MacroEconomics 4-8
If the print media is taken over by the electronic media, thereby causing employees in the print media industry to be permanently laid off, ________ unemployment would increase.
structural
After the success of the Apollo space program, in the mid-1970s NASA budget cuts results in a decrease in the number of jobs for aerospace engineers. This was an example of ________.
structural unemployment.
The point at which an economy transitions from an expansion to a recession is called a/an ________.
peak
Suppose the European Union has a Nominal GDP of 20 trillion Euros, and their GDP deflator is 125. What is the European Union's Real GDP?
16 trillion Euros
Of the following inflation rates, which is most likely to affect consumer behavior?
17%
Which component of spending has steadily gained over the past fifty years?
services
Jontel got a raise, which may help the economy since
she will likely consume more goods and services
One of the goals of the economic model of aggregate demand curve and aggregate supply curve is to help explain the
shifts in the price level and the real GDP
An increase in the Marginal Propensity to Consume (MPC) ________ the consumption function.
steepens
Which of the following best defines real GDP?
Real GDP is defined as the total dollar value of final goods and services produced within a country in one year after adjustment for inflation.
Which of the following descriptions reflects the AD-AS model most accurately?
Real GDP is shown on the horizontal axis and price level is shown on the vertical axis
If aggregate demand decreases, neoclassical theory suggests that in the long-term, prices
will be flexible and adjust back to equilibrium along the aggregate supply curve
Which of the following BEST describes the effect inflation has on purchasing power in the United States over the past several decades?
$100 today has the same purchasing power as $15 in 1972
If Nominal GDP is $12,000 billion and the GDP deflator is 80, then Real GDP is ________.
$15,000 billion
The country of Wakanda in 2017 had a GDP of $500 billion, with a total of 1.75 million workers, each of which averages 1600 work hours a year. What is the value of the output per worker per hour of work?
$179
Assume the economy of country C produces hotdogs and buns in the following quantities and prices in 2016 and 2017. Assume also that 2016 is the base year and the real GDP will be calculated using 2016 prices. What is the real GDP 2017? HotDogs Buns Quantity Price Quantity Price Year 2016 (base year) 6 million $2 4 million $1 Year 2017 8 million $3 6 million $2
$22 million
Assume the economy of country C produces hotdogs and buns in the following quantities and prices in 2016 and 2017. Assume also that 2016 is the base year and the real GDP will be calculated using 2016 prices. What is the real GDP 2017? Hot Dogs Buns Quantity Price Quantity Price Year 2016 (base year) 6 million $2 4 million $1 Year 2017 8 million $3 6 million $2
$22 million.
The country of Russia had a Gross Domestic Product of about $4 trillion in 2016 and a population of 142 million people, the GDP per capita would be ________.
$28,000
If Nominal GDP is $16,000 billion and the GDP deflator is 50, then Real GDP is ________.
$32,000 billion
Given the table above, what is the price index for 2013, with 2012 as the base year having a price index of 100 (round your answer to the nearest whole number). Items Quantity in Basket 2012 Price 2013 Price Cake3$12.00$13.00 Pie4$8.00$10.00 Cupcake10$2.00$2.50
118
Calculate the unemployment rate based on the following data for a country: Population: 200, Employed workers: 140, Labor Force: 160, Discouraged workers: 10
12.5%
The number of people employed in one country is 230 million, with a total number of unemployed people at 40 million. The total population for the country is 500 million. What is the unemployment rate?14.8%
14.8%
Suppose the European Union has a real GDP of 12.2 trillion Euros, and their GDP deflator is 125. What is the European Union's nominal GDP?
15.25 trillion Euros
Assume the economy of country C produces hotdogs and buns in the following quantities and prices in 2016 and 2017. Assume also that 2016 is the base year and the real GDP will be calculated using 2016 prices. What is the real yearly growth (between 2016 and 2017)? HotDogs Buns Quantity Price Quantity Price Year 2016 (base year) 6 million $2 4 million $1 Year 2017 8 million $3 6 million $2
37.5%
The Department of Economic Health in the country of Cavia has calculated the price index for a basket of goods from 2014 to 2018. January 2014 is the standardized price index (at 100) for a basket of consumer goods. The price index increased in 2015 to 105.7, in 2016 to 108.6, in 2017 to 115.9, and in 2018 it increased to 120.4. What are the inflation rates in Cavia for 2015, 2016, 2017, and 2018?
2015: 5.7%; 2016: 2.7%; 2017: 6.7%; 2018: 3.9%
If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals ________.
25%
There is a small fictitious island country, called Noil, floating in the south Pacific ocean. Many years ago there was an abundance of fish and the population grew rapidly. Now the adult population has reached a total of 35 thousand people. This year fishing and other jobs have been on the decline and now 1 thousand people are looking to find work. With an increasing elderly population 3 thousand are now retired. Noil does not have an army, but it does have a small coast guard of 432 citizens serving the country and patrolling the waters where needed. What is the country of Noil's unemployment rate?
3.2%
In 2005 the price index was calculated at 115.3 with 2000 as the base year. In 2006 the price index increased to 119.5. What was the inflation from 2005-2006?
3.6%
While the U.S. unemployment rate fluctuates over time, it normally returns to a long-run average somewhere between
4% and 6%.
With a Real GDP of $100 billion in 2016 and of $140 billion in 2017, the real growth would be ________.
40%
In the far off kingdom of Viracien there is a healthy sized population of citizens over 16 years old. The last census indicated a total adult population of 5 million people. This year a recession hit and 237 thousand people were let go from their jobs and are on the hunt to find new work. Because of the recession many took early retirement and there is now a population of 1.3 million who are not working or looking for various reasons. Because of the unrest, the military of Viracein has increased its ranks and is now grown to a total of 50 thousand citizens serving the country. If Viracein uses the same calculation to find the unemployment rate, what is the country's unemployment rate?
6.5%
If Keynesian economists were analyzing the oncoming recession starting in 2007 from the housing market crash, what might they have predicted?
A decline in household wealth leading to a decrease in consumption expenditure
What else will probably happen if a neoclassical model shows increasing wages in the economy in the short run?
A leftward shift of the short-run aggregate supply curve.
What is the Gross Domestic Product (GDP) designed to measure?
A nation's total production of final goods and services
Of the following, which is an example of a type of business investment expenditure?
A producer's durable equipment
Typically, if consumer and business confidence is high then ________ and if consumer and business confidence is low then ________.
AD shifts to the right; AD shifts to the left
You have been given the task as a macroeconomist, to reflect the collective interconnections and relationships of the market as a whole (both the market supply and demand). To best capture this you choose the ________ model?
AD-AS model
If aggregate supply is vertical, then which of the following statements must be true of the long-run?
Aggregate demand does not affect the quantity of output
With the introduction of robotics to automotive manufacturing, there have been sweeping changes to the automotive assembly line, management and operations at plants. As an example, in a truck manufacturing plant, identify who would most likely be impacted by this technology change and suffer long term structural unemployment?
An assembly line worker with 10 years of screwing together truck panels and a high school diploma
Which of the following is unlikely to result in economic growth?
An increase in consumption and decline in savings.
If a neoclassical model shows increasing wages in the economy in the short run, what else will likely occur?
An inflationary increase in price level.
To represent the consumption function through algebra, it would be expressed as ________.
C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income
Neoclassical economists have a tendency to put more emphasis on long-term growth than on fighting recession. Why is this the case?
Because over the long run, recessions end
Which of the following is true about export and imports as function of national income?
Both are horizontal lines with imports being negative as it relates to real GDP
Which of the following is true about export and imports as function of national income?
Both are horizontal lines with imports being negative as it relates to real GDP.
Algebraically, the consumption function is represented as ________.
C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income
In the country of Cardonia, the natural rate of unemployment is 3.5% according to the Ministry of Economics. Last year there was an economic slow down where the actual rate of unemployment increased to 4.5%. Assuming that the unemployment percentages are accurate for Cardonia, what is the likely outcome for the economy of Cardonia?
Cardonia's economy will grow until real GDP is equal to potential real GDP and the unemployment rate equals 3.5%
Which factor other than income can also cause the entire consumption function to shift?
Changes in wealth
Assume that you are an economist looking at economic indicators for both the United States as well as several European countries. What do these economic indicators enable you to do?
Compare how well the U.S. economy is doing relative to the European countries.
If the government saw that consumer confidence was low, what step can it take to shift the AD to the right?
Congress can pass tax cuts
Other than income, which factor can also shift the entire consumption function?
Consumer expectations about the future
What are the components included in aggregate demand?
Consumption, investment, government spending, and net exports
A contraction in the business cycle is likely to result in which form of unemployment increasing?
Cyclical
Jerusha lives in a country with a large amount of protection under the law for conducting business or bringing her ideas to the market with patten production. Because of the economic conditions what will Jerusha most likely do with her rainwater collecting invention?
Develop her invention and bring it to market with ease and minimal cost
Why are certain policy decisions (like those undertaken by the Federal Reserve) best informed by using the core inflation index as opposed to the CPI?
Fluctuations in food and energy prices can be transitory
Henry has accepted a new position in the Federal government after working at ball bearing manufacturing plant. He has been put to the task to measure the economic growth as accurately as possible for the nation's last year. What would Henry use in this instance to produce the most accurate growth analysis?
GDP Deflator
Autonomous expenditure does NOT depend on what factor?
GDP/output
What function is a horizontal line when Aggregate Expenditure = C + I + G + (X - M)?
Government spending
Which of the following is NOT true about government spending as function of national income?
Government spending will fluctuate
Cross-country comparisons of unemployment rates are difficult for all the following reasons except:
Higher government employment in developed countries
Cross-country comparisons of unemployment rates are difficult for all the following reasons except:
Higher government employment in developed countries.
Identify the following statement consistent with Say's law?
In the economy a supply value must create an equivalent demand value
Which of the following scenarios, from the Keynesian perspective, increases aggregate demand?
Increase in net exports because of foreign demand
Which of the following statements represents a Keynesian point of view of macroeconomics?
Increases in aggregate demand can reduce unemployment
The Krisp Kracker company which makes unique kettle chips for restaurants, clubs, and events, has just lost a large client that made up 55% of its total revenue. Management finds it necessary to reduce staff or wages. This comes only three months after hiring 35 new people to support this big client. While there are rumors of wage reductions in the short run, the 100 employees who have been with the company for the past two years are grumbling that they are more valuable that the new hires which should be let go and the wages not reduced. The situation at Krisp Kracker illustrates which wage stickiness theory best?
Insider-outsider model
The current competitive economy has caused the Doggie Dog Food company to brainstorm in their latest meeting on how to become more productive and efficient. Larry the VP of operations suggests that they deepen the company's capital. Which of the follow steps should the Doggie Dog Food company take to deepen its capital?
Invest in additional training for their dog food scientist and nutritionist updating with the latest dog food and health knowledge
Considering that Aggregate Expenditure = C + I + G + (X - M), which function is drawn as a horizontal line?
Investment
Looking at the figure above, why does the line for the consumption function not start at zero?
It does not start a zero because of autonomous consumption
Which of the following describes inflation?
It is an increase in the cost of a given basket of goods.
Based on the following table comparing fictional international country unemployment rates, the country of Ulidia seems to have had fairly low unemployment rate throughout the years until 1985. Ulidia is however, a developing country and with the Ministry of the Economy reporting there is 65% of the labor force participation and 6% unemployment rate in 1985. Knowing it is a developing economy, why might the 6% rate be inaccurate? International Comparison of Unemployment Rates Country1970197519801985 Ulidia 4% 2.8% 3.4% 6.0% Agreriven 7% 6.0% 5.7% 4.5% Saede 3% 4.5% 3.4% 5.2% Galoiri 5% 7.0% 5.5%2.5%
It is inaccurate because Ulidia has a large portion of the working-age population that participates in the informal economy of short-term work, bartering, or other subsistence activities.
If a government expands its fiscal policy to raise equilibrium output, what will happen in the long term, according to the neoclassical view of the economy?
It will not work because the flexible prices will eventually choke off any increase in aggregate demand
If a government expands its fiscal policy to raise equilibrium output, what will happen in the long term, according to the neoclassical view of the economy?
It will not work because the flexible prices will eventually choke off any increase in aggregate demand.
This year the economy is takes a hit as another housing market bubble bursts and there is every expectation that the economy is in for a rough patch. What would most likely take place for the consumption function with this lack of confidence in the economy?
It will shift the consumption function downward
This year the economy is strong and there is every expectation that it will continue to be strong over the next few years. With this confidence in the economy, what would most likely happen to the consumption function?
It will shift the consumption function upward
The country of South Wales experienced a tsunami which wiped out half of its capital stock. What will happen, according to neoclassical perspective, to the country's potential GDP?
It would fall in the short-term and then rise back to pre-tsunami levels in the long-term
The country of South Wales experienced a tsunami which wiped out half of its capital stock. What will happen, according to neoclassical perspective, to the country's potential GDP?
It would fall in the short-term and then rise back to pre-tsunami levels in the long-term.
Janice has calculated the GDP for 2018 by using the total final goods times the 2018 prices of total goods. If Janice wishes to create a real value GDP value for 2018, what must she do?
Janice must adjust the total value 2018 GDP for inflation
Among all high-income countries, which consistently has the lowest long-run unemployment rate in the past 30 years?
Japan
While Japan has enjoyed a persistent low unemployment rate compared to other high-income countries, this may paint too rosy a picture of unemployment in Japan because
Japanese employers are reluctant to formally lay off workers even when there is little real work.
According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is illustrated by the
Keynesian Phillips curve tradeoff.
What might shift aggregate demand?
Loss of business confidence
When describing the economy's aggregate expenditure components impacted by the real level of income, which of the following terms is excluded from that description?
Macroeconomic Equilibrium
In 1985 inflation in Israel reached a record 500%. How did this period of high inflation affect market adjustments towards equilibrium price and quantity?
Markets adjusted to equilibrium more erratically and slowly
If you lived in a country where literacy was high and 90% of the children completed their education with a high percentage going on to a higher education, what would probably be the results for the country?
More technological breakthroughs would happen in this country
If you lived in a country where literacy was high and 90% of the children completed their education with a high percentage going on to a higher education, what would probably be the results for the country?
More technological breakthroughs would happen in this country.
Which following factor is powerless to influence autonomous expenditure?
National income
You are an economist studying the small country of Mardodus. As you look at the data, you see Mardodus has experienced an influx of updated technology to its manufacturing plants, service industry and the medical field in the last three years. This change boosted the growth of the country's productivity by 75%, yet you see that wages have been very slow to respond to this growth. As you begin to analyze the natural unemployment rate for this time frame, what do you most likely discover?
Natural rate of unemployment will decrease because the productivity growth in the short term has passed up wage growth.
During the 1990s worker productivity growth spiked as computers and the internet were introduced to many businesses for the first time. How did this affect the natural unemployment rate?
Natural unemployment decreased as productivity growth outstripped wage growth.
What type of economic viewpoint puts an emphasis on long run economic performance?
Neoclassical
Your friend asks what you are studying and you tell them neoclassical policies in a macroeconomy. Which of the following statements would explain neoclassical economic policy the best to your friend?
Neoclassical policies would call for no government intervention during a recession
________ economists place an emphasis on ________-run economic performance
Neoclassical; long
Which one of the following statements best represents the Keynesian Perspective?
People's demand determines what is built
The country of Botalava hired Gustav to assist with government policies regarding the macroeconomy. Gustav is a neoclassical economist and makes all decisions based on that economic philosophy. What policies will Gustavo tell the government to enact in order to foster a health economy?
Policies should be set up to keep inflation low and maintain low tax levels over the long run.
Which of the following promotes economic growth?
Political stability and property rights protection.
Under ideal conditions inflation should not have any blurring effect on price signals. If wages and prices are rising at a constant 20% then individuals should be able to adjust their expectations accordingly. For example, if the price of bread increased by 20% and the price of the input flour also rose by 20%, the sellers should know that the real price of bread has not changed. The market equilibrium quantity and price has not changed. Why does inflation in the real world result in shortages and surpluses?
Price adjustments are not synchronized or smooth
What accurately describes the AD-AS model?
Price level is shown on the vertical axis and real GDP is shown on the horizontal axis
What is one of the cornerstones on which neoclassical economics is built?
Prices and wages will adjust in a flexible manner.
What does a Keynesian analysis of economics assume?
Prices are sticky
If the aggregate demand in a macroeconomy increases, according to neoclassical theory, what happens to prices over the long term?
Prices will be flexible and adjust back to equilibrium in the aggregate supply curve or potential GDP.
Which of the following is the name used to describe the price index that consists of raw materials and intermediate goods?
Producer Price Index
The Campus Collective company, which creates unique apps for colleges, has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages. The economy also appears to be headed toward a recession and gaining more clients will most likely be harder to accomplish. Because it is a smaller company everyone knows each other and knows there are tough choices ahead. Management brings up the idea of an across the board wage reduction so that no one be let go, but some employees don't believe that a wage cut will be equally applied to all. The employees are also not sure if other people working their same jobs in the economy are getting reduced wages. They start to argue against wage reduction and things get a bit heated. Which of the following theories best illustrate this wage stickiness scenario?
Relative wage coordination argument
Sarah lives in Montana and works remotely with a company in Portland. She lives in Montana because of the fresh air, clean water and wide open spaces to go hiking on her time after work. Is Sarah's environmental quality reflected in factoring the Gross Domestic Product and why or why not?
Sarah's environmental quality is left out of GDP because GDP focuses on productivity rather than Sarah's well being or standard of living.
If you hear someone say, "If you build (produce) it they will come (purchase)" you know it is a good way to describe ________.
Say's Law
The classic quote from the movie Field of Dreams, "If you build (produce) it they will come (purchase)," can be used to describe ________.
Say's Law
Which of the following is a step in calculating a price index?
Selecting the kinds and quantities of goods and services to be included in the index.
Which of the following individuals would be included in the unemployment rate?
Sharon who has been looking for work this last month
How does an economist depict cyclical unemployment on an aggregate demand-aggregate supply (AD-AS) diagram?
Showing how close the economy is to potential or full employment level of GDP
What is excluded from the official calculation of the unemployment rate?
Students who are attending to school full time and not working.
If the country of Switzerland has its economy operating at its potential GDP, but plans to expand its output levels, according to neoclassical thinking, what would increase the country's outputs?
Technological improvements
Which of the following government policies is a neoclassical response to an economic recession?
Terminating labor unions
Consider the following scenario. If foreign goods are relatively more expensive than U.S. goods, exports from the U.S. rise. How would this scenario make the aggregate demand curve change?
The AD curve would shift to the right
What are some of the reasons, according to Keynesian analysis, of why economies have recessions and depressions?
The larger macroeconomy tends to adjust slowly to shifts in aggregate demand because of sticky prices.
If the government saw that consumer confidence was high, what step can it take to shift the AD to the left?
The Federal Reserve can increase interest rates
Bob is measuring the GDP in 2018 by using the quantity of each final good and service produced in 2018, multiplied by the price at which the goods and services were sold in 2018. What type of calculation is Bob creating?
The GDP using nominal values.
Which of the following is an example of Say's law?
The automotive industry, in order to create more output, need to focus on increasing production rather than demand.
The distinction between real GDP and nominal GDP is important to determine which of the following?
The change in real output produced
Say's Law is displayed in which of the following examples?
The clothing industry, in order to create more output, needs to focus on increasing production rather than demand.
How would you interpret a graph of a nation when its production possibilities frontier shifts outward?
The country is achieving economic growth
What best explains the fluctuations in the unemployment rates over the past 50 years?
The cycles of economic recessions and expansions.
In the past 50 years the unemployment rate has only reached 10% on two occasions. When did these two unemployment spikes occur?
The early 1980s and 2007-2009.
Consider the following schedule. If the potential GDP is at 8.0, what can you conclude about price levels and the unemployment rate? Current Price LevelReal GDP-quantity demanded per trillionReal GDP-quantity supplied per trillion 12017.08.011515.015.011013.012.010010.011.2
The economy is experiencing rising price levels and has a low unemployment rate because it is operating above the potential GDP
When using the aggregate demand-aggregate supply (AD-AS) model to illustrate growth and changes in the economy, which of the following things are considered?
The efficiency of the capital and financial sector
Considering the figure above, at what point does the equilibrium occur? (Price level , Real GDP) (X, Y) (10t, 20t, 30t rGDP) (103, 105, 100 pl)
The equilibrium point occurs at a price level of 105 and an output level of 20t.
Consider the following schedule to find where the equilibrium occur. Where does real GDP supplied and equilibrium price level occur? Current Price LevelReal GDP-quantity demanded per trillionReal GDP-quantity supplied per trillion78520.013.061017.817.850015.519.047812.021.7 (Look where it equals on supply and demand)
The equilibrium point occurs at a price level of 610 and an output level of 17.8
When the federal government calculates the cost of living they use the core inflation index instead of CPI, and use it to make policy decisions. What is one of the reasons to use the core inflation index as opposed to the CPI?
The fluctuations in food and energy prices can be momentary
Of the following examples, which one has little or no effect on labor productivity?
The frequency of business cycles.
The country of Bratislaka hired Gudurn to assist with government policies regarding the macroeconomy. Gudrun is a neoclassical economist and makes all decisions based on those economic philosophies. What policies will Gudrun tell the government to enact in order to foster a health economy?
The government should keep inflation low and maintain low tax levels over the long run
The country of Bratislaka hired Gudurn to assist with government policies regarding the macroeconomy. Gudrun is a neoclassical economist and makes all decisions based on those economic philosophies. What policies will Gudrun tell the government to enact in order to foster a health economy?
The government should keep inflation low and maintain low tax levels over the long run.
What are the components used to create a consolidation view or stacked graph (or stacking on top of each other) of the aggregate expenditure function?
The graph would include the consumption function (after taxes), the investment function, the government spending function, and the net export function
What are the components used to create a consolidation view or stacked graph (or stacking on top of each other) of the aggregate expenditure function?
The graph would include the consumption function (after taxes), the investment function, the government spending function, and the net export function.
If you were to explain to a friend how the macroeconomy would be influenced by neoclassical policies, which of the following statements would be the correct explanation?
The macroeconomy has flexible prices and wages and it is self correcting and not in need of governmental intervention for correction.
Alejandra is calculating the nondurable goods value for 2017. She is calculating the value by using the quantity of each final nondurable good produced in 2017, multiplied by the price at which the nondurable goods were sold in 2017. What type of calculation is Alejandra creating?
The nondurable goods nominal values
The owner of a national software company has been watching current economic information for the past two quarters and a rapid rise in demand for its software suites. Last month 30 new software engineers were hired to meet the demand. Even though these new hires will finish their project work in a few months, the owner plans to retain them in anticipation of future demand. Why is the owner making these type of decisions for the long-run?
The owner is using rational expectation reasoning to hire more engineers to quickly be ready now for future demands of a long-term economic shift
Which correctly describes the AD-AS model?
The price level is shown on the vertical axis
Which of the following is counted as part of GDP?
The purchase of a snow plough by the city of Minneapolis.
Which of the following is left out of being counted as part of GDP?
The purchase of your next door neighbor's house.
As an economist George is analyzing a consumption function graph and notices that the slope has flattened. What would cause this to occur?
There was a decrease in the Marginal Propensity to Consume (MPC)
Sandra, an economist is discussing a consumption function graph and sees that the slope has steepened from a prior graph. What would cause this change in the consumption function?
There was an increase in the Marginal Propensity to Consume (MPC)
According to the growth accounting studies, if you lived in a country where illiteracy was high and 40% of the children left school early and did not complete their education what would probably the results for that coun
There would be both a human and economic loss.
Which of the following statements is true concerning real GDP in the short run?
This is a period of time for real GDP when wages are sticky in response to a change in demand
China had special economic zones originally in places such as Hong Kong and Shenzhen set up back in the 1980s. Why would the Chinese government support these areas with different rules like no tax on trade or different economic laws?
To facilitate a healthy economic environment and grow international trade
China had special economic zones originally in places such as Hong Kong and Shenzhen set up back in the 1980s. Why would the Chinese government support these areas with different rules like no tax on trade or different economic laws?
To facilitate a healthy economic environment and grow international trade.
The United States will have a trade deficit in which of the following scenarios?
U.S. imports are greater than U.S. exports.
Which of the following is a building block of neoclassical economics?
Wages and prices will adjust in a flexible manner
The country of Wakanda has an economy that will double in 10 years. According to what you've learned about compound growth, what type of economy does Wakanda have?
Wakanda has a thriving and rapidly growing economy growing over 7% per year.
You have older parents who have been saving for retirement for decades. They are now getting close to retirement age and are looking at their options. One would like to leave everything in the pension fund and draw out a fixed, unchangeable amount over their retirement time. Your other parent wants to take out a chunk of retirement funds and purchase a business and use the profit from it to generate funds on which to live. You have noticed that inflation over the last year is on a rapid rise. What would you advise your parents to do based on what you know of inflation and its redistribution of purchasing power?
You would advise them to buy a business with their retirement funds and keep their money working for them to keep up with inflation.
The fictional country of Zambezi's economy is operating at its potential GDP and is looking to expand its output levels. What would increase Zambezi's output according to neoclassical thinking?
Zambezi has technological breakthroughs or improvements
Shifts in the aggregate supply curve can be caused by
a change in input prices
In the chart below concerning the shifts in aggregate supply, arrow A represents an economy that is moving in response to ________
a decrease in productivity
A decrease in aggregate demand (AD) can cause
a recession in the economy
In an AD/AS diagram, ________ could explain a rise in cyclical unemployment.
a shift in AS to the left
A price index is
a weighted average price of some type of good or service (e.g. consumer prices)
In macroeconomics, ________ denotes the total quantity of spending on domestic goods and services.
aggregate demand (AD)
According to neoclassical theory, changes in GDP, or the vertical AS curve, will be caused by
aggregate demand changes
A key part of the Income-Expenditure model is understanding that as GDP (or national income) rises, so does ________.
aggregate expenditure
The relationship between the total quantity of output or real GDP firms will produce and sell is known as
aggregate supply
If you are looking at a graph where a cumulative upward sloping curve plots the relationship between price level and output for suppliers, you are looking at a
aggregate supply curve graph
In the chart below concerning the shifts in aggregate supply, arrow B represents an economy that is moving in response to ________
an decrease in input prices
An increase in aggregate demand (AD) can cause
an expansion in the economy
If the economy is in a recessionary period, appropriate policies to pursue may include:
an income tax cut that shifts the AD curve to the right
Over the long run, a surge in aggregate demand from a neoclassical perspective will most likely result in
an increase in price level.
Which of the following factors are excluded from shifting the aggregate demand curve?
an increase in the price level
Economic indicators can help give us
an understanding of the state of the economy
In the long run, real GDP will
be close to or on the horizontal part of the AS curve
On the far left side of the AS curve, the economy is producing ________ potential, and on the far right of the curve, it is producing ________ potential.
below; above
Which of the following scenarios would most likely be viewed from a neoclassical perspective as an undermining element of the long-run productivity growth in an economy?
business capital investment tax cuts
Which of the following is the alternating periods of expansion and contraction in real GDP?
business cycles
If a macroeconomy experiences a fall in business confidence which has led to less investment in the economy and lower levels of output. Keynesian analysis in the short-run, predicts that the fall in aggregate demand will ________, while the Neoclassical view says ________ in the long-run.
cause higher unemployment; there will be full employment
Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run, Keynesian analysis says the rise in aggregate demand will ________ while the neoclassical model predicts ________ in the long-run.
cause lower unemployment; full employment
A vertical AS curve means that changes in GDP will be caused by
changes in aggregate demand
In describing what adaptive expectations means to a friend, you explain that in order to make their economic condition forecasts, agents ________.
consider only current information and ignore the past
The ________ is a graphical relationship between income and consumer spending.
consumption function
Aggregate Demand (AD) is defined as C + I + G + (X-M). C refers to ________.
consumption spending
Fluctuations in the unemployment rates over the past 50 years can best be explained by
cycles of economic expansions and recessions.
Beth has been unemployed for two months from her accounting job. She has interviewed with a number of other firms, but has not received a job offer. Her debt are increasing and at this point she needs to find a job just to cover her expenses at least. She now begins to look for positions in places that pay lower wages that what she would like. What is Beth's experience called in economic terms?
cyclical unemployment
When the housing market crashed in 2007, Keynesian economists might have predicted a
decrease in consumption expenditure, as household wealth declined
Keynes believed that the government should ________ to get the economy out of recession:
decrease taxes and/or increase government spending
Which of the following would cause a negative demand shock (shift to the left) in aggregate demand?
decreased availability of business capital
Cyclical unemployment is caused by the ________ for labor ________ during an economy moving from recession to expansion.
demand; moving to the right
If equilibrium occurs in the flat range of the AS curve, then the:
economy is experiencing unemployment.
The idea that firms will get the most for their money when they pay wages higher than the equilibrium wage is called:
efficiency-wage theory.
If the aggregate demand (AD)-aggregate supply (AS) model are equal
equilibrium occurs
Components of aggregate demand include all of the following EXCEPT
firms' demand for inputs
Tom graduated from college in June but was still looking for work in August. This is an example of ________.
frictional unemployment
There are certain types of unemployment that exist at all times and determine the natural rate of unemployment. Which of the following types fit this description?
frictional unemployment and structural unemployment
Which of the following is included in the computation of GDP in a particular year?
government expenditure on public schools
When calculating GDP as the sum total of all spending, which of the following should be included?
government purchases of labor, goods, and services
From a neoclassical viewpoint, government should focus less on
government stimulus spending
In the AS-AD model depicting economic growth, the vertical line that represents potential GDP will
gradually shift to the right in the long run
In the long run, important sources of an increase in a nation's economic growth include(s):
high rate of labor force growth.
If you are explaining the theory of rational expectations to a friend, you would say that the change in an agents' expectations is ________ and therefore ________ the effectiveness of monetary or fiscal policy.
immediate; precludes
The theory of rational expectations indicates that agents' expectations change ________ and therefore ________ the effectiveness of monetary or fiscal policy.
immediately; preclude
In calculating GDP, which component of spending must be subtracted from total spending to account for the fact that not all private or public spending by U.S. households is directed to U.S. businesses?
import
In calculating GDP, which component of spending must be subtracted from total spending?
import
Aggregate Demand (AD) is defined as C + I + G + (X-M). M = ________.
import expenditure
Which of the following is excluded from being a component of the aggregate expenditure model?
import spending
With accelerated inflation In the 1980s middle-class Americans benefited primarily because
in real terms, their home mortgage debts decreased in value
The consumption function is a graphical relationship between ________.
income and consumer spending
According to the Keynesian perspective, reasons for an increase in aggregate demand include
increase in foreign demand for net exports
What are the main ways in which government influences aggregate demand?
increase or decrease spending; lower or raise tax rates
If the economy has cyclical unemployment, appropriate policies to pursue may include
increased government spending that shifts the AD curve to the right
What is a key component considered by businesses when determining the amount to take on with investment spending?
interest rates
In order for there to be an accurate reflection of the aggregate economic indicators in a model the equilibrium aggregate real GDP and the equilibrium aggregate price level needs to
intersect
Aggregate Demand (AD) is defined as C + I + G + (X-M). I refers to ________.
investment spending
Investment in human capital
is an important source of labor productivity
Sustained economic growth
is key because over a long period of time small yearly growth rate compound
Sustained economic growth
is key because over a long period of time small yearly growth rate compound.
According to growth accounting studies, investing in research and education
is the best way to achieve greater technological progress.
Say's Law:
is widely held to be more accurate in the long run rather than the short term
An economy is considered to be in an expansion if:
it is moving from the trough to the peak of the business cycle.
Which of the lines represents the C + I stacked functions?
line 2
Which line represents the C + I + G stacked functions in the graph?
line 3
An example of a ________ is when the changes in prices happen often enough to cause customers and consumers to be confused or angry.
menu cost
If price changes happen frequently, customers and consumers can become irritated or confused. An example like this is called a ________.
menu cost
An example of ________ is when price changes cost a firm substantial resources.
menu costs
Price changes can cause substantial cost to company resources. An example of this is called ________.
menu costs
The total amount households and businesses plan to spend on goods and services at every level of income is determined by the aggregate expenditure. This model focuses on the short run relationship between real spending and ________.
national income or GDP
The ________ perspective tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment.
neoclassical
Which component of aggregate demand would initially be affected by a change in exchange rates?
net exports
Compared to developed countries, developing countries...
often lack reliable or regular unemployment statistics.
Government, from a neoclassical perspective, should have the intent to focus less
on stimulus spending.
Which is the smallest expenditure category in the US CPI?
other goods and services
A year ago Parker reached his retirement and left the business to pursue other interests. He is now spending lots of time playing golf and visiting his grandchildren. For purposes of employment he is considered:
out of the labor force
A year ago Parker reached his retirement and left the business to pursue other interests. He is now spending lots of time playing golf and visiting his grandchildren. For purposes of employment he is considered:
out of the labor force.
If U.S. goods are relatively cheaper compared with goods of foreign places, then U.S. exports are likely to rise. This would make the aggregate demand curve ________.
shift to the right
The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called
potential GDP
The term "full employment GDP" is synonymous with which of the following?
potential GDP
Using the context of an economy's existing inputs, market and legal institutions, what term is used to describe the maximum quantity that an economy can produce?
potential GDP
Aggregate supply (AS) denotes, while holding the price of inputs fixed, the ________ that firms choose to produce and ________.
price level for output; GDP
One benefit to falling aggregate demand is that
price levels go down
The Producer Price Index is based on prices paid for supplies and inputs by ________.
producers of goods and services
A nation achieves economic growth when its:
production possibilities frontier shifts outward.
Contractual laws, by establishing recourse (protection) for parties involved,
promotes economic transactions and growth.
In an AD-AS model:
real GDP is shown on the horizontal axis
As interest rates rise, the effect on aggregate demand is to
reduce consumer borrowing and consumption spending
Aggregate supply curves are ________ for low levels of output, and ________ for high levels of output.
relatively flat; relatively steep
Capital deepening generally
results in greater economic growth
Economic growth is shown in the AS-AD model as a
rightward shift in the long run AS curve
Economic growth is shown in the AS-AD model as a
rightward shift in the long run AS curve.
Inflationary pressure in the AS-AD model can be shown as a
rightward shift of the AD curve when the economy is already producing at its potential GDP
Inflationary pressure in the AS-AD model can be shown as a
rise in input prices affecting most firms across the economy shifting AS curve to the left
In the short run, aggregate demand is more likely than aggregate supply to
substantially shift
In the short run, aggregate demand is more likely than aggregate supply to
substantially shift.
If technological growth and innovation is halted over a protracted period, which CPI bias problem is likely to persist?
substitution bias
The country of Zanzibar has experienced a halt in its technological growth and innovation over a protracted period. Which CPI bias problem is likely to persist in this scenario?
substitution bias
In the supply-demand diagram used to represent events such as cyclical unemployment, the supply (upward-sloping) curve represents ________.
supply of workers for labor
Economic growth has been
sustained and rapid since the 1800's.
From a neoclassical perspective, which of the following would most likely be viewed as an element that undermines long-run productivity growth in the economy?
tax cuts on business capital investment
Modern economic growth finds its roots in
technological progress and industrialization.
Carla just started her new job working at the Department of Commerce. In order to see whether Carla "knows her stuff," her boss asks her to put together a presentation on the current state of the economy. What is one of the economic indicators Carla could look at?
the inflation rate
The argument of neoclassical economists is that
the long run aggregate supply curve is at the level of potential GDP
The argument of neoclassical economists is that
the long run aggregate supply curve is at the level of potential GDP.
Keynesian economics explains that recessions and depressions occur because:
the macroeconomy may adjust only slowly to shifts in aggregate demand because wages are sticky
If you are focusing on the value of output per hour worked you are considering
the most important determinant of the average wage level in the economy.
An increase in aggregate demand would cause
the price levels to rise
The vertical, long-run aggregate supply curve indicates that the long-run level of economic output is dependent upon ________.
the stock of productive factors
The most important determinant of the average wage level in the economy is ________.
the value of output per hour worked
If a person has zero income, consumption still exists because ________.
there are basic needs people still have to meet
Frictional unemployment occurs because in a world of imperfect information, it takes ________ for people to find jobs.
time
Last year, in calculating the GDP of the United States imports were found to be greater than U.S. export. This is known as a
trade deficit
Last year, in calculating the GDP of the United States imports were found to be greater than U.S. export. This is known as a
trade deficit.
Concerning the four phases in the economic cycle above, what does point D depict? (last point lowest point curve)
trough
Keynes argued that the private sector was ________. As a result, government should ________ in managing the economy
unable to keep the economy at full employment; take an active role
Consider an economy at full employment. If consumers and firms become less optimistic about the future economy then
unemployment will rise
In the neoclassical model, economic growth through technological change over time shifts potential GDP and the ________ gradually to the right.
vertical AS curve