Economics exam #3
One method employed by the World Bank to assist developing countries is
infusion of new machinery, the promotion of universal education, and increased foreign aid
induced innovation
innovations come about through inventive activity designed specifically to reduce costs.
The length of time that Congress takes to formulate a tax bill to help the economy is part of the
inside lag
3 sources of growth
land, labor, capital
Many economists believe that technological progress in the United States would be accelerated if
less money were spent in funding research and development in defense-related areas and more money were spent in other areas.
In the short run, the primary determinant of output of firms is the
level of demand
technological progress
more efficient ways of organizing economic affairs that allow an economy to increase output without increasing inputs y=f(K, l, a)
Increased investments in infrastructure or public capital would
most likely increase economic growth.
Which of the following is NOT an assumption in the Solow Model?
no depreciation
labor productivity
output produce per hour of work.An important source of increasing labor productivity is an increase in the ratio of capital to labor dividing GDP by the number of hours worked by all workers in a given year
The length of time from when households receive tax rebate checks to the time they spend the checks is part of the
outside lag
Auction prices
prices that adjust on a nearly daily basis example: fresh fish
Governments in developing countries can hinder economic growth by
promoting policies that tax exports
Assuming a constant level of capital in the economy, a rapid increase in population is likely to
raise real GDP, but lower real GDP per capita.
Real GDP per capita
real GDP / population size
contractionary fiscal policy
reductions in government expenditure or an increases in taxes; aggregate demand curve to the left example: increasing taxes
In an economy with no government or foreign sector, it is always true that
saving equals investment
The basic idea of the fiscal multiplier is that an initial increase in government spending will have more than a one-to-one impact on
short-run aggregate supply
Historical economic research shows that the accumulated investment in human capital during the last 300 years has produced
taller workers, more productive workers, and heavier workers
In an open economy, the government can accelerate growth by
taxing consumption and using the tax revenues for capital formation.
If the capital stock remains fixed while the supply of labor increases, it is likely that
the average product of labor will fall.
Inside lags associated with fiscal policy are due to all of the following EXCEPT
the delayed response of the firms to a tax cut
Education can contribute to economic growth through
the faster discovery of new technologies, the faster adaptation of existing technologies, a better integration of technology and workers' skills.
human capital
the knowledge and skills that workers acquire through education, training, and experience.
growth rate
the percentage rate of change of a variable from one period to another. (GDP yr 2 - GDP yr 1/GDP yr 1)
In the Solow Model, an increase in the saving rate will NOT result in an increase in
the population
convergence
the process by which poorer countries close the gap with richer countries in terms of real GDP per capita
fiscal policy
the spending and taxing policies used by the government to influence the economy
In the long run, the amount of output that the economy can produce will depend on
the supply of labor and capital
If prices are slow to adjust, then it is possible that
there will be a supply shortage, some markets will not be in equilibrium, and there will be a demand surplus
In the long run, an increase in the money supply will cause output
to remain the same
According to the Solow Model, an increase in technology will always result in an increase in output.
true
Large source if Norway wealth
oil
stabilization policy
the move the economy closer to full employment
Countries that devote a large share of GDP to investment tend to have high growth rates.
true
Foreign investment can increase a country's capital stock.
true
Growth that cannot be explained by increases in capital and labor must be caused by technological progress.
true
Investment in both private and public capital is conducive to economic growth and higher productivity
true
Wages are classified as custom prices, because they do not adjust very quickly.
true
Which of the following outcomes hinder economic growth?
uncertain financial environment
In fiscal policy, outside lags
usually take a much shorter time than inside lags
When output exceeds the full employment level of output, we expect that the
wages and prices increase as the short-run aggregate supply curve shifts upward over time.
economic growth allows a society to consume
a wider variety of goods, more goods per person, and higher quality of goods
per capita GDP decreases when?
GDP does not change and the population increases
The economy moves from a short-run equilibrium to the long-run equilibrium through
adjustments in wages and prices
stabilization policy
A government policy action that moves the economy closer to full employment or potential output
New Growth Theory
A theory of economic growth that examines the factors that determine why technology, research, innovation, and the like are undertaken and how they interact.
In fiscal policy, inside lags can take a long time because
Both changes in taxes and government spending require approval from Congress and the president and macroeconomic data take time to gather and can be unreliable are correct.
If saving is negative, which must be true?
Consumption is greater than income.
monetary policy
Government policy that attempts to manage the economy by controlling the money supply and thus interest rates. example: congress increases government spending
during the 1960-2011 period, the fastest growing country during the whole period was
Japan
Creative destruction, the notion that innovation is promoted by the competitive desire to break production monopolies, can be traced back to
Joseph Schumpeter
If a country uses trade deficits to finance consumption, then the country will experience
a decline in real GDP per capita in the future, a smaller portion of GDP in the future used for a capital deepening, and no capital deepening
growth accounting
a method to determine the contribution to economic growth from increased capital, labor, and technological progress
Rule of 70
a rule of thumb that says output will double, divide 70 by the percent of growth (70/x)
Using a production possibility curve, economic growth is represented as
a shifting of the curve upward
Fiscal policy shifts the
aggregate demand curve
An increase in taxes or a decrease in spending will shift the
aggregate demand curve to the left
Expansionary fiscal policy shifts the
aggregate demand curve to the right
Based on growth accounting, which of the following would cause an increase in output?
an increase in employment, capital stock, and the number of hours worked
Best measure of economic growth
an increase in real GDP per capita
capital deepening
an increase in the stock of capital per worker; one source of rising labor productivity
In fiscal policy, inside lags
are longer than outside lags
Diminishing (marginal) returns to labor implies that
as labor increases, labor productivity decreases.
In the Solow Model, the an increase in the saving rate will result in an increase in the
capital stock
If the protection of intellectual property rights were to be reduced, say by shortening patent terms, it is likely that
competition would increase but innovation would decrease
Governments in developing countries can promote economic growth by
creating the proper legal and economic environment
sticky prices
custom prices;Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded
saving
income not used for consumption; saving must equal investment
If the government wants to reduce unemployment, government spending should be ________ and/or taxes should be ________.
increased; decreased
expansionary fiscal policy
increases aggregate demand
Which of the following is an example of an expansionary fiscal policy?
decreasing taxes
The lags associated with fiscal policy can
depress output below full employment, stimulate output beyond full employment, and magnify economic fluctuations
The "short run" in macroeconomics is a period in which prices
do not change off change very little
If the economy is in a recession, the prices and wages will ________, causing the short-run AS curve to shift ________ until the economy reaches its long-run equilibrium.
drop; right
what is economic growth?
economic growth means an expanded production possibilities curve
An increase in capital stock
enhances labor productivity, increases the demand for labor, and causes economic growth
In an open economy, a country can accelerate growth by
increasing the trade deficit and importing investment goods.
Fiscal policy affects aggregate demand because
government purchases is a category of aggregate demand, taxes affect disposable income and so consumption, and taxes affect corporate spending and so investment
Which of the following will NOT lead to greater economic growth?
government taxation of the private sector in order to engage in consumption spending