the federal government
define GDP
a measure of the economy's total output; it is most widely valued by the NIPA and is equal to the total market value of all final goods and services produced by resources in given year
Aggregate spending is equal to
aggregate income
National income is
all income, wages salaries, and benefits, profits, rental income, interest
The catch up effect says countries with smaller starting levels of capital experience larger benefits from increased capital
allowing these countries to grow faster than countries with abundant capital
Hyperinflation is
an extremely high rate of inflation
Producer Price Index is a measure of the
average changes in the prices received by domestic producers for their output
Leading Economic Index reflects how the econ will
behave in the future
Determinants of investment include
business expectation tech change operating cost and amount of capital goods on hand
Define Recession of a business cycle
business investments decline
Structural unemployment-
caused by changes in the structure of consumer demands or tech.
Balanced budget multiplier equals
changes in gov spending and taxation lead to an equal chance in income
Leading Economic Index is produced by the
conference board
Aggregate expenditures consist of
consumer spending business investment spending gov spending and net foreign spending
The expenditures approach to calculating the GDP sums
consumer spending, gross private domestic investment, government- spending, and exports minus imports
Wealth, expectation, household debt, and taxes are determinants of
consumption and spending
The large component of GDP is
consumption expenditure
The largest component of GDP is
consumption expenditure
According to the classical model, higher interest rates does not
contribute to econ growth
Consumer price index is also known as
cost of goods index
Schumpeters term _______ refers to innovated dynamism of capitalism
creative destruction
Deflation is a
decline in overall prices in econ, this is the opposite of inflation
Personal Consumption Expenditures include
durable goods, nondurable goods, and services
Define Trough of a business cycle
econ activity begins to pick up as a business and consumers become more enthusiastic about the econ
The capital to labor ratio measures the amount of
economic capital per worker
Discouraged workers are not classified as
employed, stop seeking for work, and are not in the labor force
Injections are
increment of spending
According to the Keynesian model, if households intend to save more, they will ultimately cause
job losses
Economic growth leads to
low poverty rates and longer life span
Inflation is a
measure of changes in the cost of living, a general rise in prices throughout the econ
Infrastructure is the __________________, including transportation, power generating plans, schools
public capital of a nation
Short run growth is common when countrys are
recovering from an econ downturn, or when resources are not being fully used
The Rule of 70 favors
small growth rates, so the higher the percentage means the less accurate
Multiplier is the
spending changes alter equilibrium income by the spending change times the multiplier
Unanticipated high inflation is not a characteristic of a
stable financial system
Investment levels depend primarily on
the rate of return on capital
Inflationary gap is
the spending reduction necessary to bring an overheated economy back to full employment
Tax increases withdraw money from the spending stream but do not affect the con as much as spending reductions, because
these tax increase are partly offset by decrease in saving
Labor force is the total number of
those employed and unemployed
Equilibrium wages can't cause
unemployment
Investment spending tends to be
volatile
Government Spending are
wages and salaries of gov. employees, the purchase of products and services from private businesses and the rest of the world
Injections must equal
withdrawals
Rule of 70 provides an estimate of the number of
years for a value to double
Business Cycles
Alternating increases and decreases in economic activity that are typically punctuated by periods of recession and recovery, dated by the NBER
Net domestic product can be found by
GDP minus capital consumption allowance
If a country's population increases at a slower rate than the growth in its real GDP
GDP per capita has increased
Short-run econ growth involves
a fixed capacity
What is a double dip recession?
a recession that begins after only a short period of economy recovery from the previous recession
Personal Consumption Expenditures is defined as
goods and services purchased by residents of the US, whether individuals or businesses
Keynesian model ignores the
gov and the foreign sector
Inflation has a significant long-run effects on the economy because
it distorts the price signal and produces incentive for speculation
A criticism for GDP per capita is that
it might not fully reflect the standard of living of the typical citizen
Main causes of inflation are
strong consumer demand, supply shocks on key inputs, gov. printing money
Gross Private Domestic Investment are investments in things such as
structures, equipment, software, and changes in private business inventories
Long run growth involves
expanding capacity
What is not be included in the GDP accounts?
The value of time spent learning how to prepare your person income tax return
Average propensity to consume is
the percentage that income is consumed
Investments are spending by
business that adds to the productive capacity of the economy
The 45 degree line in the Keynesian model represents a set of points where disposable income
equals consumption
A legal system includes
enforcement of contracts protection of property rights promote free and competitive markets and stable financial system
The household survey is a great source of discovering
entrepreneurial activity
GDP does not include most of the benefits and costs from
environmental and natural resources, nonmarket activities or the informal econ
Short run growth occurs when an econ makes use of
existing but underutilized reources
Net exports are
exports minus import for current time
One way a stable financial system supports econ growth is that it
facilitates the movement of capital from saving to investment
Overstating inflation leads to _________ on benefits are higher , and also makes real earnings appear _____ than what they actually are
federal expenditures, smaller
Real GDP is the total value of
final goods and services produced in a country in a year measured using prices in a base year
Long run growth occurs when an econ
finds new resources or finds ways to use existing resources better
Productivity is
how effectively inputs are converted into outputs
Economic growth plays a role in
how people live and their standards of living change over time
The principal determinant of saving is
income
Saving is the difference between
income and consumption; the amount of disposable income not spent
Ways in increase productivity are
increase access to natural resources improve quality of labor increase capital to labor ratio and promote innovation and tech
Consumption is spending by
individuals and households on both durable goods and non durable goods
Escalator clauses adjust payments(wages, rents, and social security) to account for
inflation
In the Keynesian framework, increments of spending are known as
injection
Equilibrium income is reached when
injections equal withdrawals
According to Schumpeter, the most important activity that drives business cycle is
innovation
Circular Flow Diagram illustrates how households and firms
interact through product and recourse markets and shows households are buyers of products and sellers of production factors
Classical economist say ______ is the primary determinant of saving, and keyenes claimed it is ______
interest rate, income
When economy is in equilibrium in the simple Keynesian model savings is equal to
investment
A criticism of GDP per capita is it
might not fully reflect living of typical citizen
When the gov enforces contracts between two parties, it is acting in its role to promote econ growth by ensuring a
stable legal system
The higher the productivity of a nation, the higher its
standard of living
The idea of the multiplier is
one person spending becomes another persons income, which generates more spending
Define Peak of a business cycle
operating at capacity
The NIPA tracks
our nation's economic performance compared to other nations
Imporovements in production capacity will shift the PPF
outward
Despite the shortcomings of the GDP measure, GDP provides a simple and consistent way of measuring the
overall economic activity in an economy
Most economist believe that the consumer price index____the rate of inflation
overstates
The expenditure category that accounts for the largest share of GDP is
person consumption expenditures
Disinflation is a
reduction in the rate of inflation, an economy going through disinflation, is still facing inflation, but at a declining rate
Withdrawals are activities that
remove spending from the economy
Cyclical unemployment
result from change in business cycles and where public policymakers can have their greatest impact by keeping the economy on a steady low inflationary, solid growth path
In the US unemployment rates differ because
tax differences in states, geographical area, and clustering of industries
A stable financial system is not needed for
tax rate stability
Tax decreases inject money into the econ but do not effect the economy as much as spending increases, because
tax reductions are partly offset by increases in saving
GDP Deflator measures
the average prices for all goods and services in the economy, including consumer goods, investment goods, gov. goods, and exports. It is the broadest measure of inflation NIPA
Recessionary gap is
the increase in aggregate spending needed to bring a depressed econ back to full employment
Yield Curve shows the relationship between?
the interest rate earned on bond and the length of time until the bond's maturity date
Natural rate of employment is
the level of unemployment at which price and wage decisions are consistent, a level at which the actual inflation rate is equal to people's inflationary expectations and where cyclical unemployment is zero
Joseph Schumpeter idea that _________ lead to business cycles is called creative destruction
waves of innovations
Paradox of thrift is
when investment is positively related to income and households intend to save more, they reduce consumption, income, and output, reducing investment so that the result is that consumers actually end up saving less
According to the production function, improvements in the productivity of labor
will not result in econ growth
Frictional unemployment-
workers who quit their job to search for better position
Policymakers look at __________ to compare growth rates over an entire year without seasonal ups and down
year over year GDP growth rates