Economics

uppose that Alpha and Omega have identically sized working-age populations but that annual hours of work are much greater in Alpha than in Omega. This could happen because

Omega's labor force is underemployed or Omega workers place a higher value on leisure than those in Alpha

A decrease in aggregate demand

Price level does not change, but real output declines.

Equal increases in aggregate demand and aggregate supply

Price level does not change, but real output increases.

An increase in aggregate demand that exceeds an increase in aggregate supply

Price level increases somewhat with a relatively large change in output.

An increase in aggregate demand

Price level rises rapidly, and there is little change in real output.

A decrease in aggregate supply with no change in aggregate demand

Price level rises, and real output decreases.

Rearrange the following contributors to the growth of productivity in descending order of their quantitative importance: economies of scale, quantity of capital, improved resource allocation, education and training, and technological advance.

Technological advance, quantity of capital, education and training, economies of scale, and improved resource allocation.

How is the labor force defined and who measures it?

The U.S. Bureau of Labor Statistics (BLS) measures the labor force as people over 16 years of age who are actively seeking work.

Consider the following statement: "Unemployment can be caused by a decrease of aggregate demand or a decrease of aggregate supply." True or false?

True, but the magnitude of unemployment depends on the economic situation.

For a person who thinks the public sector is too large, the fiscal options for ending severe demand-pull inflation would include

a cut in government spending.

A downshift of the consumption schedule typically involves an equal upshift of the saving schedule because

all income must be consumed or saved.

A downshift of the consumption schedule typically involves an equal upshift of the saving schedule except when there is

an increase in personal taxes; then they both shift downward.

In 2002, the annual oil price was $24.36. As of late July 2006, the annual oil price was $62.07. The percentage increase in real GDP from 2001 to 2005 (the latest year for which data were available) was about 12.6 percent. This indicates that?

oil prices increased faster than real GDP, but real GDP still grew at a healthy pace.

A political business cycle is the concept that

politicians are more interested in reelection than in stabilizing the economy.

Recent productivity acceleration has been

positively influenced by information technology because it connects information in all parts of the world with information seekers

Recent productivity acceleration has been

positively influenced by network effects, which is a type of scale economy

A reduction in aggregate demand likely causes a decline in real output rather than the price level because

prices are inflexible downward.

Demand-pull inflation occurs when

prices rise because of an increase in aggregate spending not fully matched by an increase in aggregate output

If the public investment financed through borrowing complements private investment,

private borrowers may be willing to pay higher interest rates associated with financing the public debt.

Since at least 1995 the majority of increases in U.S. real GDP are from

productivity growth

Inflation

reduces the purchasing power of the dollar.

The government's fiscal policy options for ending severe demand-pull inflation include

reducing government spending, increasing taxes, or both.

The crowding-out effect is the

reduction in investment spending caused by the increase in interest rates, arising from an increase in government spending.

The U.S. experience of strong economic growth, full employment, and price stability in the late 1990s and early 2000s can be explained by a

rightward shift of aggregate demand and a leftward shift of aggregate supply.

The real balances effect says that as the price level

rises, the real value of money will decrease, resulting in a decrease in the quantity demanded of real output.

According to the "wealth effect," a change in consumer wealth causes a

shift in consumer spending and the aggregate expenditures curve.

The long-run aggregate supply curve is vertical because the economy's potential output is determined by

the availability and productivity of real resources, not by the price level.

The short-run aggregate supply curve is relatively flat to the left of the full employment output and relatively steep to the right because

there are large amounts of unused capacity and idle human resources.

A negative GDP gap is associated with

cost-push inflation.

According to the "real-balances effect," if prices

decline, the purchasing power of assets will rise, so spending at each income level should rise.

A reduction in the real interest rate will increase investment spending, other things equal, because firms will make an investment purchase if the expected return is

greater than or equal to real interest rate at which it can borrow.

The benefits of economic growth, particularly as measured by real GDP per capita, include

higher living standards for the vast majority of people.

The problem of time lags in enacting and applying fiscal policy is that

in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed.

A major new invention can lead to an expansion if there are

increases in investment, consumption, output, and employment

There is a close relationship between changes in a nation's rate of productivity growth and changes in its average real hourly wage because if average real hourly wage and output per worker is

increasing, then the amount of output available per capita for workers to buy will be growing so more can be purchased

What type of tax system would have the most built-in stability?

A progressive tax because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes.

The foreign purchases effect says that as the U.S. price level rises relative to other countries,

Americans will buy more abroad, and foreigners will decrease their buying of American exports.

There is a huge disparity in per capita income between China's coastal cities and its interior regions because

China's coastal areas are more industrialized with greater freedom to engage in high productivity economic activity.

True

Deflation means that the price level is falling, whereas with inflation, overall prices are rising.

Which of the following explain why the aggregate demand curve slopes downward?

The interest-rate effect, the real balances effect, and the foreign purchases effect

What is the efficiency factor

The level of economic efficiency and full employment needed to reach full production potential

What is the demand factor?

The level of purchases needed to maintain full employment

Which of the following statements is true concerning the real-balances effect and the wealth effect?

The real-balances effect explains the shape of the aggregate demand curve, whereas the wealth effect causes shifts of the aggregate demand curve.

Unemployment is an economic problem because

a unit of labor resource that could be engaged in production is sitting idle.

politicians are more interested in reelection than in stabilizing the economy.

consumers may hesitate to increase their spending because they believe that tax rates will rise again.

For a person who wants to preserve the size of government, the fiscal options for ending severe demand-pull inflation would include

an increase in taxes.

The multiplier

causes an initial change in spending to generate an even larger change in the aggregate demand curve

The Consumer Price Index (CPI) is constructed by

comparing the value of a "market basket" of goods that consumers typically purchase to the value of the basket in a base year.

An upsloping aggregate supply curve weakens the realized multiplier effect because any increase in aggregate

demand will have both a price and an output effect.

A positive GDP gap is associated with

demand-pull inflation.

The multiplier effect

intensifies the effect of a spending change, whether it is an increase or decrease.

The business cycle affects output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing nondurables because capital goods and durable goods

last and these purchases can be postponed.

A strong negative wealth effect from, say, a precipitous drop in the stock market could cause a recession even though productivity is surging if aggregate demand shifts

left while aggregate supply shifts right.

In early 2001 investment spending sharply declined in the United States. This event caused a?

leftward shift in aggregate demand, and lower investment would have caused a leftward shift in aggregate supply.

In the 2 months following the September 11, 2001, attacks on the United States, consumption also declined. This event caused a?

leftward shift in aggregate demand, and lower investment would have caused a leftward shift in aggregate supply.

The nominal interest rate

minus the inflation rate is the real interest rate.

Social Security and Medicare are "pay-as-you-go" plans. This means that

most of the current revenues from the Social Security tax are paid to current Social Security retirees.

he explanation of a downsloping aggregate demand curve differs from the explanation for the downsloping demand curve for a single product because a downsloping

single-product demand curve assumes constant money income such that a lower price causes a substitution of the now relatively cheaper product for those whose prices have not changed.

More labor inputs can explain

some of the increases in U.S. real GDP during the last 50 years or so

A full-strength multiplier applies to a decrease in aggregate demand when the aggregate

supply is horizontal

The interest rate effect says that as the price level rises,

the increased demand for money will drive up the rate of interest, decreasing the buying of goods with borrowed money, and decreasing the amount of real output demanded.

We see an increase in the multiplier when the MPC increases because

the initial change in spending results in greater consumption spending at each stage of the expansion process.

Investment is unstable because

unlike most consumption, it can be put off.

The shape of the short-run aggregate supply curve is

upsloping because wages adjust more slowly than the price level, increasing profits and output

A financial crisis can lead to a recession because it can cause

wealth and income to fall, reducing spending and ultimately reducing employment

The consequence of a negative GDP gap is that

what is not produced is lost forever and future economic growth will be less.