Econ 3

The​ international-trade effect refers to the fact that an increase in the price level will result in

a decrease in exports and an increase in imports.

If the economy is initially at​ full-employment equilibrium, then an increase in aggregate demand causes​ _____________ in real GDP in the short run and​ ___________ in the price level in the long run.

an​ increase; an increase

At the new short run​ equilibrium, the unemployment rate will ___compared to the unemployment rate at the initial​ equilibrium, prior to the increase in exports.

be lower

There is an increase in the quantity of capital goods. Because this is a change in____the LRAS will _____

he productive capacity of the economy shift to the right

The interest rate effect refers to the fact that a higher price level results in

higher interest rates and lower investment.

In the new​ short-run equilibrium, the unemployment rate is_____the unemployment rate in the initial equilibrium prior to the increase in the price of oil.

higher than

The​ non-farm business sector output per hour during April of 1996 was

71.56

The most important determinant of consumption spending is

current personal disposable income.

An increase in what the price level is expected to be in the future will______the SRAS curve because this is a change in _______

decrease (shift leftward) expectations about future prices

Congress provides more funds for​ low-interest loans to college students. It is likely that the rate of economic growth will

increase

The new​ short-run macroeconomic equilibrium occurs at

point B

The U.S. economy experiences 4 percent inflation. Because this is a change in ____it will cause a ____ the aggregate demand curve.

the price level movement along

The price level increases. Because this is a change in______ the LRAS curve will_______

the price level not change

What relationship is shown by the aggregate demand​ curve? The aggregate demand curve shows the relationship between

the price level and the quantity of real GDP demanded by​ households, firms, and the government.

To have growth without​ inflation, which of the following must be​ true?

AD, SRAS, and LRAS must increase by the same amount.

These four categories of spending are represented in the GDP formula by

C​ + I​ + G​ + NX.

In most​ countries, political stability has little to do with economic growth.

False

Explain whether you agree with the following​ statement: Some economists claim that the recession of 2007minus−2009 was caused by a decline in spending on residential construction. This​ can't be true. If there had just been a decline in spending on residential​ construction, the only firms hurt would have been home builders and firms selling lumber and other goods used in building houses. In​ fact, many firms experienced falling sales during that​ recession, including​ automobile, appliance, and furniture firms.

I disagreelong dash—the commentator ignores the additional rounds of spending that make up the multiplier process.

How would an increase in interest rates affect​ investment?

Real investment spending declines.

Given the changes in real GDP and the GDP implicit price​ deflator, briefly explain what happened to​ short-run aggregate supply from 1973 to​ 1975?

Short-run aggregate supply decreased and shifted to the left.

The diagram on the right shows the relationship betwen consumption and income for the years 1960 through 2012. Use the diagram to help identify which of the following statements regarding the marginal propensity to cosume​ (MPC) are true. Click anywhere in the diagram and then choose a year to plot to identify levels of real consumption at a particular date.

The MPC during this time period was about 0.92.

Year Actual Real GDP Potential Real GDP Unemployment Rate 1969 ​$4.71 trillion ​$4.63 trillion ​3.5% 1970 ​$4.72 trillion ​$4.80 trillion ​4.9% ​Sources:U.S. Bureau of Labor​ Statistics; and U.S. Bureau of Economic Analysis. a. In​ 1969, actual real GDP was greater than potential real GDP. Which of the following best explains​ this?

The economy can produce a level of GDP above potential GDP in the short run.

Have poor countries been catching up to rich​ countries?

There has been​ catch-up by some poor but industrialized countries.

Which of the following is usually the cause of​ stagflation?

a supply shock as a result of an unexpected increase in the price of a natural resource

Stagflation occurs when

a supply shock shifts the SRAS to the left, increasing the price level and decreasing actual GDP

Some economists argue that that the​ "new economy" has led to an increase in U.S. productivity growth since 1995. What caused the development of the​ "new economy"?

advances in information technology

The multiplier effect is the process by​ which:

an increase in autonomous expenditure leads to a larger increase in real GDP.

Which of the following scenarios would lead to an increase in the price level​ (i.e., a​ short-run inflation)?

an increase in oil price that decreases short-run aggregate supply

An increase in inventories in January is an indicator that

businesses are expecting higher demand in the future.

How can government policies shift the aggregate demand curve to the​ right?

by increasing government purchases

How does the dynamic model of aggregate supply and aggregate demand explain​ inflation?

by showing that if total spending in the economy grows faster than total​ production, prices will rise

Comparing the Chinese economy today and the Soviet economy in the​ 1980s, it can be seen that both countries had a history of

central planning and have introduced market​ systems, but have experienced problems in making the transition that​ have, and will continue​ to, hinder future growth.

A movement from point A to point C could be the result of a

change in the expectations of households.

A movement from point A to point B on AD1 could be the result of a

change in the price level.

Consider the​ short-run aggregate supply curves in the graph at right. A movement from point A to point B on SRAS1 could be the result of a

change in the price level.

According to an article in the Economist​, ​"Four main types of spending drive​ GDP...." What are the four main types of spending and in what sense do they​ "drive" GDP?The four components of aggregate demand are

consumption, investment, government​ purchases, and net exports.

Which countries grow​ faster?

countries that have a strong rule of law

The most important determinant of consumption is

current disposable income.

The price level that is currently higher than expected willl____the SRAS curve because this is a change in

decrease (shift leftward) an adjustment to past errors in expectations about future prices

An unexpected increase in the price of an important raw material will _____the SRAS curve because this is a change in______

decrease (shift leftward) the price of an important natural resource

For the range of initial Real GDP per capita from 0 to Real GDP per capita1​, the figure ______ support the​ catch-up prediction, because in the figure on the​ right, for the range of initial Real GDP per capita from 0 to Real GDP per capita1​, ______ a consistent relationship between initial real GDP per capita and its growth rate of real GDP per capita.

does there exists

In the figure to the​ right, each dot represents a country with its initial real GDP per capita and its growth rate of real GDP per capita. a. For the range of initial Real GDP per capita from 0 to Real GDP per capita2​, the figure ____ support the economic growth model's prediction of​ catch-up because in the figure on the​ right, for the range of initial Real GDP per capita from 0 to Real GDP per capita2​, ____ consistent relationship between initial real GDP per capita and its growth rate of real GDP per capita.

does not there does not exist

If the MPC equals​ zero, then the change in GDP after an increase in autonmous expenditures would be

equal to the change in autonomous expenditure.

Most of the poor countries experience slow growth because of all the following reasons except

excellent public health and education.

When aggregate expenditure is greater than​ GDP, inventories will​ __________ and GDP and total employment will​ __________.

fall; increase

At the beginning of a​ recession, aggregate expenditure___ GDP As a​ result, firms____ large amounts of unplanned inventory and GDP and employment ____

falls short of accumulate decrease

If firms accumulate excess inventories and then spending quickly returns to its normal​ levels, firms usually do not sell their excess inventories before returning to producing at normal levels.

false

The Austrian school is best known for arguing the superiority of government economic planning over the market system.

false

In the United​ States, what is a key source of funds for​ start-up firms bringing new technologies to​ market?

funding from venture capital firms

A columnist in the New York Times observes​ that, ​"many analysts agree that economic​ reform, of which integration into the global economy was a key​ element, has lifted millions of people out of poverty in​ India." ​Source: Vivek​ Dehejia, "Has Globalization Helped​ India's Poor?" New York Times​, October​ 7, 2011. The term​ "integration into the global​ economy" means

globalization and more integration of trade.

Inventories refer to

goods that have been produced but have not yet been sold.

What is the key idea in the aggregate expenditure macroeconomic​ model? The key idea in the aggregate expenditure model is that

in any particular​ year, the level of GDP is determined mainly by the level of aggregate expenditure.

For each of the following​ policies, indicate whether it will or will not increase the rate of economic growth in the United States. a. Congress passes an investment tax​ credit, which reduces a​ firm's taxes if it installs new machinery and equipment. It is likely that the rate of economic growth will

increase

An increase in the labor force will______ the SRAS curve because this is a change in_______

increase (shift rightward) the productive capacity of the economy

How would an increase in the growth rate of GDP in the BRIC nations​ (Brazil, Russia,​ India, and​ China) affect U.S. net​ exports? An increase in the growth rate of GDP in the BRIC nations​ (Brazil, Russia,​ India, and​ China) will

increase U.S. net exports by increasing exports to these countries.

If inflation in the United States is lower than inflation in other​ countries, then U.S. exports​ ________ and U.S. imports​ ________, which​ _________ net exports.

increase; decrease; increases

Economist Robert Gordon of Northwestern University has argued​ that: My interpretation of the​ [information] revolution is that it is increasingly burdened by diminishing returns. The push to​ ever-smaller devices runs up against the fixed size of the human finger that must enter information on the device. Most of the innovations since 2000 have been directed to consumer enjoyment rather than business​ productivity, including video​ games, DVD​ players, and iPods. iPhones are​ nice, but the ability to reschedule business meetings and look up corporate documents while on the road already existed by 2003. ​Source: Robert J. Gordon​, ​"U.S. Productivity Growth over the Past Century with a View of the​ Future, "National Bureau of Economic Research Working Paper​ 15834, March 2010. If​ Gordon's observations about the information revolution are​ correct, that implies

it will be difficult to sustain high growth rates in U.S. labor productivity in the future.

This greater flexibility in labor markets and greater efficiency in financial markets

lead to increases in productivity that contribute to rapid growth in real GDP per capita for the United States.

. An increase in interest rates will cause a_____the aggregate demand curve.

leftward shift of

. An increase in state income taxes will cause a_____the aggregate demand curve.

leftward shift of

Unemployed workers receive unemployment insurance payments from the government. Does the existence of unemployment insurance make it likely that consumption will fluctuate more or fluctuate less over the business cycle than it would in the absence of unemployment​ insurance? The existence of unemployment insurance makes it_____that consumption will fluctuate over the business cycle.

less likely

Many people have difficulty borrowing as much money as they would​ like, even if they are confident that their incomes in the future will be high enough to pay it back easily. For​ example, many students in medical school will earn high incomes after they graduate and become physicians. If they​ could, they would probably borrow now in order to live more comfortably while in medical school and pay the loans back out of their higher future income.​ Unfortunately, banks are usually reluctant to make loans to people who currently have low​ incomes, even if there is a good chance their incomes will be much higher in the future. If people could always borrow as much as they would​ like, consumption would be likely to become______to changes in current income.

less sensitive

At point C​, planned aggregate expenditure is ____ GDP.

less than

More people in​ high-income countries than in​ low-income countries tend to believe that rapid rates of economic growth are not desirable. Recall the concept of a​ "normal good." Some people in_____ -income countries are _____with certain consequences of rapid economic​ growth, such as a higher standard of livinga higher standard of living.

low satisfied

According to an article on the U.S. economy in March​ 2013: "Businesses are restocking after a cutback in the pace of inventory building in the fourth quarter that weighed on economic​ growth." The article further notes​ that: "Inventories in the U.S. rose in January by the most since May 2011 as companies replenished warehouses and shelves amid signs demand will pick​ up." A cutback in the pace of inventory building in the fourth quarter would slow down economic growth because

lower inventory building means lower production.

Milton Friedman argued that the Federal Reserve should adopt a​ ________ to reduce fluctuations in real​ GDP, employment, and inflation.

monetary growth rule

onsider each of the following events and then figure out how each of these events will affect the aggregate demand curve. a. An increase in the price level will cause a____ the aggregate demand curve.

movement up along

The new​ long-run macroeconomic equilibrium occurs at ____

point C

Which of the following are explanations economists have offered for the U.S. productivity slowdown of the middash-1970s to middash-​1990s?

problems in measuring productivity accurately a decline in labor quality problems in measuring improvements in the environment and in health and safety All of the above.

Productivity growth rates matter because

productivity growth rates have a big impact on future economic growth.

Economist George​ Ayittey, in an interview on PBS about economic development in​ Africa, states that of the 54 African​ countries, only eight have a free press. For​ Africa's economic​ development, Ayittey argues strongly for the establishment of a free press. ​Source: George​ Ayittey, "Border​ Jumpers," Anchor Interview​ Transcript, WideAngle,​ PBS.org, July​ 24, 2005. A free press will be vital for enhancing

property rights and the rule of law and controlling corruption.

On a 45 degrees45°​-line diagram ​(or Keynesian Cross​), the horizontal axis measures _____while the vertical axis measures

real GDP real aggregate expenditure

On the graph of the consumption​ function, the horizontal axis measures​ _______, while the vertical axis measures​ _______.

real national income or real​ GDP; real consumption spending

If Bardhan is​ correct, in the​ future, the Chinese economy might

realize slower economic growth.

When the economy returns to​ long-run equilibrium again

real​ GDP, the unemployment​ rate, and the price level will be the same as the initial equilibrium values prior to the increase in the price of oil.

When potential real GDP is equal to​ 70, this economy is in

recession

Consider the following cases to figure out which one of the following variables causes the​ short-run aggregate supply curve to​ shift, and identify whether an increase in that variable will cause the​ short-run aggregate supply curve to shift to the right or to the left. The SRAS curve will_____if there is______ The SRAS curve will____ if there is _____ The SRAS curve will____if there is ______ The SRAS curve will____if there is ______

shift to the right an increase in the labor force or capital accumulation shift to the right an increase in productivity shift to the right a technologica change shift to the left an increase in the expected price of an important natural resource shift to the left an increase in the adjustment of workers' and firms' prior underestimation of the price level shift to the left an increase in expected future prices

Economic growth will

slow down or stop if more capital per hour is used because of diminishing returns to capital.

The labor markets in the United States have greater flexibility and the financial system in the United States has greater efficiency than other​ higher-income countries, such as those in​ Europe, because in

the United​ States, labor markets have less government regulations so workers have job mobility to better match their skills with jobs and the financial markets provide better legal protection and liquidity to investors.

A curve showing the relationship between the price level and the level of aggregate expenditure in the​ economy, holding constant all other factors that affect aggregate​ expenditure, is called

the aggregate demand curve.

The migration of highly educated and successful individuals from developing countries to​ high-income countries is called

the brain drain.

Which of the following does the aggregate expenditure macroeconomic model seek to​ explain?

the business cycle

Consider the following information about menu costs. Menu costs are

the costs to firms of changing prices.

The​ 2007-2009 recession was a clear example of

the effect that a decrease in aggregate demand can have on the economy.

All of the following are true as the economy adjusts to a new equilibrium except that

the initial increase in income or GDP leads to a further increase in investment and aggregate expenditure.

A movement from point A to point C could be the result of a change in

the labor force.

What relationship is shown by the aggregate supply​ curve? The short run aggregate supply curve shows the relationship in the short run between

the price level and the quantity of real GDP supplied by firms.

Consider the information in the following table for the first two years of the Great Depression​ (the values for real GDP and potential GDP are in 2009​ dollars): Year Actual Real GDP Potential Real GDP Price Level 1929 ​$1,005.6 billion ​$1,006.3 billion 10.6 1930 ​$965.8 billion ​$1,094.1 billion 10.2 ​Sources: U.S. Bureau of Labor​ Statistics; and U.S. Bureau of Economic Analysis. a. The information in the table is different from what we would expect to have happened in a recession in the past 50 years because

the price level decreased.

Consider the information in the following table. Actual Real GDP Potential Real GDP Price Level 1974 ​$5.39 trillion ​$5.42 trillion 28.7 1975 ​$5.38 trillion ​$5.61 trillion 31.4 ​ Source: U.S. Bureau of Economic Analysis The values for the price levels in the above table are well below 100. This information indicates that

the price levels are less compared to the price level in the base year.

Technological change occurs. Because this is a change in_____ the LRAS will _______

the productive capacity of the economy shift to the right

The labor force increases. Because this is a change in___ the LRAS will

the productive capacity of the economy shift to the right

In the aggregate expenditure​ model, why is it important to know the factors that determine consumption​ spending, investment​ spending, government​ purchases, and net​ exports? Because they help us understand

the relationship between aggregate expenditure and real GDP. how macroeconomic equilibrium is determined in the aggregate expenditure model. how the level of aggregate expenditure and GDP are determined in the economy. All of the above.

What has contributed to the slow growth in employment in recent​ years?

the severity of the​ 2007-2009 recession the number of​ baby-boomers reaching retirement age

Aggregate expenditure​ is:

the sum total of​ consumption, planned​ investment, government​ purchases, and net exports.

The value of the multiplier is larger when

the value of the MPC is larger.

If menu costs were​ eliminated, the​ short-run aggregate supply curve will be____because of ______

upward sloping wage price stickiness and slow wage adjustment by firms

The lower birthrate in China

will shrink its labor​ force, which will include mostly less educated and less healthy older​ workers, resulting in a slower growth in its real GDP per capita.

The primary explanation for this is​ because:

with unemployment​ insurance, current disposable income fluctuates less over the business cycle.

Suppose that workers and firms could always predict next​ year's price level with perfect accuracy. Under these​ circumstances, the SRAS curve

would be the same as the LRAS

What is the MPC for the consumption function Upper C1​?

zero

Use the following data to answer the​ question: Y ​= ​$8,000 C ​= ​$6,200 I ​= ​$1,500 G ​= ​$1,500 NX ​= ​-$500 The unplanned change in inventories is​ ________ and real GDP will​ ________.

​-$700; increase

From 1960 to 20162016​, what happened to​ long-run aggregate​ supply?

​Long-run aggregate supply shifted to the right.

If the marginal propensity to consume ​(MPC​) is​ 0.9, how much additional consumption will result from an increase of​ $100 billion of disposable​ income?

$90 billion

If the multiplier had a value of​ 2, how large must the change in autonomous expenditure have​ been ΔAo​ = ​$

-139

Year Consumption Investment Exports Real GDP Unemployment Rate 1929 ​$781 billion ​$124 billion ​$40 billion ​$1,056 billion ​2.9% 1933 ​$638 billion ​$27 billion ​$22 billion ​$778 billion ​20.9% If the multiplier had a value of 4 in​ 1929, then how large must the change in autonomous expenditure Ao have been to cause the decline in real GDP between 1929 and 1933 shown in the​ table? Ao​ = ​$

-69.50

In the above​ example, the marginal propensity to save is

.20

The MPC is equal to

.5

The MPC is

.80

n the above​ example, the marginal propensity to consume is

.80

A positive technological change occurs

1

All countries for which statistics are​ available, 1960-2010

1 -

The​ non-farm business sector output per hour during January of 2017 was

107.48

The equilibrium level of real GDP is ​

$10,000

Suppose that initially the economy is at point A. Then aggregate demand increases from AD1 to AD2. The new​ short-run equilibrium will be at point

D

An increase in real GDP that increases the price levelthe price level will cause the value of the multiplier to

be smaller

If the Roman Empire had been able to bring about sustained economic​ growth, it is likely that the standard of living today would

be substantially higher

China has experienced

high rates of growth in the short run by spending heavily on physical​ capital, infrastructure, and property but their lack of democracy can slow growth in the long run.

The net exports line has a

negative slope because as domestic GDP or income​ increases, imports increase while exports remain the same leading to a reduction in net exports.

Explain how each of the following events would affect the short-run aggregate supply curve. An increase in the price level will_____the SRAS curve because this is a change in ______

not change the price level

The sum of the marginal propensity to consume ​(MPC​) and the marginal propensity to save ​(MPS​) equals

one

A faster income growth in other countries will cause a____the U.S. aggregate demand curve.

rightward shift of

An increase in government purchases will cause a______the aggregate demand curve.

rightward shift of

The slope of the aggregate expenditure line equals

the slope of the consumption function.

The inflation rate in year 2 is

1.79

The multiplier is equal to

2

The equilibrium value of real GDP is ​$___

12 trillion

The dollar value of the decline in real exports between the second quarter of 2008 and the first quarter of 2009 was ​$

231

A decrease in the expected future price level

3

Which of the following statements is​ correct?

Actual investment will equal planned investment only when there is no unplanned change in inventories.

Given the change in the GDP implicit price​ deflator, did aggregate demand grow more or less than​ long-run aggregate​ supply?

Aggregate demand grew more than​ long-run aggregate supply. This is the correct answer.

After the adjustment of aggregate supply is​ complete, the economy returns to equilibrim at

A

Use the graph on the right to answer the following questions. a. Which of points​ A, B,​ C, or D can represent a​ long-run equilibrium?

A AND C

Would a larger multiplier lead to more severe recessions or less severe​ recessions?

A larger multiplier means that small changes in spending lead to large changes in​ GDP, and thus recessions would be more severe.

The aggregate demand curve slopes downward for all of the following reasons​ except:

A lower price level makes imports from other countries less​ expensive, and U.S. citizens buy more imports.

Which of the following would cause a decrease in real GDP​ and, if large​ enough, a​ recession?

A reduction in consumer confidence that causes aggregate demand to fallaggregate demand to fall.

Which of the following scenarios would lead to a reduction in real GDP and may even cause a​ recession?

A reduction in the growth rate in foreign countries compared to the United States that causes aggregate demand to fallaggregate demand to fall.

The​ long-run equilibrium point will be at point

C

Refer to the table to the right. Why has productivity growth in the United States been faster than in most other industrial​ countries?

Efficient financial markets Flexible labor markets

Which of the following equalities is​ correct?

Disposable income is equal to national income minus net taxes.

Which of the following best explains how the economy will adjust from the​ short-run equilibrium point to the new​ long-run equilibrium​ point?

Due to the higher price​ level, workers will demand higher​ wages, and firms will raise prices and cause SRAS to shift to the left to point C.

Stagflation is a

combination of inflation and recession

At point B​, planned aggregate expenditure is ____ GDP.

equal to

Government policy can increase the accumulation of knowledge capital in all the following ways except​ by

investing in capital accumulation.

Year Real GDP Per Capita ​(2009 prices) 2007 $49,571 2008 $48,951 2009 $47,041 2010 $47,772 2011 $48,282 ​*Real-time data provided by Federal Reserve Economic Data​ (FRED), Federal Reserve Bank of Saint Louis. The percentage change in real GDP per capita between 2007 and 2011 was The average annual growth rate in real GDP per capita between 20072007 and 20112011 was

-2.60% -0.63%

Andover Bank and Lowell Bank each sell​ one-year certificates of deposit​ (CDs). The interest rates on these CDs are given in the table below for a​ three-year period. Bank 2014 2015 2016 Andover Bank 3​% 4​% 14​% Lowell Bank 7​% 7​% 7​% Suppose you deposit ​$10,000 in a CD in each bank at the beginning of 2014. At the end of​ 2014, you take your ​$10,000 and any interest earned and invest it in a CD for the following year. You do this again at the end of 2015. At the end of​ 2016, the interest over this​ three-year period at Andover Bank is ​$_____ At the end of​ 2016, the interest over this​ three-year period at Lowell Bank is ​$ At the end of​ 2016, you will have earned more on your____Bank​ CD, because

2211.68 2250.43 Lowell even a modest increase in the interest rate compounded over time will make the earnings higher.

Use the data for the country of New Finlandia in the following table to calculate the​ following: YEAR REAL GDP PER CAPITA ​(2005 PRICES) 2006 ​$41,829 2007 42,729 2008 42,333 2009 43,425 2010 43,292 ​(HINT: Remember from the previous chapter that the average annual growth rate for relatively short periods can be approximated by averaging the growth rates of those​ years.) a. The percentage increase in real GDP per capita between 2006 and 2010 is

3.65% 0.87%

Suppose that​ initially, the economy is in​ long-run macroeconomic equilibrium at point A. If there is increased pessimism about the future of the​ economy, the AD curve will shift from

AD 0 to AD 1

According to the dynamic​ AD-AS model, what is the most common cause of​ inflation?

AD increases by more than LRAS. Total spending increases faster than total production. The U.S. Mint prints too much currency. All of the above.

The aggregate expenditure model can be written in terms of four spending categories. Which equation shows the relationship between aggregate expenditure and the four spending​ categories?

AE​ = C​ + I​ + G​ + NX

How does an increasean increase in the price level affect the quantity of real GDP supplied in the long​ run?

Changes in the price level do not affect the level of GDP in the long run.

Which of the following statements about compounding is​ correct?

Compounding magnifies even small differences in interest rates or growth rates over long periods of time.

We can use the diagram to the right to compare movements in real consumption between 1979 and 2012. Use the diagram to help identify which of the following statements are true. Click anywhere in the diagram and then choose a year to plot to identify levels of real consumption at a particular date. ​Note: The values are seasonally adjusted at an annual rate.

Consumption follows a​ smooth, upward trend.

Consider the figure to the right. Why does the​ short-run aggregate supply curve​ (SRAS) slope​ upward?

Contracts keep wages​ "sticky". Prices of final goods rise more quickly than the prices of inputs. Firms and workers fail to predict changes in the price level. All of the above.

Suppose two​ countries, Country A and Country​ B, have a similar real GDP per capita. Country A has an average economic growth rate of​ 2% and Country B has an average economic growth rate of​ 3.3%. In the long​ run, what can we predict about living standards in the two​ countries?

Country​ B's living standards will increase much more rapidly in the long run.

Consider the choices below. All of these except one truly represent the record of productivity growth in the United States from 1800 to the present. Find the one that does not belong. Which one of the following does not explain the slowdown in productivity growth from the​ mid-1970s to the​ mid-1990s? All of the following contributed to an increase in productivity growth from 1996 to the present except an

GDP per capita fell rapidly between 1900 and 1950. Workers lacked incentives to work hard as their job security was at its lowest. improvement in​ workers' skills due to better education and training.

We can use the diagram to the right to compare movements in real government purchases between 1979 and 2006. Use the diagram to help identify which of the following statements are true. Click anywhere in the diagram and then choose a year to plot to identify levels of real consumption at a particular date. ​Note: The values are seasonally adjusted at an annual rate.

Government purchases grew steadily for most of the period​ shown, with the exception of the​ mid-1990s.

The role of the entrepreneur becomes much more important in the new growth theory. long dash—the endogenous growth modellong dash—than in the traditional economic growth model because

In the new growth​ theory, entrepreneurs play a key role in the development and adoption of new and sometimes untried technologies.

According to the figure at the​ right, productivity increased after 1995 almost as quickly as it slowed after​ 1972, leading many economists to discuss a​ "new economy." The​ "new economy" emerged as a result of​ what?

Innovations in information technology Improvements in data processing Increased use of the Internet All of the above

Consider the​ downward-sloping aggregate demand​ (AD) curve to the right. Which of the following results in a movement from point A to point B​ (a movement up along the AD​ curve) or from point A to point C​ (a movement down along the AD​ curve)?

Interest rate effect Wealth effect

What is the effect on​ inventories, GDP, and employment when aggregate expenditure​ (total spending) exceeds​ GDP?

Inventories​ decrease, GDP​ increases, and employment increases.

The figure to the right illustrates the relationship between weak and strong rule-of-law countries and economic growth. In addition to a​ country's failure to enforce​ rule-of-law, what else explains why more​ low-income countries do NOT experience rapid growth as the​ catch-up line​ predicts?

Lengthy civil wars Inability to borrow money needed for investment Shortage of childhood vaccinations All of the above

Indicate which of the following would cause a shift in the aggregate demand curve from point A to point C.

Lower taxes Decrease in the U.S. exchange rate relative to other currencies Increased consumer optimism Lower interest rates

New growth theory suggests that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal government intervene in the market to increase the amount of knowledge​ capital?

Patents Public education Subsidies All of the above

Strong​ rule-of-law countries grow more rapidly than weak​ rule-of-law countries. What factor will most likely improve economic growth in weak​ rule-of-law countries?

Political reform

Refer to the graph to the right. According to the economic concept of catch-up​, which of the following is​ CORRECT?

Poorer countries should grow more quickly and will be at point A.

What can​ low-income countries do in order to increase the amount of loanable funds available to firms for investment projects such as new factories or improved​ technology?

Provide savings incentives

A reform of the Chinese school system results in more highly trained workers. This will cause a _____​China's per-worker production function.

Shift of

Consider the figure to the right. Which of the following is responsible for the upward shifts in the​ per-worker production​ function?

Technological change

How does technological change affect the​ per-worker production​ function? In the long​ run, a country will experience an increasing standard of living only if

Technological change shifts the​ per-worker production function up. the country experiences continuing technological change.

Country 2009 2010 2011 2012 Brazil ​$1,034 ​$1,112 ​$1,142 ​$1,152 Mexico 8,378 8,823 9,168 9,530 Thailand 4,263 4,596 4,600 4,896 Note: All values are in billions of domestic currency at constant prices. Source: International Monetary​ Fund, World Outlook Database​, April 2013. The country that experienced the highest rate of economic growth during 2010 is ______with a growth rate of _____ The country that experienced the highest average annual growth rate between 2010 and 2012 is______with an average annual growth rate of Since each​ country's real GDP is measured in a different​ currency, before one can compare the real GDPs of different​ countries, it is necessary to use

Thailand 7.81% Thailand 4.78% the purchasing power parities​ (PPPs) as a currency converter.

We can use the diagram to the right to compare movements in real net exports between 1979 and 2006. Use the diagram to help identify which of the following statements are true. Click anywhere in the diagram and then choose a year to plot to identify levels of real consumption at a particular date. ​Note: The values are seasonally adjusted at an annual rate.

The United States has imported more goods and services than it exported during most of the years shown.

How might the growth rates in the figure be different if they were calculated for real GDP per capita instead of per hour​ worked? ​(Hint:How do you think the number of hours worked per person has changed in the United States since​ 1900?)

The growth rate of real GDP per capita would be higher than the growth rate of real GDP per hour

Indicate which of the following is correct about the multiplier effect.

The larger the​ MPC, the more additional consumption that occurs. A decrease in autonomous spending decreases real GDP by a multiple of the change. The multiplier ignores the effect on real GDP of​ imports, inflation, and interest rates. All of the above.

In the figure at​ right, a​ $20 trillion increase in planned investment increased the AE line from AE 1AE1 to AE 2AE2. ​However, real GDP increased by​ $40 trillion.​ Why?

The multiplier effect.

An article in the Wall Street Journal ​observes: ​"For 2008, productivity grew an astounding​ 2.8% from 2007 even as the economy suffered through its worst recession in​ decades." ​Source: Brian​ Blackstone, "Productivity Proves​ Resilient," Wall Street Journal​, April​ 29, 2009. How is it possible for labor productivitylong dash—output per hour workedlong dash—to increase if outputlong dash—real GDPlong dash—is ​falling?

The​ "new economy" is based on information technology. Business​ record-keeping is now faster and more accurate due to computer technology. Faster and less expensive computers have made communication and data processing faster and easier. Laptop computers and wireless Internet allow people to work while they are away from their jobs. All of the above.

Growth rates matter because living standards may stagnate in an economy that grows too slowly.

True

This Making the Connection argues that a key difference between market economies and centrally planned​ economies, like the former Soviet​ Union, is that ​"In market​ economies, decisions about which investments to make and which technologies to adopt are made by entrepreneurs and managers with their own money on the line. In the Soviet​ system, these decisions were usually made by salaried bureaucrats trying to fulfill a plan formulated in​ Moscow." But in large​ corporations, investment decisions are often made by salaried managers who do​ not, in​ fact, have their own money on the line. These managers are spending the money of the​ firm's shareholders rather than their own money. The investment decisions of salaried managers in the United States tend to be better for the​ long-term growth of the economy than were the decisions of salaried bureaucrats in the Soviet Union​ because:

U.S. managers are driven by incentives of higher​ profits, leading them to adopt new technologies.

Which of the following is NOT included in the calculation of total government​ purchases?

Unemployment insurance benefits paid for by the federal government

The figure above shows the levels of GDP per capita around the world in 2012. GDP is measured in U.S.​ dollars, corrected for differences across countries in the cost of living. Use the figure to help indentify which one of the following statements is​ true:

Western​ Europe, Australia,​ Canada, Japan, New​ Zealand, and the United States are​ high-income countries.

In the late​ 1930s, Harvard economist Alvin Hansen argued that the United States had entered a period of secular​ stagnation, by which he meant

a prolonged period of slow economic growth.

An increase in the expected price of an important natural resource is indicated by

a shift from B to A

We say that the economy as a whole is in macroeconomic equilibrium if

aggregate expenditure equals total production. total spending equals total production. aggregate expenditure equals GDP. total spending equals GDP. all of the above.

A​ country's rate of economic growth is important because

an economy that grows too slowly fails to raise the living standards of its citizens.

Some economies are able to maintain high growth rates despite diminishing returns to capital by using

better or enhanced​ technology, along with accumulating​ capital; these economies are growing because​ technology, unlike​ capital, is subject to increasing returns.

Consider the per-worker production function to the right. Equal increases in the quantity of capital per hour worked lead to _______increases in output per hour worked.

diminishing

Technological change is more important to​ long-run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through

foreign direct investment.

In the 1980s and​ 1990s, a small group of countries experienced high rates of growth. These countries are sometimes called the newly industrializing countries. Where are most of these countries​ located?

in east Asia

The movement from point A to point B represents​: The movement from point B to point C ​represents: The movement from point A to point C ​represents:

more capital per hour worked technological change technological change and more capital per hour worked

Capital per hour worked increase from 5 million per hour to 6 million per hour worked. This will cause a ___ China's per-worker production function.

movement along

A change in the price level causes a _______the​ short-run aggregate supply​ (SRAS) curve. In the​ figure, this is shown by moving from point _____

movement along A to B

A change in any other factor causes a ______the SRAS curve. In the​ figure, this is shown by moving from point ______

shift in B to C

Chinese businesses switch to an improved inventory method that increases output per worker worked. This will cause a ___ China's per-worker production function

shift of

Compared to the period between 1950 and​ 1972, the productivity of U.S workers between 1973 and 1994

slowed by more than one percentage point per year.

The new growth theory differs from the growth theory developed by Robert​ Solow, since

the Solow growth theory focuses on technological change and the quantity of capital available to workers whereas the new growth theory states that accumulation of knowledge capital is a key determinant of economic growth.

Healthier, more educated workers tend to be more productive. Greater overall productivity per hour worked is a fundamental component of​ long-term economic growth.​ However, many very successful individuals often find few opportunities in their own developing​ countries, and leave them for industrial countries. By improving health and​ education, developing countries can generate economic​ growth, and increase incomes. This will help combat the prevalence of educated people leaving their home countries for opportunities elsewhere. That​ is, it will combat

the brain drain.

Recently, economists Carol Shiue and Wolfgang Keller of the University of Texas at Austin published a study of​ "market efficiency" in the eighteenth century in​ England, other European​ countries, and China. If the markets in a country are​ efficient, a product should have the same price wherever in the country it is​ sold, allowing for the effect of transportation costs. If prices are not the same in two areas within a​ country, it is possible to make profits by buying the product where its price is low and reselling it where its price is high. This trading will drive prices to equality. Trade is most likely to​ occur, however, if entrepreneurs feel confident that their gains will not be seized by the government and that contracts to buy and sell can be enforced in the courts.​ Therefore, the more efficient a​ country's markets​ were, the more its institutions would have favored​ long-run growth. Shuie and Keller found that in​ 1770, the efficiency of markets in England was significantly greater than the efficiency of markets elsewhere in Europe and in China. ​Source: Carol H. Shiue and Wolfgang​ Keller, "Markets in China and Europe on the Eve of the Industrial​ Revolution," American Economic Review​, Vol.​ 97, No.​ 4, September​ 2007, pp.​ 1189-1216. This finding supports Douglas​ North's argument concerning why the Industrial Revolution occurred in England because

the efficient market system thrived due to a stable British parliament and an independent court system.

Complete the following table to indicate what effect an increasean increase in each of the consumption components will have on consumption.

the price level decrease consumption. household wealth increase consumption. expected future income increase consumption. current disposable income increase consumption. the interest rate decrease consumption

According to Joseph​ Schumpeter, which of the following factors provides entrepreneurs with the most important incentive to bring the factors of production together to start new firms and to introduce new goods and​ services?

the profits entrepreneurs hope to earn

In his book The White​ Man's Burden​, William Easterly reports that A vaccination campaign in southern Africa virtually eliminated measles as a killer of children. Routine childhood immunization combined with measles vaccination in seven southern Africa nations starting in 1996 virtually eliminated measles in those countries by 2000. A national campaign in Egypt to make parents aware of the use of oral rehydration therapy from 1982 to 1989 cut childhood deaths from diarrhea by 82 percent over that period. ​Source: William​ Easterly, The White​ Man's Burden: Why the​ West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good​, New​ York: The Penguin​ Press, 2006, p. 241. As a result of the near elimination of measles and the large decrease in childhood deaths from diarrhea in southern Africa and​ Egypt, The near elimination of measles and the large decrease in childhood deaths from diarrhea in southern Africa and Egypt The elimination of measles and childhood deaths from diarrhea will

the standard of living for these​ low-income countries increased significantly. did not increase real GDP per​ capita, but increased productivity and human capital resulting in a higher standard of living. remove a major impediment to​ growth, increase productivity and should eventually lead to increases in real GDP per capita.

When potential real GDP is equal to​ 70, this economy is in recession . The amount of the shortfall in planned aggregate expenditure is equal to

the vertical distance between AE and the 45° line at the level of potential real GDP.

If there is an increase in​ technology, holding constant the quantity of capital per hour​ worked, then

there is a movement from A to C.

Shortly before the fall of the Soviet​ Union, the economist Gur Ofer of the Hebrew University of​ Jerusalem, wrote​ this: ​"The most outstanding characteristic of Soviet growth strategy is its consistent policy of very high rates of​ investment, leading to a rapid growth rate of​ [the] capital​ stock." ​Source: Gur​ Ofer, "Soviet Economic​ Growth, 1928-1985," Journal of Economic Literature​, December​ 1987, p.​ 1,784. This turned out to be a very poor growth strategy because

there were diminishing returns to capital.

Economist Charles Kenny of the World Bank has argued​ that: The process technologieslong dash—institutions like laws and inventory management systemslong dash—that appear central to raising incomes per capita flow less like water and more like bricks. But ideas and inventionslong dash—the importance of ABCs and vaccines for DPTlong dash—really might flow more easily across borders and over distances. ​Source: Charles​ Kenny, Getting Better​, New​ York: Basic​ Books, 2011, p. 117. If Kenny is​ correct, these facts indicate that these​ low-income countries As these countries become able to increase their standards of​ living, there

will have a healthier and more productive labor force as there is significant improvment in​ health, education, and civil and political liberties. will be economic growth but in order to have sustainable​ growth, these countries need their incomes to increase.

What is the effect on real GDP of a ​$150 billion change in planned investment if the MPC is.75​?

$600 billion

Real GDP ​(Y) Consumption ​(C) Planned Investment ​(I) ​Gov't Purchases ​(G) Net Exports ​(NX) Planned Aggregate Expenditure Unplanned Change in Inventories

$8,000 ​$6,200 ​$1,500 ​$1,500 −​$500 ​$8700 ​$−700 ​ 9,000 ​6,850 1,500 1,500 −​$500 9,350 −350 ​10,000 ​7,500 1,500 1,500 −​$500 10000 00 ​11,000 ​8,150 1,500 1,500 −​$500 10,650 350 ​12,000 ​8,800 1,500 1,500 −​$500 11,300 700

Consider the figure to the right. This economy is in macroeconomic equilibrium at what level of real​ GDP? ​

$80 billion

The growth rate of real GDP from year 1 to year 2 is

1.15

The​ non-farm business sector output per hour during July of 1991 was

66.13

Complete the following table.

An increase in... will​ (increase/decrease) net exports. the U.S. price level relative to other​ countries' price levels decrease net exports. the growth rate of U.S. GDP relative to other​ countries' decrease net exports. the exchange rate between the dollar and other currencies decrease net exports.

Along the​ downward-sloping catch-up​ line, a country near the top of the line is

a poor country growing rapidly.

The federal government increases taxes in an attempt to reduce a budget deficit. Because this is a change in ____it will cause a____ the aggregate demand curve.

consumption shift to the left in

Aggregate​ expenditure, or the total amount of spending in the​ economy, equals

consumption spending plus planned investment spending plus government purchases plus net exports.

Workers and firms often enter into contracts that fix prices or​ wages, sometimes for years at a time. If the price level turns out to be higher or lower than was expected when the contract was​ signed, one party to the contract will lose out. Despite knowing​ this, workers and firms still sign​ long-term contracts because

contracts are common in the unionized sectors of the​ economy, as they are seen as protection from unanticipated inflation.

The unemployment rate in year 2 is___ in year 1

greater than

A rise in stock prices and housing prices

increases household wealth which in turn increases consumption and leads to an upward shift of the consumption function.

According to the paradox of​ thrift, a simultaneous increase in saving without any change in income leads to

lower real GDP in the short run but higher real GDP in the long run.

Suppose that the economy grows from 2015 to 2016 without inflation. Which of the following graphs correctly shows this​ situation?

middle right

Conventional trade statistics may no longer be as reliable as they once were because

once goods and services cross borders several​ times, double counting may occur.

Economists Mary​ Daly, Bart​ Hobijn, and Timothy Ni of the Federal Reserve Bank of San Francisco argue that​ "employers hesitate to reduce wages and workers are reluctant to accept wage​ cuts, even during​ recessions." Employers are hesitant to cut​ workers' salaries because wage cuts

upset workers and lower their productivity.

By​ 2012, General Motors​ (GM) had established 12 joint ventures and employed more than​ 55,000 workers in China. In​ 2013, GM announced that it would invest an additional​ $11 billion to increase production of its vehicles in China. ​Source: Colum​ Murphy, "GM to Build Cadillac Plant in​ China," Wall Street Journal​, May​ 7, 2013. GM would choose to invest in China rather than to export vehicles to China from the United States because

wages are​ lower, growth is​ higher, and transport costs are lower.

When is the economy in a​ recession?

when the aggregate expenditure line intersects the 45o line at a level of GDP below potential GDP

The wealth effect refers to the fact that

when the price level​ falls, the real value of household wealth​ rises, and so will consumption.

What is the value of unplanned changes in inventories when real GDP has each of the following​ values? ​(Enter your responses rounded to one decimal place and include a minus sign if​ necessary.) GDP Unplanned Inventories ​$10 trillion ________ ​$12 trillion ______ ​$14 trillion _________

-1 0 1

An increase in the expected price level ii. An increase in​ households' expectations of their future income iii. A decrease in the price of an important natural resource iv. A decrease in​ firms' expectations of the future profitability of investment spending

1 4 2 3

The economy experiences a recession ii. The economy experiences​ short-term inflation iii. The economy experiences stagflation

1,3 1,4 1

$8,000 $6,400 ______ $9,000 $7,200 ______ $10,000 $8,000 ____ $11,000 $8,800 ___ $12,000 $9,600 ____

1,600 1,800 2,000 2,200 2,400

What was​ Apple's actual investment​ spending?

1.4 million Iphones

Suppose Apple plans to produce 15.6 million iPhones this year. It expects to sell 14.1 million and add 1.5 million to the inventories in its stores. Suppose that at the end of the​ year, Apple has sold 14.2 million iPhones. What was​ Apple's planned investment​ spending?

1.5 million Iphones

The formula for the multiplier is

1/(1-MPC)

Which of the following is the formula for the​ multiplier?

1/1-MPC

What is the level of planned​ investment?

10 billion

Find equilibrium GDP using the following macroeconomic model ​(the ​numbers, with the exception of the​ MPC, represent billions of dollars​): C​ = 750 ​+ 0.75Y Consumption function I​ = 1,000 Planned investment function G​ =1,000 Government spending function NX​ =−250 Net export function Y​ = C​ + I​ + G​ + NX Equilibrium condition The equilibrium level of GDP is ​$

10,000

Find equilibrium GDP using the following macroeconomic​ model: C ​= ​1,000 + 0.8Y Consumption function I ​= 500 Investment function G ​= 600 Government spending function NX ​= ​-100 Net export function Y ​= C ​+ I​ + G​ + NX Equilibrium condition

10,000

Suppose that autonomous consumption is 400​, government purchases are 500​, planned investment spending is 2,000​, net exports are −250​, and the MPC is 0.75. Equilibrium GDP is equal to ​$

10,600

Real GDP ​(Y) Consumption ​(C) Planned Investment​ (I) Government Purchases​ (G) Net Exports​ (NX) ​$11,000 ​$9,900 ​$1,100 ​$1,300 −​$275 ​$12,000 ​$10,800 ​$1,100 1,300 −​$275 ​$13,000 ______ ​$1,100 1,300 −​$275 ​$14,000 ______ ​$1,100 1,300 −​$275 ​$15,000 ____ ​$1,100 1,300 −​$275

11,700 12,600 13,500

The manufacturing sector output per hour during January of 2017(shown as 2017−01−01 in​ FRED) was

119.17

Real GDP ​(Y) Consumption ​(C) Planned Investment​ (I) Government Purchases​ (G) Net Exports ​(NX) Planned Aggregate Expenditure​ (AE) Unplanned Change in Inventories ​$11,000 ​$9,900 ​$1,100 ​$1,300 −​$275 _________ __________ ​$12,000 ​$10,800 ​$1,100 1,300 −​$275 ​________ ________

12,025 -1,025 12,925 -925

Real GDP​ (Y) Consumption​ (C) Planned Investment​ (I) Government Purchases​ (G) Net Exports ​(NX) ​$12,000 ​$10,100 ​$1,000 1,800 −​$500 ​$13,000 ​$10,900 ​$1,000 ​$1,800 −​$500 ​$14,000 ​$11,700 ​$1,000 ​$1,800 −​$500 ​$15,000 ​$12,500 ​$1,000 ​$1,800 −​$500 ​$16,000 ​$13,300 ​$1,000 ​$1,800 −​$500 The equilibrium level of GDP is ​$

14,000 billion

Consider the figure on the right. It shows growth rates in real GDP per hour worked in the United States for various periods from 1900 onward. According to the​ figure, economic growth​ (as measured by growth in real GDP per hour​ worked) in the United States was slowest during the period from

1974 to 1995.

Which of the following periods in U.S. economic history had the slowest growth​ rate, as measured by the average annual increase in real GDP per hour​ worked?

1974-1995

Workers and firms adjust to having previously underestimated the price level

2

United​ States, Western​ Europe, Canada, and​ Japan, 1990-2012

2 \

A ​$400 billion increase in net exports leads to a change in spending of ​$____​billion, so the new level of GDP will be ​$____billion.

2,000 16,000

By how much will it increase equilibrium real​ GDP? Equilibirum real GDP will increase by ​$____

2,000 billion

Suppose the economy moves from point A in year 1 to point B in year 2. a. The growth rate of potential GDP from year 1 to year 2 is

2.30

What was​ Apple's actual investment​ spending?

2.4 million Iphones

Suppose Apple plans to produce 16.4 million iPhones this year. It expects to sell 13.9 million and add 2.5 million to the inventories in its stores. Suppose that at the end of the​ year, Apple has sold 14.0 million iPhones. What was​ Apple's planned investment​ spending?

2.5 million Iphones

Current high income​ countries, 1960-2010

3 /

Suppose booming economies in the BRIC nations​ (Brazil, Russia,​ India, and​ China) causes net exports​ (NX) to rise by ​$75 billion in the United States. If the MPC is 0.75​, the change in equilibrium GDP will be ​$___

300

Consider the macroeconomic model shown​ below: C​ = 1,000 ​+ 0.90Y Consumption function I​ = 2,000 Planned investment function G​ =1,250 Government spending function NX​ = −250 Net export function Y​ = C​ + I​ + G​ + NX Equilibrium condition Fill in the following table. ​(Enter your responses as​ integers.) GDP Aggregate Expenditures​ (AE) Unplanned Change in Inventories ​$36,000 ​$_______ __________ ​$44,000 ​$_______ ________

36,400 -400 43,600 400

If the marginal propensity to consume is 0.75​, by how much will an increase in planned investment spending of ​$500500 billion shift up the aggregate expenditure​ line? If planned investment spending increases by ​$500 ​billion, it will shift the aggregate expenditure line up by ​$______

500 Billion

The manufacturing sector output per hour during1July of 1991 ​(shown as1991−07−01 in​ FRED) was

52.21

The manufacturing sector output per hour during July of 1994 ​(shown as 1994−07−01 in​ FRED) was

57.72

The manufacturing sector output per hour during April of 1996 ​(shown as 1996−04−01 in​ FRED) was

61.62

The​ non-farm business sector output per hour during July of 1994 was

68.87

Suppose that​ initially, the economy is in​ long-run macroeconomic equilibrium at point A. If there is increased pessimism about the future of the​ economy, the AD curve will shift from____ The new​ short-run macroeconomic equilibrium occurs at______ ​Long-run adjustment will shift the SRAS curve from ____as workers adjust to​ lower-than-expected prices. The new​ long-run macroeconomic equilibrium occurs at______

AD0toAD1 Point B SPAS0 to SPAS1 point C

Briefly explain why the aggregate expenditure line is upward​ sloping, while the aggregate demand curve is downward sloping.

Aggregate expenditure is the relationship between spending and​ income, while aggregate demand is a relationship between output and the price level.

From April 2016 to July 2016​, business inventories increasedincreased by $7 billion. ​*Real-time data provided by Federal Reserve Economic Data​ (FRED), Federal Reserve Bank of Saint Louis. Can we tell from this information whether aggregate expenditure was higher or lower than GDP during this​ quarter? If​ not, what other information do we​ need?

Aggregate expenditure was less thanless than GDP in this quarter.

Which of the following would cause an increase in the price level​ (i.e., a​ short-run inflation)?

An increase in governmennt purchases that increases aggregate demandincreases aggregate demand.

Which of the following statements is​ correct?

An increase in the corporate income tax decreases the​ after-tax profitability of investment spending.

The behavior of consumption and investment over time can be described as​ follows:

Consumption follows a​ smooth, upward​ trend, but investment is subject to significant fluctuations.

,The general algebraic version of the aggregate expenditure model can be written as​ follows, where letters with​ "bars" represent fixed or autonomous values. Upper C equals Upper C overbar plus MPC left parenthesis Upper Y right parenthesisC = C + MPC (Y) Upper I equals Upper I overbarI = I Upper G equals Upper G overbarG = G NX equals NX overbarNX = NX If you think of the aggregate expenditure function as a line on the​ 45°-line diagram, the intercept would be

C+i+G+NX

Into which category of aggregate expenditures would the following transaction​ fall? The Jones family buys a new car.The Jones family buys a new car.

Consumption expenditure

Which of the following describes the behavior of real consumption and real investment in the United States between 1979 and the second quarter of​ 2013?

Consumption increased steadily but investment​ fluctuated, and during the​ mid-to-late 90s, investment increased very strongly before declining sharply in​ 2001, only to rise again during the​ mid-2000s and decline sharply again during the 2007minus−2009 recession.

In a speech in​ 2009, President Barack Obama made the following​ observations: ​"I know that for​ many, the face of globalization is contradictory...Trade can bring new wealth and​ opportunities, but also huge disruptions and change in​ communities." ​Source: "Obama's Speech in​ Cairo," Wall Street Journal​, June​ 4, 2009. How does trade bring​ "new wealth and​ opportunities"?

Countries that are more open to foreign trade and investment are more likely to receive foreign direct investment​ (FDI). Countries that are more open to foreign trade and investment are more likely to receive foreign portfolio investment. a and b only

Globalization entails all of the following except​:

Cultural exchange between nations.

Which of the following is not a main determinant of net​ exports?

Expectations of future profitability in the United States.

What are the four main determinants of​ investment?

Expectations of future​ profitability, interest​ rates, taxes and cash flow.

The manufacturing sector has been shrinking relative to the size of the economy in the United States and other advanced economies. What do your results imply about future labor productivity growth in advanced​ economies?

Future labor productivity growth will slow since the manufacturing​ sector, the component of the​ non-farm business sector that has seen fairly rapid growth in​ productivity, will become a smaller share of overall economic activity.

Which of the following are assertions made by opponents of​ globalization?

Globalization has contributed to multinational firms moving production to​ low-income countries so they can pay their workers very low wages. Globalization has undermined the distinctive cultures of many countries. Globalization has contributed to multinational firms moving production to​ low-income countries to avoid safety and environmental regulations that​ high-income countries require such firms to follow. All of the above are assertions made by opponents of globalization.

Why do economic growth rates​ matter?

High levels of sustained economic growth reduce infant mortality. When a country sustains high growth​ rates, life expectancy at birth increases. High growth rates coincide with improved living standards. All of the above.

Which of the following statements does not correctly describe the effect of an increase in price on the components of aggregate​ expenditure?

If the price level​ increases, government tax receipts fall and consequently government expenditure declines.

Which of the following statements is correct if real GDP in the United States declined by more during the 2007minus−2009 recession than did real GDP in​ Canada, China, and other trading partners of the United​ States?

Imports to the United States fell more than the U.S.​ exports, leading to an increase in net exports.

Find out which one of the following is not one of the key differences between the basic aggregate demand and aggregate supply model and the dynamic aggregate demand and aggregate supply model.

In the dynamic​ AD-AS model, the economy does not experience​ long-run growth, whereas in the basic​ AD-AS model, the economy experiences both continuing inflation and growth.

Which of the following statements is​ true?

In the long​ run, changes in the price level do not affect the level of real GDP.

Which of the following will increase planned investment spending on the part of​ firms?

Increased optimism about future demand for its product A lower real interest rate Increases in the corporate income tax All of the above

An opinion column in the Economist​ argued, ​"Globalization​, far from being the greatest cause of​ poverty, is its only feasible​ cure." ​Source: Clive​ Crook, "Globalisation and Its​ Critics," Economist​, September​ 27, 2001. Globalization reduces poverty by all of the following​ except:

Installing high tariff barriers.

Which has increased more since​ 1987, labor productivity in manufacturing or in the​ non-farm business​ sector?

Labor productivity in the manufacturing sector has increased more since 1987 because the manufacturing sector output index has a steeper slope.

If you think of the aggregate expenditure function as a line on the​ 45°-line diagram, the slope would be

MPC

The relationship between the marginal propensity to consume​ (MPC) and the marginal propensity to save​ (MPS) can best be described as

MPC​ + MPS​ = 1. MPS​ = 1minus−MPC. MPC​ = 1minus−MPS. All of the above.

Which of the following is not​ correct?

MPS=1-(C/YD)

n early​ 2009, Christina​ Romer, who was then the chair of the Council of Economic​ Advisers, and Jared​ Bernstein, who was then an economic adviser to Vice President Joseph​ Biden, forecast how long they expected it would take for real GDP to return to potential​ GDP, assuming that Congress passed fiscal policy legislation proposed by President​ Obama: It should be understood that all of the estimates presented in this memo are subject to significant margins of error. There is the obvious uncertainty that comes from modeling a hypothetical package rather than the final legislation passed by the Congress.​ But, there is the more fundamental uncertainty that comes with any estimate of the effects of a program. Our estimates of economic relationships . . . are derived from historical experience and so will not apply exactly in any given episode.​ Furthermore, the uncertainty is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity. ​Source: Christina Romer and Jared​ Bernstein, The Job Impact of the American Recovery and Reinvestment Plan​, January​ 9, 2009. Why would the causes of a recession and its severity affect the accuracy of forecasts of when the economy would return to potential​ GDP?

Models used for forecasting are based on historical experience and the relationships in the model can change.

The relationship that Raymond Fisman and Edward Miguel found between the extent of corruption in a country and the number of parking violations committed by the​ country's United Nations delegates in New York​ isn't perfect. For​ example, "Ecuador and Colombia both have perfectly clean parking​ slates, despite the​ experts' view of them as fairly corrupt​ places." ​Source: Raymond Fisman and Edward​ Miguel, Economic Gangsters​, ​Princeton, NJ: Princeton University​ Press, 2009, p. 89. Does this observation invalidate Fisman and​ Miguel's conclusions about whether the parking violations data provide evidence in favor of there being a culture of corruption in some​ countries?

No, because their conclusions are generalized and may not apply to every country.

In a Federal Reserve Board​ publication, the following observation was​ made: ​"The impact of inventory increases on the business cycle depends upon whether the increases are planned or​ unplanned." Which of the following is a correct statement about planned inventory​ increases?

Planned inventory increases are likely to indicate business optimism and correspond with upturns in the business cycle.

The graph shown at right contains two aggregate expenditure functions. Consider a movement from point A to point​ B, and a movement from point B to point C. Which movement shows a change in autonomous​ expenditure?

Point A to point B because the change does not depend on the level of GDP.

Which movement shows a change in induced​ expenditure?

Point B to point C because the change depends on the level of GDP.

Refer to the graph to the right. According to the economic concept of catch-up ​, which of the following is​ CORRECT?

Poorer countries should grow more quickly and will be at point A.

Even though real GDP in 1970 was slightly greater than real GDP in​ 1969, the unemployment rate increased substantially from 1969 to 1970. Which of the following explains how unemployment could have increased even though output did not​ change?

Potential GDP increased​ significantly, but actual GDP did​ not, and thus there is unemployment.

Why does the​ short-run aggregate supply curve slope​ upward?

Profits rise when the prices of the goods and services firms sell rise more rapidly than the prices they pay for inputs.

A free press could help reduce​ corruption, which would then promote​ growth, by all of the following​ except:

Publishing gossip columns about a​ politician's personal matter.

The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic​ growth, the economic growth model focuses on the causes of increases in​ long-run labor productivity. What are the key factors that determine labor​ productivity?

Quantity of capital per hour worked Technological change

​Long-run adjustment will shift the SRAS curve from ________ as workers adjust to​ lower-than-expected prices.

SRAS 0 to SRAS 1

Which of the following best explains how the economy will adjust back to​ long-run equilibrium?

Short-run aggregate supply will decrease​ (shift leftward) as firms and workers adjust to the new price level.

Which of the following best explains how and why the economy will adjust back to​ long-run equilibrium?

Short-run aggregate supply will increase​ (shift rightward) as the recession makes firms and workers willing to accept lower wages and prices.

Why would this be the​ case?

Since current consumption is a function of future​ income, one would borrow against higher expected future income to smooth current consumption.

In the graph to the​ right, the economy is initially in equilibrium at point A. Aggregate expenditure and real GDP both equal ​$9.6 trillion. Suppose there is an increase in investment spending of ​$100 billion that increases aggregate expenditure to ​$9.7 trillion. Which of the following best describes the initial impact of the increase in​ investment?

The aggregate expenditure line shifts up by ​$100100 billion. ​Initially, real GDP rises by ​$100100 billion. The economy is no longer in equilibrium. All of the above.

Which of the following factors brought on the recession of 2007minus−​2009?

The end of the housing bubble. The financial crisis. A rapid increase in the price of oil. All of the above.

Often the multiplier formula is considered to be too simple because it ignores some real world complications. Which of the following is not such a​ reason?

The formula ignores the impact of an increase in GDP on consumption.

Which one of the following is not a determinant of consumption​ spending?

The growth rate in the United States relative to the growth rates in other countries.

The figure in the window on the right shows average annual growth rates in real GDP per hour worked in the United States. Based on the data from the figure on the right which one of the following statements is​ false?

The growth rate of real GDP per hour worked has continually accelerated over time.

The graph on the right shows the relationship between​ country's initial level of GDP per capita and its growth rate over the following years. The horizontal axis shows the initial level of GDP per​ capita, and the vertical axis shows the rate at which GDP per capita is growing. Use the graph to help determine which of the following statements regarding economic growth are​ true:

The industrial countries such as Ireland and Japan that had the lowest incomes in 1960 grew the fastest between 1960 and 2004.

Which of the following statements about investment spending is​ correct?

The optimism or pessimism of firms is an important determinant of investment spending. A higher real interest rate results in less investment spending. When the economy moves into a​ recession, many firms will postpone buying investment goods even if the demand for their own product is strong. All of the above are correct.

Based on the​ graph, how similar is the experience of the United Kingdom to the experience of the United​ States?

The real GDP growth​ rates, the inflation​ rates, and the unemployment rates for the UK and US follow each other very closely.

The figure in the window on the right shows how growth rates of real GDP per capita for the entire world have changed over long periods. Based on the data from the figure on the right which one of the following statements is​ false?

The smallest acceleration in growth occurred during the twentieth century as the average annual growth rate increased from 1.3 percent per year to 2.3 percent per year.

"The equilibrium level of GDP is determined by the level of aggregate expenditure. ​Therefore, GDP will decline only if households decide to spend less on goods and​ services."

The statement is wrong because household spending is only one part of aggregate expenditures.

Explain whether you agree with the following​ statement: ​"The dynamic aggregate demand and aggregate supply model predicts that a recession caused by a decline in AD will cause the inflation rate to fall. I know that the 2007−2009 recession was caused by a fall in​ AD, but the inflation rate was not lower after the recession. The prices of most products were definitely higher in 2008 than they were in​ 2007, so the inflation rate could not have​ fallen."

The statement is wrong because it is confusing the price level with the inflation rate.

An economics student raises the following​ objection: ​"The textbook said that a higher interest rate lowers​ investment, but this​ doesn't make sense. I know that if I can get a higher interest​ rate, I am certainly going to invest more in my savings​ account." The problem with the​ student's argument is which of the​ following?

The student is confusing saving with investment.

​"An increase in aggregate supply causes a shift from SRAS1 to SRAS2. Because this shift in the aggregate supply curve results in a lower price​ level, consumption,​ investment, and net exports will increase. This change causes the aggregate demand curve to shift to the right from ADl to AD2. We know that real GDP will​ increase, but we​ can't be sure whether the price level will rise or fall because that depends on whether the aggregate supply curve or the aggregate demand curve has shifted farther to the right. I assume that aggregate supply shifts out farther than aggregate​ demand, so I show the final price​ level, P3​, as being lower than the initial price​ level, P1​." Which of the following is a correct statement about the​ student's analysis?

The student is incorrect because the aggregate demand curve does not shift because of the price level change.

The adjacent figure shows the effect of a reduction in equilibrium GDP when government purchases decline. Which of the following is not true about the multiplier effect of such a change in government purchases​ ?

The value of the multiplier is −​$5 billion.

Over the past 20​ years, other​ high-income countries have actually fallen further behind the United States in terms of real GDP per capita.

True

When incomes rise faster in the United States than in other​ countries,

U.S. net exports will fall.

Which of the following is a correct statement about unplanned inventory​ increases?

Unplanned inventory increases are likely to indicate that aggregate expenditures are low and correspond with downturns in the business cycle.

The graph shown at right shows two hypothetical consumption functions Upper C1 and Upper C2. Which consumption function has the higher marginal propensity to consume ​(MPC​)?

Upper C2 because the MPC is the slope of the consumption function and UpperC2 has a larger slope.

Which of the following are views new classical macroeconomists​ hold?

Wage and price stickiness is not important for explaining fluctuations in real GDP. The economy will normally be at potential real GDP. Workers and firms have rational expectations. All of the above.

Which one of the following is not true when the economy is in macroeconomic​ equilibrium?

When the economy is at​ long-run equilibrium, firms will have excess capacity.

In the aggregate expenditure​ model, when is planned investment greater than actual​ investment?

When there is an unplanned decrease in inventories.

Are your calculations consistent with a positive supply shock after​ 1995?

Yes, a positive supply shock would represent a rightward shift of the AS curve and a decrease in the price level and thus inflation.

Economics arrives at the conclusion that economic growth will always improve economic​ well-being. Do you​ agree?

Yes, economic growth increases living​ standards, improves health and​ education, and builds a​ corruption-free society.

If the multiplier is 2.0​, holding everything else​ constant, this change in exports would cause

a change in GDP of −$462 billion.

Which of the following factors does not cause the aggregate demand curve to​ shift?

a change in the price level

Which of the following is the definition of the new growth​ theory? When are additions to knowledge capital subject to diminishing​ returns? Which of the following is not a government policy that will increase the accumulation of knowledge​ capital?

a model of​ long-run economic growth that emphasizes that technological change is influenced by economic incentives when we look only at their effect on an individual firm encouraging the growth of labor unions

What is the effect of an increase in the price level on the​ short-run aggregate supply​ curve?

a movement up along a stationary curve

The table does not give the inflation rates for 1969 and 1970. If the inflation rate for 1970 is greater than the inflation rate for​ 1969, it is likely that the recession was caused by____rather than-----

a negative supply shock an increase in aggregate demand

Which of the following causes the​ short-run aggregate supply curve to shift to the​ right?

a positive technological change

If the economy adjusts through the automatic​ mechanism, then a decline in aggregate demand causes

a recession in the short run and a decline in the price level in the long run.

An increase in the expected future price level causes

a shift from B to A

A supply shock is

a sudden increase in the price of an important natural​ resource, resulting in a leftward shift of the SRAS curve.

Which of the following factors will cause the​ long-run aggregate supply curve to shift to the​ right?

an increase in the number of workers in the economy the accumulation of more machinery and equipment technological change All of the above.

The difference between aggregate expenditure and aggregate demand is​ that:

aggregate demand shows the relationship between the price level and the level of aggregate expenditure when all other factors that affect aggregate expenditure are held​ constant; aggregate expenditure is a point on the aggregate demand curve at a specific price.

What is the meaning of the​ 45° line in the​ 45°-line diagram? In the​ 45°-line diagram, the​ 45° line shows

all the points where aggregate expenditure equals real GDP.

In a speech in late​ 2011, President Barack Obama argued​ that: ​"Probably the single greatest cause of the financial crisis and this brutal recession has been the housing bubble that burst four years​ ago." ​Source: Laura​ Meckler, "Obama Says Plan Will Cut Mortgage Payments for​ Millions," Wall Street​ Journal, October​ 24, 2011. By​ "housing bubble" President Obama referred to an increase in the price of housing caused by

an increase in the demand for housing based on the expectation that prices will continue to increase.

Which of the following causes the​ short-run aggregate supply curve to shift to the​ left?

an increase in the expected price of an important natural resource

Which of the following causes saving to​ increase?

an increase in the interest rate

Country Real GDP per Capita in 1960 Growth in Real GDP per​ capita, ​1960-2010 China ​$331 ​6.33% Uganda 657 1.04 Madagascar ​ 1,051 −0.80 Ireland ​7,223 3.20 United States ​15,398 2.00 These statistics_____consistent with the economic growth​ model's predictions of​ catch-up, because although there has been​ catch-up among _____,there____ catch-up among _____

are not the industrialized countries has not been all the countries in the world

Information on current sales can help predict future production of automobiles because

as more cars are ordered by retail​ sellers, more cars need to be produced.

Upper A decrease in individual income tax ratesA decrease in individual income tax rates will cause the value of the multiplier to

be larger

Why does the failure of workers and firms to accurately predict the price level result in an​ upward-sloping aggregate supply​ curve?

because menu costs make some prices​ "sticky" because firms are often slow to adjust wages because contracts between workers and firms make some wages and prices​ "sticky" All of the above.

Why do many​ low-income countries have low growth​ rates?

because of poor public education and health because of wars and revolutions because of low rates of saving and investment All of the above are reasons why some​ low-income countries have low growth rates.

We saw in the Making the Connection that Intel hopes to increase sales of microprocessors used in tablets and smartphones. During a​ recession, spending on these products would be more stable than spending on computers because these products are

becoming more of a necessity and are replaced more frequently than computers.

Recall that the Great Depression began due to increased pessimism of households and​ firms, causing a fall in aggregate expenditures. Which of the following dynamic aggregate demand and supply graphs best shows this​ situation, as based on the information shown in the​ table?

bottom left, middle

Does a change in the price level cause a movement along the aggregate demand curve or a shift of the aggregate demand​ curve? A change in the price level

causes a movement along the aggregate demand curve.

Does a change in the price level cause a movement along the aggregate expenditure line or a shift of the aggregate expenditure​ line? A change in the price level

causes a shift of the aggregate expenditure line.

The​ long-run aggregate supply curve is vertical because in the long​ run,

changes in the price level do not affect potential​ GDP, as potential GDP depends on the size of the labor​ force, capital​ stock, and technology.

Which countries have experienced faster economic​ growth?

countries that have been generally more open to foreign trade and investment

The widespread use of computers and the Internet has____menu costs.

decrease

Consider the per-worker production function to the right. Equal increases in the quantity of capital per hour worked lead to ____________ increases in output per hour worked.

diminishing

For the range of initial Real GDP per capita11 to Real GDP per capita2​, the figure ____ support the ​ catch-up prediction, because in the figure on the​ right, for the range of initial Real GDP per capita11 to Real GDP per capita2​, ______ a consistent relationship between initial real GDP per capita and its growth rate of real GDP per capita.

does not there does not exist

​"It's easy to understand why the aggregate demand curve is downward​ sloping: When the price level​ increases, consumers substitute into less expensive​ products, thereby decreasing total spending in the​ economy." This statement is false because the aggregate demand curve is

downward sloping because as prices​ rise, consumer real wealth​ declines, interest rates​ rise, and exports become more expensive.

The aggregate demand curve slopes downward _______and the demand curve for an individual product slopes downward________

due to the wealth effect, the interest-rate effect, and the international-trade effect due to consumers substituting the more expensive product for cheaper goods

The real business cycle model focuses on changes in the quantity of money to explain fluctuations in real GDP.

false

Investment tax credits allow

firms to deduct from their taxes some fraction of the funds they have spent on investment.

The new growth theory states that

firms will add to an​ economy's stock of knowledge capital by engaging in research and development or by contributing to technological change.

Suppose that exports become more sensitive to changes in the price level in the United States. That​ is, when the price level in the United States​ rises, exports decline by more than they previously did. This change makes the aggregate demand curve

flatter

When a corporation purchases or builds a facility in a foreign​ country, it is called

foreign direct investment.

The government policy that does not increase economic growth is

foreign trade policy that favors imposing a high tariff on imported​ high-tech goods.

Other​ high-income countries have had trouble completely closing the gap in real GDP per capita with the United States because the United States has

greater flexibility in labor markets and greater efficiency in the financial system.

At point A in the graph to the​ right, planned aggregate expenditure is ____ GDP.

greater than

In a speech to a conference of government trade​ officials, Angel​ Gurría, secretary general of the Organization for Economic Cooperation and​ Development, made the following​ observation: ​"As goods and services cross borders several times at different stages of​ processing, conventional trade statistics may not tell the whole​ story." ​Source: Angel​ Gurra', "Understanding Global Value​ Chains," speech delivered at the G20 trade ministers conference in Puerto​ Vallarta, Mexico, 19 April​ 2012, www.oecd.org/about/secretary-general/g20understandingglobalvaluechains.htm. When​ Gurría refers to​ "conventional trade​ statistics," he means statistics that have

historically been publically available and commonly used.

Edward Leamer of UCLA has argued that​ "housing is the business​ cycle." Spending on housing is likely to fluctuate more than spending by households on consumer​ durables, such as automobiles or​ furniture, or spending by firms on plant and equipment because

housing is very sensitive to interest rate​ changes, which are cyclical.

Developing countries have benefited from​ globalization, because globalization can do all of the following except

impose trade barriers and tariffs on imported goods so as to protect domestic industries.

The​ short-run aggregate supply curve slopes upward because of all of the following reasons except

in the short​ run, an unexpected change in the price of an important resource can change the cost to firms.

​"the economy's potential to supply goods and services​ [is] determined by such things as labour force and capital​ stock, as well as inflation​ expectations." This list of the determinants of potential GDP is

incorrect since changes in the expected price level affect short run aggregate supply but not the long run aggregate supply.

Congress passes a law that allows taxpayers to reduce their income taxes by the amount of state sales taxes they pay. It is likely that the rate of economic growth will

increase

Suppose a major U.S. furniture manufacturer is forecasting demand for its products during the next year. How will the forecast be affected by the​ following? Upper A decrease in real interest rates.A decrease in real interest rates. Demand is expected to

increase

In the short​ run, an increase in aggregate demand____whereas in the long​ run, an automatic mechanism brings

increases the price level and actual GDP beyond potential GDP the economy back to potential GDP but the price level remains higher

Suppose the​ per-worker production function was shaped as shown in the graph at right. If a country was accumulating increasing quantities of capital per hour​ worked, this country would experience

increasing labor productivity and higher levels of economic growth.

In the dynamic aggregate demand and aggregate supply​ model, if aggregate demand increases faster than potential real​ GDP, there will be

inflation

Firms become more optimistic and increase their spending on machinery and equipment. Because this is a change in______it will cause a _____the aggregate demand curve.

investment shift to the right in

Pranab​ Bardhan, an economist at the University of​ California, Berkeley,​ argues: ​"China may be close to exhausting the possibilities of technological​ catch-up with the​ West, particularly in​ manufacturing." ​Source: Pranab​ Bardhan, "The Slowing of Two Economic​ Giants," New York Times​, July​ 14, 2013. When Bardhan refers to​ "technological catch-up," he means that China

is experiencing diminishing returns to investments in technology.

According to an article in the Wall Street Journal about​ FedEx: ​"The world's largest​ air-cargo shipper by revenue and its rivals have been wrestling with a shift by clients toward cheaper and slower delivery​ services, such as ocean​ freight." ​Source: Bob​ Sechler, "FedEx​ Earnings: Hurt by Restructuring​ Charges," Wall Street Journal​, June​ 19, 2013. This information implies that the ​"FedEx ​indicator" discussed in the chapter opener

is not very useful to predict changes in future GDP when prices do not remain the same.

f the marginal propensity to consume​ (MPC) equals​ zero, the multiplier

is one

An article in the Wall Street Journal about the automobile industry noted​ that: ​"Inventory levels dropped recently because the pace of sales was higher than the pace at which cars were​ restocked." ​Source: Josh Mitchell and Eric​ Morath, "Auto Makers Diverge from Weakening Factory​ Sector," Wall Street Journal​, June​ 11, 2013. A car is​ "restocked" in this context when a car

is sold and another is delivered to replace it.

At the​ macro-economy level,

knowledge capital exhibits increasing returns and physical capital exhibits decreasing returns.

Firms are likely to underinvest in research and​ development, which slows the accumulation of knowledge​ capital, slowing economic​ growth, because

knowledge capital is both nonrival and​ nonexcludable; other firms can freely access the research and development of one particular firm.

If the Chinese need to​ "work off this excess​ supply," this will result in

less​ manufacturing, less​ production, less employment and slower economic growth.

The economic growth model predicts that the

level of per capita GDP in poor countries will increase faster than rich countries and the poor nations will catch up with the rich nations.

One of the lessons from the economic growth model presented in this chapter is that technological change is

more important than increases in physical capital in explaining​ long-run growth.

In the diagram to the​ right, moving from point A to point B is called a _______ the AD curve.

movement along

The average annual growth rate is the ______ between 2003 and​ 2013, and the total percentage increase in real GDP is the_______

rate at which GDP must grow on average each year percentage increase in real GDP between the two years 2003 and 2012

At the new​ long-run equilibrium,

real GDP and the unemployment rate will remain the​ same, but price level will be higher compared to the initial​ equilibrium, prior to the increase in exports.

In the dynamic aggregate demand and aggregate supply​ model, if aggregate demand increases slower than potential real​ GDP, there will be

recession

Consider the table on the​ right, which shows the change in inventories for each quarter from​ 2007:I to​ 2010:IV measured in billions of 2009 dollars. Provide a macroeconomic explanation for this pattern.​ (Hint: When did the recession during this period begin and​ end?) The negative growth of invenories indicates a period of

recession because demand was met by drawing down past inventories and production did not increase.

Inaccurate trade statistics cause problems because they

reduce the accuracy of export and import information.

The end of the housing bubble can bring on a recession because

reduced demand for housing lowers​ investment, which in turn lowers aggregate demand and income

Integration into the global economy has

reduced poverty in India by increasing the growth rate of the economy and a higher rate of economic growth generally results in faster poverty reduction.

Usually at the beginning of a​ recession, inventories _____, but at the beginning of an​ expansion, inventories_____-_

rise fall

For most of the​ 1979-2013 period, real government purchases

rose steadily.

An improvement in technology is shown as a

shift from A to B

An increase in the labor force or capital stock is illustrated as a

shift from A to B

Moving from point A to point C is referred to as a ______the AD curve.

shift in

Upper A technological changeA technological change will cause the​ long-run aggregate supply curve to

shift to the right

When a firm increases output by either replacing existing capital with more productive capital or by reorganizing how production takes​ place, that firm is experiencing

technological change.

Which of the following events marks the beginning of significant economic growth in the world​ economy?

the Industrial Revolution in England

The amount of the shortfall in planned aggregate expenditure is equal to

the vertical distance between AE and the 45degrees° line at the level of potential real GDP.

At point A​, the unintended change in inventories can be shown on the graph​ by:

the vertical distance between point A and the 45° line.

An article on the Chinese economy in 2012 notes that business inventories had been increasing. As a​ result, the author​ argued: ​"China's growth rate will not be as robust as it has been over the past few​ years, as the economy needs to work off this excess​ supply." When the article refers to the need to​ "work off this excess​ supply," it means that

there are currently more goods and services that have been produced than have been needed.

Consider the​ per-worker production function graph on the right. If there is an increase in capital per hour​ worked, holding technology​ constant, then

there is a movement from A to B.

If the price level​ increases, then

there will be a movement up along a stationary aggregate demand curve.

What term describes the relationship between real GDP per hour worked and capital per hour​ worked, holding the level of technology​ constant? Along the​ per-worker production​ function, what happens to real GDP per hour worked as capital per hour worked​ increases?

the​ per-worker production function Real GDP per hour worked increases at a decreasing rate.

Increases in the value of the dollar relative to foreign currenciesIncreases in the value of the dollar relative to foreign currencies will make the aggregate demand curve shift

to the left

Increases in firms' expectations of their future profitability and investment spendingIncreases in firms' expectations of their future profitability and investment spending will make the aggregate demand curve shift

to the right

Increases in households' expectations of their future incomesIncreases in households' expectations of their future incomes will make the aggregate demand curve shift

to the right

Macroeconomic equilibrium occurs where

total​ spending, or aggregate​ expenditure, equals total​ production, or GDP.

Karl​ Marx's critique of the free market system had relatively little influence on the thinking of mainstream economists in the United States.

true

​"The reason that the aggregate demand curve slopes downward is that when the price level is​ higher, people cannot afford to buy as many goods and​ services." This statement​ is:

true

The Roman Empire lasted from 27 B.C. to 476 A.D. The empire was wealthy enough to build such monuments as the Roman Coliseum. Roman engineering skill was at a level high enough that aqueducts built during the empire to carry water long distances remained in use for hundreds of years. Yet the growth rate of income per capita during the empire was very​ low, perhaps zero. Consider the following list of preconditions for economic growth. Which one of the following reasons seems the most likely explanation for why the Roman Empire was unable to bring about sustained economic​ growth?

wars and revolutions.