Econ 2020 - Ch. 28 - 31
The formula for a GDP gap is:
actual GDP minus potential GDP
Disposable income minus consumption equals:
saving
In the trough of a recession, output and employment ______.
"bottom out" at their lowest levels
According to the table, when disposable income is $470 billion, what is the savings?
$20 billion
According to Okun's law, if the unemployment rate in 2009 was 9.6, the natural rate of unemployment was 7.4, and the potential GDP was $8,500 billion, what was the loss of output associated with the above-natural unemployment rate?
$374 billion
In a private closed economy real GDP is $400B and aggregate expenditures are $400B. When trade begins, exports total $60B and imports total $70B. What is the new aggregate expenditures in the private open economy?
$390B
If marginal propensity to consume equals 0.6 and the change in income is $12 billion, what is the change in consumption?
$7.2 billion
When government spending increases by $20 billion and the multiplier is 4, there will be an increase in equilibrium real GDP of ______.
$80 billion
What is the formula for the CPI?
(Price of the most recent market basket/price estimate of the market basket in 1982-1984) x 100
Which of the following describes how to calculate the unemployment rate?
(unemployed/labor force) x 100%
Select the statements that summarize how firms can increase productivity using economies of scale.
-As firms expand their size and output, they are better able to recoup investments in new production methods and products. -As firms expand their size and output, they can use more productive equipment. -As firms expand their size and output, they can employ more productive methods of delivery.
Which statements describe how even low levels of inflation may negatively affect real output?
-Businesses incur the costs of changing prices to reflect inflation. -Households and businesses spend time and effort distinguishing between real and nominal wages and interest rates.
Which statements about frictional and structural unemployment are true?
-Frictionally unemployed workers have marketable skills, while structurally unemployed workers do not. -Frictionally unemployed workers live in areas where jobs exist, while structurally unemployed workers do not have appropriate jobs available to them.
Identify the supply factors that are "determinants" of economic growth.
-Increases in the quantity and quality of human resources -Increases in the quantity and quality of natural resources -Improvements in technology -Increases in the supply of capital goods
Which of these explain why growth is an important economic goal?
-It increases standards of living. -It increases a society's ability to resolve socioeconomic problems. -It increases real wages and incomes.
Which statements about the CPI are true?
-It is periodically updated by the BLS to reflect current inflation rates. -It is updated every few years to reflect recent consumer purchasing patterns.
Which of the following are arguments against rapid economic growth?
-Rapid economic growth is unsustainable due to the earth's finite resources. -Rapid economic growth results in pollution, global warming and other environmental problems. -Rapid economic growth has not solved sociological problems like poverty and homelessness.
Which of the following explain why flexible-income receivers may be unaffected by or even benefit from unanticipated inflation?
-Some union workers receive COLAs in their pay when CPI increases. -Their incomes may automatically increase when the CPI increases. -Demand-pull inflation may cause some nominal incomes to increase faster than inflation and lead to real income increases.
Which of the following is likely to occur when aggregate expenditures are so high that the equilibrium level of GDP is beyond the potential output?
-The economy is likely to produce either at potential or just above potential output. -Nominal GDP is likely to increase, but real GDP is not likely to increase. -The economy is likely to experience demand-pull inflation.
What are the effects of unanticipated deflation?
-The real incomes of people with fixed nominal incomes will increase. -Creditors will benefit at the expense of debtors. -The purchasing power of savings will increase.
What are the negative effects of economic growth on the individual?
-Too much focus on materialism instead of community -High-stress environments due to the frantic pace -High anxiety with the introduction of new technologies
If saving is $30 billion and disposable income is $510 billion, what is average propensity to save (APS)?
0.06
If disposable income increases from $450 to $470 billion and savings increases from $15 to $20 billion, what is the marginal propensity to save (MPS)?
0.25
Disposable income rises by $20 billion to $40 billion. Households consume $15 billion of the increase and save $5 billion of that income. What is the marginal propensity to consume (MPC)?
0.75
The sum of MPC and MPS equals (_____).
1
The direct relationship between MPC and the multiplier is shown in the following equation:
1/(1-MPC)
The owner of a manufacturing company is considering whether or not to invest in a new sanding machine that costs $1,000. Net expected revenue after installation of the machine is $1,100. What is the expected rate of return?
10%
If disposable income increases from $410 to $430 billion and savings increases from $5 to (_____) billion, the marginal propensity to save is 0.25.
10, $10, or ten
If real economic growth is 3%, the inflation rate is 5%, and the nominal interest rate is 7%, then the real rate of interest is:
2%
Suppose that in a particular year the natural rate of unemployment is 5 percent and the actual rate of unemployment is 8 percent. Using Okun's law, the size of the GDP gap in percentage point terms is:
6 percent
In a private closed economy equilibrium, GDP is $600B with an MPS of 0.20. When the country begins to trade, exports are $90B and imports are $40B. The equilibrium GDP for this new private open economy is equal to _____.
650B
The formula for the rule of 70 that calculates the number of years it will take for the price level to double is ___.
70 divided by the annual percentage increase in the rate of inflation
Which of the following is a public investment in infrastructure?
A city builds a new water plant.
Which of these phenomena is responsible for the movement of women and minorities into high-productivity jobs?
A decline in discrimination
Which of the following will result from the depreciation of the US dollar relative to other currencies?
A decrease in the price, in terms of the other currencies, of US goods An increase in US net exports
Which of the following is not an investment in human capital?
A local company replaces its clerks' typewriters with PCs.
Which of the following would limit the growth in poor countries because of reduced foreign direct investment and development?
A no-growth policy among industrial nations
What is a lump-sum tax?
A tax that yields the same amount of tax revenue at each level of GDP regardless of the level of government purchases
Economists use what term to mean "total" or "combined"?
Aggregate
If there is a decrease in taxes, but no change in government spending, what will happen?
Aggregate expenditures will increase. Consumption will rise at all levels of GDP.
Frictional unemployment is inevitable and, in part, desirable because many workers who are voluntarily between jobs are moving to higher-paying, more productive positions that will result in which of the following?
An increase in GDP A better allocation of labor resources A higher income for the workers
What will cause the aggregate expenditure schedule to shift upward and the equilibrium level of real GDP to increase?
An increase in government spending
Borrowing affects consumption because, when a household borrows, it can increase current consumption beyond what would be possible if its spending were limited to its disposable income. What will result regarding the current consumption schedule?
An upward shift
What type of inflation allows people to plan ahead and avoid or lessen the redistribution effects of inflation?
Anticipated inflation
(_____) propensity to save equals saving divided by income.
Average
What does saving divided by income equal?
Average propensity to save
Why does a $5B increase or decrease in investment spending by firms cause the real GDP to increase or decrease by $20B?
Because of the multiplier effect.
Why does an increase in business taxes shift the investment demand curve to the left?
Because the expected profitability of investments declines
Which of the following are determinants of household consumption and savings?
Borrowing Interest rates Wealth
Which of the following causes the consumption schedule to shift upward?
Borrowing by households
In a private closed economy, the formula for aggregate expenditures is ______.
C + Ig
The formula for equilibrium GDP in a mixed, open economy is ______.
Ca+Ig+G+Xn
______ goods have indefinite lifespans because of their durability.
Capital
What are the two ways that equilibrium GDP will change in a private closed economy?
Changes in consumption schedule Changes in investment schedule
The formula (_____) for the Price Index is the price of the most recent market basket in a particular year divided by the price estimate of the market basket in 1982-1984 multiplied by 100.
Consumer
Marginal propensity to consume is the slope of what schedule?
Consumption
Consumption and disposable income have what kind of relationship?
Consumption and disposable income have what kind of relationship?
______ is relatively stable in comparison to investment spending.
Consumption spending
During the 2007-2009 recession, which components of aggregate expenditures were significant contributors to the downturn?
Consumption spending Planned investment spending
Which of the following may be reasons for substantial shifts in business expectations?
Court decisions in key labor or antitrust cases Changes in exchange rates Changes in trade barriers
Keynes proposed what two different policies that a government might pursue to close a recessionary expenditure gap and achieve full employment?
Decrease taxes Increase government spending
Economic growth is realized when the production possibilities curve shifts because of changes in which of the following factors?
Demand Efficiency
The relationship between spending and GDP is?
Direct
What is the primary factor that determines the amounts that households will consume and save?
Disposable income
What will occur at relatively low disposable income levels?
Dissaving
The determinants that directly affect economic growth can be grouped into which of the following categories?
Efficiency Supply Demand
(_____) (one word) are included as part of U.S. GDP because they create jobs and income when purchased by foreigners.
Exports
Select all the choices that are injections in an expanded economy.
Exports Government purchases Investment
When acquisition, maintenance, and operating costs rise, the expected rate of return on investment does what?
Falls
True or False: When an economy experiences negative shocks, in the short run, the economy responds primarily through changes in prices.
False
True or false: Equilibrium GDP always occurs at the full-employment GDP.
False
True or false: The unemployment rate for African Americans and Hispanics is lower than that for whites.
False
Which of the following are possible sources of the demand and supply shocks that can cause business cycles?
Financial instability Irregular innovation Monetary factors
How did Keynes describe the relationship between labor, capital, and inventory during the Great Depression?
Firms acted predictably to unexpected inventory levels.
Select all the choices that show what happens to inventory at equilibrium GDP.
Firms may decide to decrease inventory. Firms may decide to increase inventory.
According to some economists, which of the following are positive effects of mild inflation?
Firms will have a strong demand for labor. Firms have an incentive to expand their plants and equipment.
Which of the following are excluded from core inflation so that it better reflects the general trend in overall prices?
Food items Energy products
The difference between actual and potential GDP is called a ______ gap.
GDP
A movement along the consumption schedule represents a change in the amount consumed and is solely caused by a change in real (_____) (one word or acronym).
GDP or income
Which of the following entities provides funding for public investment in infrastructure?
Government
Which of the following are reasons why teenagers have a much higher unemployment rate than adults?
Have lower skill levels "Fired" more frequently Quit more frequently Have less geographic mobility
What are common characteristics of less-educated workers that contribute to their having higher unemployment rates than workers with more education?
Having more time between jobs Working lower-skilled jobs Working jobs that are vulnerable to cyclical layoff
Which of the following could be considered a cost of cyclical unemployment?
Higher crime, suicide, and divorce rates Severe psychological costs to the job loser Political upheaval
Which of the following cannot properly be called a part of infrastructure?
Human capital
Which of the following factors of productivity growth account for workers moving over time from low-productivity to high-productivity employment?
Improved resource allocation
Which of the following two variables change by more than an initial change in spending due to the multiplier effect?
Income Output
In reaction to the recession of 2007-2009, the government issued $100 billion in tax rebate checks. How did government expect that this policy would impact aggregate expenditures?
Increase consumption thereby increasing aggregate expenditures
Which of the following are consequences of the widespread joblessness of cyclical unemployment?
Increased poverty Greater ethnic tensions Lower morale
What are the two supply-side elements of real GDP?
Increases in labor productivity Increases in hours worked
Which of the following comprise technological advancement?
Innovative production techniques New forms of business organization New managerial methods
Which of the following statements best describes the nominal interest rate?
Interest rates that are expressed in annual amounts and not adjusted for inflation
Most of the fluctuations in output and employment over time are due to changes in what?
Investment
What is the most volatile component of total spending?
Investment
Which of the following has historically had the greatest swings in spending?
Investment
Which of the following is a potential replacement for the leakage of saving?
Investment
______ is an injection into the income-expenditure circular flow in a private closed economy.
Investment
Which of the following statements is true?
Investment in both private and public capital is conducive to economic growth and higher productivity.
(_____) expenditure is the most volatile component of total spending.
Investment or Capital
spending consists of expenditures on new plants, capital equipment, machinery, and inventories.
Investment or Capital
Which statement about real income is true?
It has been adjusted for changes in prices over time.
Which statement best describes U.S. inflation since 2000?
It has been neither very high nor very low.
With no change in government expenditures, how does a tax increase influence aggregate expenditures and equilibrium GDP?
It lowers both of them.
How is cost-push inflation unique?
It reduces the overall quantity of real output.
Suppose the real interest rate increases, causing businesses to decrease investment spending. Using the figure provided, what happens to the aggregate expenditures curve?
It shifts downward to (C + Ig)2
Suppose the real interest rate falls, causing businesses to increase investment spending. Using the figure provided, what happens to the aggregate expenditures curve?
It shifts upward to (C + Ig)1
Which of the following are characteristics of lower-skilled workers?
Longer spells of structural unemployment Less likely to be self-employed
Which of the following describe why unemployment rates are higher for African Americans and Hispanics than for whites?
Lower rates of educational attainment Greater concentration in lower-skilled occupations
Because the fraction of any change in income not consumed is saved, which of the following equations is true?
MPC + MPS = 1
What do antigrowth economists cite as evidence in favor of their argument that growth is undesirable?
Materialism Poverty Pollution
Borrowing in the present allows for higher consumption in the present and necessitates lower consumption in the future when the debts must be repaid. This is an example of what economic concept?
No free lunch
The consumption and saving schedules move in (_____) directions when influenced by wealth, expectations, debt, and/or interest rates.
Opposite
Economic growth is calculated as ______.
Percentage rate of growth per quarter or per year.
______ is a major factor preventing the economy from rapidly adjusting to shocks.
Price stickiness
Which of the following is the most fundamental assumption behind the Keynesian aggregate expenditure model?
Prices in the economy are fixed.
Which of the following increases investment demand?
Profitable new products
Which of the following statements best summarizes the real economic growth per capita in the United States between 1950 and 2018?
Real GDP per capita rose nearly fourfold.
Which of the following statements best summarizes the growth in real GDP in the United States between 1950 and 2018?
Real GDP rose more than eightfold.
(_____) income will be affected if the change in the price level differs from the change in a person's nominal income.
Real or Actual
In a mixed open economy, equilibrium GDP is identified where _____.
Sa+T+M=Ig+G+X
Select all the choices that are leakages in an expanded economy.
Savings Paying taxes Imports
If household expectations are of a recession and thus lower income in the future, what will happen to the consumption schedule?
Shift down
What happens to the investment demand curve when there is an increase in demand?
Shifts to the right
The ratio of the vertical change to the horizontal change taking place by moving from one point to another along the line is called what?
Slope
Which of the following is a major factor in preventing the economy from rapidly adjusting to shocks?
Sticky prices
Which type of unemployment occurs as a direct result of a mismatch between skills and jobs?
Structural
(_____) advancement and capital investment are related because both promote further economic investment in new machinery and equipment.
Technological
Which of the following factors of productivity growth helps to promote the development of new forms of business organization?
Technological advance
What is a recessionary expenditure gap?
The amount by which aggregate expenditures at full-employment GDP fall short of those required to achieve full-employment GDP
What is an inflationary expenditure gap?
The amount by which aggregate expenditures at the full-employment GDP exceed those required to achieve full-employment GDP
What is planned investment?
The amount that firms intend to invest.
What is planned investment?
The amounts that business firms collectively intend to invest at each level of GDP.
What happens as a result of changes in wealth, expectations, interest rates, and household debt?
The consumption schedule shifts in one direction, and the saving schedule shifts in the opposite direction.
What is one result of high expenditures that cause the aggregate expenditure model to predict equilibrium GDP beyond potential output?
The economy produces at or just above potential output.
Which of the following helps explain why the growth rate in the United States has been positive during the 1900s?
The increase in labor productivity
What is the equilibrium level of output?
The level of GDP at which the total quantity of goods produced equals the total quantity of goods purchased
What is the unemployment rate?
The percentage of the labor force that is unemployed
What does the Consumer Price Index (CPI) measure?
The prices of a fixed "market basket" of goods and services
The nominal interest rate minus the rate of inflation equals what?
The real interest rate
Which statement is true about inventories at equilibrium GDP?
There are no unplanned changes in inventories.
In a closed economy, what are two characteristics of equilibrium GDP?
There are no unplanned changes in inventories. Savings and planned investment are equal.
Which of the following are true at equilibrium GDP?
There is no unplanned increase in inventories of goods. There is no excess of total spending. The total quantity of goods produced equals the total quantity of goods purchased.
What was the result of trade barriers imposed during the 1930s?
There were multiple rounds of retaliatory barriers among countries. World trade declined.
What is the relationship between equilibrium GDP and full-employment GDP?
They do not have to be equal.
If a country imposes high tariffs, what most likely happens to its trading partners?
They retaliate by imposing their own tariffs.
How does the economic success of trading partners affect the U.S.?
Trade passes foreign success to the U.S. If they prosper, they buy more U.S. goods.
True or false: Growth enables society to improve nations' infrastructure.
True
True or false: Hyperinflation is extraordinarily rapid inflation.
True
True or false: In the United States, inflation reached double-digit rates in the 1970s and early 1980s but has since declined and recently, has been relatively mild.
True
True or false: Real growth of GDP can be misleading when annual population growth exceeds that of GDP.
True
True or false: Technological advance and investment are related because technological advance promotes investment in new machinery and equipment.
True
True or false: The Bureau of Labor Statistics lists all part-time workers as fully employed.
True
True or false: The competitive market system tends to drive the economy toward productive and allocative efficiency.
True
Which of the following are normally very similar between men and women?
Unemployment rates
What did Keynes think was responsible for the large amount of idle labor and capital during the Great Depression?
Unplanned inventory increases
Select examples of infrastructure.
Water supply system Roads and bridges
What are the results of unanticipated inflation?
Wealth and real income are redistributed. Some people are harmed and others are helped.
Events sometimes boost the value of existing wealth, shifting the consumption schedule upward and the saving schedule downward. This is called what?
Wealth effect
When the current production level of goods and services leads to output levels below equilibrium GDP, it results in _____.
a reduction of goods in inventory and too low a production rate
If GDP is below equilibrium, the aggregate expenditure schedule is located on the graph in a position ______.
above the 45° line
If the leakage of saving is greater than the injection of investment then there will be a(n) ______.
above-equilibrium level of GDP
The ______ helps to explain the situation of massive unemployment, as well as to better understand how an economy will react to such economic shocks as changes in tax rates as well as government and household spending.
aggregate expenditure model
Which of the following reflects the total amount that will be spent at each possible output or income level?
aggregate expenditures schedule
Business cycles are ______.
alternating increases and decreases in economic activity
A business cycle consists of ______.
alternating rises and declines in the level of economic activity
If the economy is operating below its full-employment level, the depreciation of the dollar will likely lead to ______.
an increase in net exports and aggregate expenditures and an expansion of real GDP
An important source of increasing labor productivity is ______.
an increase in the ratio of capital to labor
The wealth effect occurs when events suddenly boost the value of existing wealth. This causes ______ shift in the consumption schedule and ______ shift in the saving schedule.
an upward; downward
Savers are hurt by unanticipated inflation because:
as prices rise, the real value of savings decreases
The net export schedule lists the amount of net exports that will occur ______.
at each level of GDP
GDP ______ is the desired level of output because total spending is just sufficient to purchase total output.
at equilibrium
Cost-of-living adjustments are ______.
automatic wage changes that happen when the CPI rises
The (_____) propensity to consume is the fraction or percentage of total income that is consumed.
average
The fraction of total income that is saved equals the (_____) propensity to save. (Enter one word.)
average
The fraction or percentage of total income that is consumed is called the:
average propensity to consume
Total consumption divided by total disposable income equals the ______.
average propensity to consume
The fraction of total income that is saved is called the:
average propensity to save
If GDP is above equilibrium, the aggregate expenditure schedule is located on the graph in a position ______.
below the 45° line
Comparing the expected rate of return to the real interest rate in deciding whether or not invest is the same as comparing the marginal (_____) and marginal (_____).
benefit; cost
A key issue in macroeconomics is why the economy sees ______.
business cycle fluctuations rather than slow, smooth growth
The two ways that society can increase its real output and income are by increasing its inputs of resources and ______.
by raising the productivity of those inputs
In the figure, an increase in acquisition, maintenance, and operating costs affects the investment demand curve _____.
by shifting it from ID0 to ID2
Firms and industries producing capital goods are affected most by the business cycle and the negative effects of a recession because purchases of capital goods ______.
can be postponed
When government raises taxes it affects the aggregate expenditures in a public open economy by ______.
causing the total aggregate expenditures to fall by the full amount of the lump-sum tax times the marginal propensity to consume
The index most widely used by the government and the private sector to measure changes in the cost of living is the:
consumer price index
The rate of inflation is equal to the percentage change of the ______ from one year to the next.
consumer price index
The composition of the market basket for the CPI is based on spending patterns of urban _______ in a given period.
consumers
The (_____) schedule shows the various amounts that households would plan to spend at each of the various levels of disposable income.
consumption
The two components of aggregate expenditures in a private closed economy are ______,
consumption and gross investment
Average propensity to consume equals total (_____) divided by total disposable income.
consumption or consumed
Saving equals disposable income minus (_____).
consumption, spending, expenses, or expenditures
Dissaving is when (_____) is greater than after-tax income.
consumption, spending, or consuming
The aggregate expenditure schedule in a private closed economy is the sum of ______ plus planned ______.
consumption; investment
The formula for aggregate expenditures in an open mixed economy is ______ + ______ + ______ + ______ =GDP.
consumption; investment; government purchases; net exports
Social security payments automatically increase when the CPI goes up because of the ______.
cost of living adjustments
Inflation caused by an increase in the per-unit production costs at each level of total spending is called:
cost-push
Economists say that the economy is at "full employment" when the ______ unemployment rate is zero.
cyclical
Unlike economists who argue in favor of rapid economic growth, economists who argue against it see rapid economic growth as ______.
damaging
A decrease in the government spending by $10 billion with a multiplier of 5 will cause aggregate expenditures to ______.
decline by $50B
It is undesirable for GDP to be greater than the equilibrium level because it will lead to a(n) ______.
decline in output, jobs and total income
In theory, if business taxes (_____), investment increases.
decline, decrease, fall, drop, or lower
In 2008, a "reverse wealth effect" occurred due to ______.
declining real estate values falling stock market prices
If households save $40 billion and firms invest $30 billion, then the level of real GDP will ______.
decrease
When GDP is above equilibrium, firms will ______ the rate of production.
decrease
An increase in lump-sum taxes will ______.
decrease equilibrium real GDP
When real interest rates (_____) (increase/decrease), households tend to borrow more, consume more, and save less.
decrease, fall, decline, drop, lower, or lessen
Any factor that leads businesses to collectively expect lower rates of return on their investments ______ investment demand.
decreases
Innovations induce a large wave of investment spending that in time ultimately ______.
decreases
When the level of GDP is above the equilibrium level, businesses will respond to the unintended accumulation of unsold goods by:
decreasing the rate of production
The purchase of the economy's expanding goods and services by households, businesses, and the government is known as the (_____) factor
demand
The purchase of the economy's expanding goods and services by households, businesses, and the government is known as the ______ factor.
demand
Inflation caused by an excess of total spending beyond the economy's capacity to produce is called:
demand-pull inflation
When the dollar ______ relative to other currencies it enables people abroad to obtain more dollars with each unit of their own currency.
depreciates
A worker who, after unsuccessfully seeking employment for some time, becomes frustrated and stops actively seeking work is referred to as a(n) ______ worker.
discouraged
When developing macroeconomic models, economists change their focus from the relationship between consumption and (_____) income to the relationship between consumption and real GDP.
disposable
Dissaving will occur at low ______ levels.
disposable income
The consumption schedule shows the various amounts that households plan to consume at each level of:
disposable income
When consumption is greater than after-tax income, it is called ______.
dissaving
The rule of 70 says that the number of years it will take for some metric to double, given its annual percentage increase, can be found by ___.
dividing 70 by the annual percentage increase
Capital goods have indefinite lifespans because of their:
durability
The business cycle affects output and employment in capital and durable goods industries more severely than in industries producing non-durable goods because, ______.
during a recession, business investment in new capital goods and consumer spending on new durable goods can be postponed
According to McConnell, better working conditions are best brought about by ______.
economic growth
Frantic paces on jobs, worker burnout, and alienated employees are all effects of ______.
economic growth
Economic theories are founded on the idea that economic fluctuations are driven by ______.
economic shocks
Reductions in per-unit production costs that result from increases in output levels are called ___.
economies of scale
Firms are able to use larger, more productive equipment and employ methods of manufacturing and delivery that increase productivity when they enjoy (_____) of scale.
economies or economy
Reductions in per-unit production costs that result from increases in output levels lead to (_____) of (_____).
economies or economy scale
The two types of investment in human capital are on-the-job training and formal (_____) (one word).
education or schooling
The labor force is the sum of the ______ and ______.
employed; unemployed
Those who are working are defined as (_____) (one word) and those who are not working but actively seeking work are defined as (_____) (one word).
employed; unemployed
The four supply factors that constitute changes in physical and technical agents of production ______.
enable an economy to expand its potential GDP
Since disposable income is either consumed or saved, the fraction of any disposable income consumed plus the fraction saved must be ______.
equal to 1
If the private closed economy is at equilibrium real GDP, then savings ______.
equals planned investment by businesses
An economy is "fully employed" when the unemployment rate _____.
equals the structural and frictional unemployment rate
The level of GDP at which the total quantity of goods produced equals the total quantity of goods purchased is known as ______.
equilibrium output
Real economic growth can be misleading when annual population growth ______.
exceeds that of real GDP
Demand-Pull inflation is caused by:
excess total spending
Changes in exchange rates, changes in the outlook for international peace, changes in trade barriers, and changes in governmental economic policies are reasons for substantial shifts in business (_____).
expectations or investment
In a private closed economy, consumption and gross private investment are the components of aggregate ______.
expenditures
During hyperinflation, the value of money:
falls rapidly
A fundamental assumption behind the Keynesian aggregate expenditure model is that prices in the economy are ______.
fixed
When inflation occurs, people with (_____) incomes see their real incomes fall.
fixed
Economic growth is made possible by the ______.
four supply factors that shift the production possibilities curve outward
Workers that are (_____) unemployed live in areas where jobs exist, and they have marketable skills.
frictionally
Workers that are unemployed because they are "between jobs" are:
frictionally unemployed
Efficiency factor is when an economy must achieve economic efficiency as well as (_____) (_____) to reach its full production. (Use one word per blank)
full employment
Efficiency factor is when an economy must achieve economic efficiency as well as ______ to reach its full production potential.
full employment
The Bureau of Labor Statistics lists all part-time workers as ______.
fully employed
"No free lunch" means that while borrowing in the present allows for higher consumption in the present, it necessitates lower consumption in the (_____) when the debts that are incurred due to the borrowing must be repaid.
future or long-run
The difference between actual and potential GDP is called a GDP (_____).
gap
A private open economy is a private economy that includes international trade but not ________ spending.
government
Increases in investment demand occur when businesses collectively expect:
greater rates of return on their investments
An economy that is experiencing economic ______ is better able to meet people's wants and resolve socioeconomic problems.
growth
One reason teenagers have a higher unemployment rate than adults is because they:
have lower skill levels
Economic growth provides society ______.
higher living standards greater material abundance more goods and services
On average, unemployment rates among less-educated workers are (_____) than workers with more education.
higher, larger, greater, or more
A nation's real GDP depends on labor ______ multiplied by labor ______.
hours; productivity
Unanticipated inflation ______ fixed-income recipients, savers, and creditors.
hurts
When the U.S. ______, part of U.S. income must be subtracted from aggregate expenditures in order to avoid overstating the value of domestic production and domestic spending.
imports
Equilibrium real GDP will decline when ______.
imports are greater than exports
Over time, when workers move from low-productivity to high-productivity employment, it is called ______.
improved resource allocation
Consumption is positively related to disposable (_____) (one word).
income
The paying of taxes drains off some of the additional consumption spending created by the increases in ______.
income
A nation's economic growth from one year to the next depends on its ______.
increase in labor inputs and increase in labor productivity
A(n) (_____) in business taxes shifts the investment demand curve to the left.
increase or rise
The Great Depression was worsened because of the imposition of a trade policy by the United States government that ______.
increased tariffs on imports
Any factor that leads businesses collectively to expect greater rates of return on their investments ______ investment demand.
increases
If the amount of capital per worker (_____), labor productivity will increase.
increases, rises, expands, or grows
Increased capital is important to productivity growth because the ______ in the quantity and quality of capital will make workers ______ productive.
increases; more
When exports increase or imports decrease, this ______ aggregate expenditures and ______ the nation's GDP.
increases; raises
When the United States' foreign trading partners experience higher incomes, it benefits the U.S. by _____.
increasing U.S. income increasing U.S. exports increasing U.S. GDP
When the level of GDP is below the equilibrium level, businesses will respond to the unplanned decline in business inventories by:
increasing output and employment
Frictional unemployment is ______.
inevitable and, in part, desirable
People whose incomes are fixed see their real incomes fall when (_____) occurs.
inflation
Real interest rates are rates adjusted for what?
inflation
A(n) ______ is the amount by which aggregate expenditures at the full-employment GDP exceed those required to achieve full-employment.
inflationary gap
When potential output is $510B and the aggregate expenditures curve intersects the 45 degree line above $510B implying that equilibrium real GDP is greater than potential output, then there is a(n) ______.
inflationary gap and current employment is above full employment
Investment is a(n) ______ of spending into the income-expenditure stream.
injection
Real interest rates are the ______.
interest rates quoted in the market minus the expected inflation rate
Firms expect either faster or slower sales and make planned changes to their:
inventories
When GDP is below equilibrium, higher levels of spending cause ______.
inventory levels to fall, and informs businesses to increase production levels toward equilibrium output
Firms make planned changes in their (_____) levels in anticipation of faster or slower sales.
inventory, production, output, supply, investment, or stock
The (_____) relationship between interest rates and quantity of investment conforms to the law of demand.
inverse, negative, indirect, downward sloping, or downsloping
A change in acquisition, maintenance and operating costs affect the demand curve by shifting it left or right depending on whether the costs go up or down.
investment
A firm's spending on new plants, capital equipment, machinery, and inventory is all considered ______.
investment
In a private closed economy the equilibrium GDP will change in response to changes in either the ______.
investment or consumption schedules
Innovations induce a large wave of ______ that in time recedes.
investment spending
When households' expect rising prices in the near future, the effect on the saving schedule is that
it shifts down
Generally, technological advance is generated by the discovery of new (_____) which allows (_____) to be combined in improved ways that increase output.
knowledge resources
Human capital refers to ___.
knowledge and skills that make a worker productive
In any year, a nation's real GDP depends on hours of work multiplied by ______.
labor productivity
Output per hour of work is the definition of:
labor productivity
The two main supply-side elements that contribute to changes in real GDP are increases in hours worked and increases in ______.
labor productivity
The fraction of the working-age population that is in the labor force is called the ______ rate.
labor-force participation
Individuals who derive their incomes entirely from Social Security are ______ by inflation.
largely unaffected
Saving is a(n) ______ of spending from the economy's circular flow of income and expenditures.
leakage
In the income-expenditure circular flow, investment is a replacement for the ______.
leakage of savings
According to McConnell, economic growth has made working conditions ______.
less hazardous and more pleasant
When GDP is (_____) than its equilibrium level, businesses will raise the rate of production, leading to more employment and consequently raising the levels of consumption and income.
less, lower, or below
One of the consequences of a no-growth policy is that it ______.
limits growth in poor nations
The number of persons unemployed for long periods as a percentage of the labor force is ______ the overall unemployment rate.
lower than
In order to close a recessionary gap, Keynes suggested ______ taxes and ______ government expenditures.
lowering; raising
A tax that yields the same amount of tax revenue at each level of GDP regardless of the level of government purchases is called a ______ tax.
lump-sum
Why the economy sees business cycle fluctuations rather than slow, smooth growth is a central issue of ______.
macroeconomics
Increases in capital are important to productivity growth because increases in the quantity and quality of capital ______.
make workers more productive
The change in consumption divided by the change in income is equal to the propensity to consume.
marginal
The economic term for "extra" or "a change in" is:
marginal
The slope of the savings schedule is the (_____) (one word) propensity to save.
marginal
Investment decisions are decisions based on ______,
marginal benefit and marginal cost
The ratio of a change in consumption to a change in the income that caused the consumption change is called the
marginal propensity to consume.
The slope of the savings schedule is the
marginal propensity to save
A change in saving divided by a change in income is equal to the
marginal propensity to save.
In economic terms (_____) means "extra" or "a change in".
marginal, margin, incremental, or delta
The fraction of any change in income not consumed is, by definition, the (_____) (_____) to (_____). This explains why the marginal propensity to consume plus this fraction of any change equals one.
marginal; propensity; save
A ______ economy includes both private and public sectors.
mixed
An economy that includes consumption spending, investment spending, government spending, taxes and international trade is called a ______ economy.
mixed
When the dollar depreciates relative to other currencies it enables people abroad to obtain ______ dollars with each unit of their own currency.
more
Compared to consumption, investment is ______.
more volatile
A decline in the discrimination against women and minorities has resulted in
more women and minorities in higher-productivity jobs
When real interest rates fall, households tend to borrow ______, consume ______ and save _______.
more, more, less
The (_____) influences the degree to which the GDP changes if there is a change in the rate of return on a firm's potential project or the real interest rate.
multiplier
A business purchases a new piece of equipment. Another firm earns income from this sale and with this income builds a new factory. The contractor that built the factory earns income and uses the income to take a vacation. The resort earns income from the contractor. This scenario describes the:
multiplier effect
If the rate of return on a firm's potential project or the real interest rate increases or decreases, the size of the effect they will have on the equilibrium GDP is based on the ______.
multiplier effect
Pollution, global warming, and ozone depletion are (_____) externalities that result from economic growth. (Enter only one word.)
negative or adverse
A list of the amount of net exports that will occur at each level of GDP is called the ______.
net export schedule
The demand factor involves households, businesses, and government purchasing the economy's expanding output of goods and services so that there will be ______.
no unplanned increase in inventories and resources will remain fully employed
Income that is received as wages and is not adjusted for inflation is called ______ income.
nominal
The formula for real income is ______.
nominal income divided by the price index
The interest rates quoted in the market are known as ______.
nominal interest rates
Food and energy prices often complicate the measurement of inflation because supply and demand for these products ______.
often change, creating temporary changes in prices
The MPC plus the MPS equals:
one
The average propensity to consume and the average propensity to save together equal (_____).
one or 1
A private _____ economy is a private economy that includes international trade in its GDP.
open
A mixed economy is a(n) (_____) (one word) economy that includes government spending and taxation.
open or public
The basic economic cost of unemployment is forgone ______.
output
When prices are sticky in the short-run, the economy is forced to respond to shocks in the economy with changes in ______.
output employment
Recessions are periods when ______.
output and employment are falling
When society increases its inputs of resources and raises the productivity of those resources, it can increase real ______ and ______.
output; wages
Economic growth made possible by the four supply factors is illustrated by the ______ the production possibilities curve.
outward shifting of
The phase of the business cycle at which the economy is at or near full employment is known as a(n) (_____).
peak
The phase of the business cycle when the economy is near or at full employment and the level of real output is at or near capacity is called a:
peak
A shift of the investment demand curve from ID0 to ID2 is explained by ______ business expectations.
pessimistic
When there is overproduction of goods leading to output levels above equilibrium GDP, this results in a ______.
piling up of unsold goods and a cutback in production rates
In a private closed economy, two characteristics of GDP at equilibrium are that saving and (_____) investment are equal and there are no (_____) changes in inventories.
planned unplanned or unexpected
The amount that firms intend to invest is known as ______.
planned investment
The amounts that business firms collectively intend to invest at each level of GDP is called their ______.
planned investment
Aggregate expenditures and GDP will be increased beyond what they would be in a closed economy with the addition of ______.
positive net exports
Economic growth can be illustrated when the demand factor and the efficiency factor shift the production (_____) curve outward.
possibilities
A GDP gap equals actual GDP minus (_____) (one word) GDP.
potential
Real income will remain the same when nominal income rises at the same percentage rate as does the ______.
price index
Real income equals nominal income divided by the (____) (____).
price; index or level
Public investment in U.S. infrastructure like roads and bridges promotes (_____) investment in new factories and retail stores.
private
The aggregate expenditure model can be used to explain short-run adjustments in ______.
private and public spending
To completely construct the aggregate expenditures model we must move from a ______ (no government) open economy to a ______ economy that also includes the public sector (government).
private; mixed
When an economy uses its resources in the least costly way to produce goods and services, it is called (_____) efficiency.
productive
The competitive market system tends to drive the economy toward (_____) efficiency and (_____) efficiency.
productive allocative
When an economy uses its resources in the least costly way to produce goods and services, it is called ___.
productive efficiency
Several possible sources of shocks that can cause business cycles include ______.
productivity changes irregular innovation monetary factors unexpected political events
If Sue saves $1,000 in the bank and earns 6% interest and inflation is greater than 6%, then the ______.
purchasing power of the savings will decline
A business is thinking about investing in a new piece of equipment. The expected (_____) of return helps the business make the decision about whether or not to invest.
rate
A movement along a consumption schedule represents a change in the amount consumed and is solely caused by a change in ______.
real GDP
In the figure, the consumption schedule shifts down when households consume less at each level of ______.
real GDP
When developing macroeconomic models, economists change their focus from the relationship between consumption and disposable income to the relationship between consumption and ______.
real GDP
Income that has been adjusted for changes in prices over time is called ______.
real income
Inflation redistributes:
real income
Labor productivity is:
real output per hour of work
The level of investment spending by firms is based upon the ______ interest rate together with the investment ______ curve
real; demand
The phase of the business cycle that describes a decline in total output, income, and employment is called a(n) (_____).
recession or contraction
A(n) ______ is the amount by which aggregate expenditures at the full-employment GDP fall short of those required to achieve full-employment.
recessionary gap
When potential output is $520B and the aggregate expenditures curve intersects the 45 degree line below $520B implying that equilibrium real GDP is less than potential output, then there is a(n) ______.
recessionary gap and current employment is below full employment
At levels above equilibrium GDP, consumption underspending causes firms to ______.
reduce production output to move the level of GDP back to equilibrium
Inflation ______ the purchasing power of money.
reduces
Any factor that leads businesses to collectively expect lower rates of return on their investments _____.
reduces investment demand
Cost-push inflation can contribute to a recession by increasing prices, which ______.
reduces output and leads to lower employment
When exports decrease or imports increase, this ______ aggregate expenditures and ______ the nation's GDP.
reduces; lowers
If the capital stock ______ and the quantity of labor decreases, labor productivity will probably ______.
remains fixed; increase
Suppose country A and country B are trading partners. The imposition of tariffs by country A on goods from country B may not be a sound economic idea because it would likely lead to ______.
retaliation by country B
Firms will produce at a given level of output if their sales (_____) exceeds their production (_____).
revenue or revenues cost, costs, or expenses
If production technology improved, the investment demand curve would shift to the ______ because increased efficiency ______ production costs.
right; reduces
In terms of the investment demand curve, an increase in demand is represented by a(n) ______ shift and a decrease in demand is represented by a(n) ______ shift.
rightward; leftward
Investment decreases when business taxes (_____).
rise or increase
When the government spends money on goods and services, it affects aggregate expenditures in a public open economy by causing total aggregate expenditures to (_____). To find the new equilibrium real GDP, we multiply the full amount injected into the economy and the (_____).
rise, increase, expand, or grow multiplier or multiplyer
When acquisition, maintenance, and operating costs (_____), the expected rate of return from prospective investment projects declines.
rise, increase, or grow
The number of years for a variable to double equals 70 divided by its annual growth rate is called the ___.
rule of 70
Which of the following group of people are hurt by unanticipated inflation?
savers creditors fixed-income recipients
A withdrawal of spending from the economy's circular flow of income and expenditures is also called ______.
saving
Ideally, a nation acquires funds for investment spending on plant and equipment by ______ income.
saving
If (_____) is $15 billion and disposable income is $450 billion, the average propensity to save is 0.03. (Enter only one word in the blank.)
saving
According to the table, (_____) is $30 billion when disposable income is $510 billion.
saving or savings
The marginal propensity to save is equal to a change in (_____) (One word) divided by a change in income.
saving or savings
Sources of funds for investment spending in plant and equipment are ______.
savings by households, governments, and foreigners
When government imposes a lump-sum tax on its citizens, this has the effect of decreasing equilibrium real GDP by reducing both consumption and (_____).
savings, saving, or investment
The investment (_____) shows the amount of investment forthcoming at each level of GDP.
schedule
If a firm with investment demand of ID0 becomes more optimistic about future sales, costs, and profits, the investment demand curve will ______.
shift to ID1
Unexpected events that drive economic cycles and fluctuations are called economic (_____).
shocks or shock
The unemployment rates for men and women are normally:
similar
The (_____) of a line is the ratio of the vertical change to the horizontal change taking place by moving from one point to another on that line.
slope
The marginal propensity to consume is the ______ of the consumption schedule.
slope
The economy supports repetitive, continuous flows of ______ and income through which dollars spent by Smith are received as income by Chin and then spent by Chin and received as income by Gonzales, and so on.
spending
As a result of the multiplier effect, a change (_____) in ultimately changes output and income by more than the initial change. (Enter only one word.)
spending, expenditures, investment, or consumption
Economists pay attention to small changes in economic growth because small changes in economic growth can make a big difference in the living (_____) of a country.
standards, standard, or conditions
An auto worker in Michigan who loses his job because the company relocated the plant to another country is an example of ______ unemployment.
structural
To prevent overstating the value of domestic production, the amount spent on imported goods in the U.S. must be subtracted from exports or total spending because _____.
such spending generates production and income abroad
The labor force is the ______.
sum of the employed and unemployed
The six "determinants" of economic growth are grouped into three categories: one demand factor, four (_____) factors, and one efficiency factor.
supply
Spending on ______ drains off some of the additional consumption created by the increases in income.
taxes imports
The largest contributor to productivity growth is through ______.
technological advancement
The supply factors that are part of the "determinants" of economic growth include increasing the quality and quantity of natural and human resources, increasing the stock of capital, and improvements in (_____).
technology or tech
Inflation is a problem because when it occurs:
the "purchasing power" of money is reduced
The investment schedule shows:
the amount of investment forthcoming at each level of GDP
Firms are willing and able to produce any level of output as long as _____.
the costs of producing the output are lower than the revenues from selling the output
C + Ig = GDP is ______.
the formula for aggregate expenditures in a private closed economy
Human capital refers to ____.
the improvement in labor created by education and knowledge that is embodied in the work force
The unemployment rate equals the percentage of ______.
the labor force that is unemployed
The inverse relationship between interest rates and quantity of investment conforms to ______.
the law of demand
Nominal income is ______.
the number of dollars received as wages, rent, interest or profits
The rule of 70 states that ____.
the number of years for a variable to double equals 70 divided by its annual growth rate
The number of persons unemployed for long periods as a percentage of the labor force is much lower than:
the overall unemployment rate
Cost-push inflation is caused by an increase in ______.
the per-unit production costs at each level of spending
The rate of inflation is equal to:
the percentage growth of CPI from one year to the next.
Deflation occurs when there is a decline in ______.
the price level
The level of investment spending by firms and the investment demand curve are based upon ______.
the real interest rate
Real income will remain the same when nominal income rises at ______ the price index.
the same percentage rate as
The multiplier effect means that ______.
there is a bigger change in equilibrium GDP than the change in aggregate expenditures
Exports are included as a component of US aggregate expenditures because ______.
these are goods and services that created income in the US
To economists, the term "aggregate" means ______.
total; combined
A ______ of a recession is when output and employment "bottom out" at their lowest levels.
trough
Frictional unemployment is defined as a type of unemployment that is caused by workers who ______.
unemployed as they actively search for a new job.
A discouraged worker is a(n) _______.
unemployed worker who drops out of the labor force and no longer seeks work actively
The portion of the labor force that is not working but is willing and able to work and actively seeking work is defined as ______, and the portion of the labor force that is working part-time or full-time is defined as ______.
unemployed; employed
The unemployment rate is calculated by dividing the number of ______ by the ______ times 100.
unemployed; labor force
Forgone output is a basic economic cost of ______.
unemployment
Workers in lower-skilled occupations have higher ______ rates than workers in higher-skilled occupations.
unemployment
It is undesirable for actual GDP to be less than the equilibrium level because there will be a(n) ______.
unplanned decline in business inventories
At equilibrium GDP in a mixed open economy ______.
unplanned inventories don't change
An increase in government spending will shift the aggregate expenditure schedule ______ the equilibrium level of real GDP.
upward and increase
If household consumption is originally at C0, but households then decide to consume more at each level of real GDP, the consumption schedule shifts to the (_____) (one word) curve on the graph.
upward, top, upper, uppermost, or higher
A household's ______ is the dollar amount of all the assets that it owns minus the dollar amount of its liabilities.
wealth
In the late 1990s, skyrocketing US stock values expanded the value of household assets. This is an example of the (_____) (one word) effect.
wealth
The dollar amount of all the assets that a household owns minus the dollar amount of its liabilities is called:
wealth
Workers today are more productive than workers in the past because ______.
workers now have more physical capital embodying better technology with which to work
The fraction of the ______ population that is in the labor force is called the labor-force participation rate.
working-age
Economic growth is normally calculated as a percentage rate of growth per quarter or per (_____).
year or annum
