Macro

the market value of all final goods and services produced within a country in a year.

Gross domestic product

have not been adjusted for changes in prices.

Nominal variables

the value of the asset minus the debt associated with it.

Owner's equity

the stock of tools including machines, structures, and equipment

Physical capital

_____ are signals, and inflation makes them more difficult to interpret.

Prices

have been adjusted for changes in prices.

Real variables

If the annual growth rate of a variable is x%, then the doubling time is years.

Rule of 70

If a nation passes stronger laws protecting workers (e.g. stronger labor union laws or laws making it harder to fire workers), who benefits?

Some workers are made better off, some are made worse off.

All else equal, if consumer preferences changed so that they generally decided to save less, what would occur?

Supply in the market for loanable funds would decrease, and the interest rate would rise.

knowledge about how the world works

Technological knowledge

If the rate of spending growth decreases, what happens to the aggregate demand curve?

The AD curve shifts down and to the left.

What impact will greater growth of government spending have on the AD curve?

There will be an increase in aggregate demand.

The market value of the output produced in another country by a permanent U.S. resident would be included in

U.S. GNP only.

which comes from economic growth, ended malaria in the United States.

Wealth

What is the labor force participation rate?

[(unemployed + employed) ÷ non-institutionalized civilian adults] * 100

A decrease in labor productivity will lead to:

a decrease in economic growth.

Which condition is mentioned in the textbook as an aggregate demand shock that contributed to the Great Depression?

a decrease in wealth due to bank failures

Which event would cause the equilibrium interest rate in the market for loanable funds to increase?

a leftward shift in the supply of loanable funds

Which event would cause the equilibrium interest rate in the market for loanable funds to increase?

a rightward shift in the demand of loanable funds

Which curve shows all of the combinations of inflation and real growth that are consistent with a specified rate of spending growth?

aggregate demand curve

The inflation rate is the percentage change in the _____ level of prices, as measured by a price index, over a specific period.

average

When other countries grow rich, people in the United States:

benefit because this means the market for goods such as pharmaceuticals is larger and more innovations take place.

Which activity would NOT be counted in the investment category of national spending?

buying stock

one thing causes another

causal

Monopoly power created by patents:

creates incentives for research and development.

unemployment correlated with the business cycle.

cyclical unemployment

A decrease in the average level of prices is:

deflation

At the steady state, investment equals

depreciation

In the year 1, real GDP per capita

did not vary as much as it does today.

Child care conducted in the home is not included in GDP because it

does not involve a market transaction

Wealth comes from

economic growth

How does faster growth in real GDP affect unemployment?

faster growth in real GDP decreases unemployment.

short-term unemployment caused by the ordinary difficulties of matching employee to employer

frictional unemployment

spending by all levels of government on final goods and services.

government purchases

how rapidly the country's production is rising or falling over time

growth rate of GDP

Which timeline puts the events leading to the financial crisis of 2007-2008 in proper chronological order?

high leverage in the shadow banking system, falling asset prices, reduction in the amount of lending in the economy

An increase in the general level of prices

inflation

If the inflation rate is positive, it is safe to conclude that there has been:

inflation

The lower the _____ rate, the _____ the quantity of funds demanded for investment.

interest; greater

A(n) _____ good is one that is sold to a firm and then bundled or processed with other goods for sale at a later stage.

intermediate

In the United States, potential innovators know that if they come up with a good idea:

it has a good chance of making them substantial profits.

In comparison to a low risk company, if a risky company wishes to borrow money:

it must promise a higher rate of interest because lenders demand compensation for default risk.

Wealthy countries have lots of physical and human capital per worker, and they produce things in a relatively efficient manner, using the latest technological

knowledge

In the long run, real GDP is determined by capital, _____, and technology, none of which is affected by the money supply.

labor

unemployment + employment

labor force

The _____ is equal to [(unemployed + employed) ÷ adult population] × 100.

labor force participation rate

the ratio of debt to equity

leverage ratio

An insolvent firm has _____ that exceed its assets.

liabilities

occurs when suppliers of loanable funds (savers) trade with demanders of loanable funds (borrowers)

market for loanable funds

take the average of the middle terms

median of even set

the costs of changing prices.

menu costs

(new price-old price) / average price *100

midpoint method percentage change

_____ is mistaking changes in nominal prices for changes in real prices.

money illusion

Which measure can reduce structural unemployment?

more job retraining programs

the rate of structural plus frictional unemployment

natural unemployment

the rate of return that does not account for inflation

nominal rate of return

We can be sure that voluntary exchanges tend to be mutually beneficial because:

people would not voluntarily engage in exchanges that made them worse off.

(new price-old price)/ old price *100

percentage change

unemployment + employment + students+ children + retirees+ ect

population

Monetary and fiscal policy cannot

prevent recessions.

The quantity theory of money is based on the identity that the product of the money supply and the velocity of money is equal to the product of the average _____ level and real GDP.

price

Among the most powerful institutions for supporting good incentives are

property rights, political stability, honest government, a dependable legal system, and competitive and open markets.

A _____ price has been corrected for inflation.

real

If pressed to choose a single indicator of current economic performance, most economists would probably choose _____ GDP growth.

real

the CPI rose faster than did the price.

real price fell

Imagine that last year, Jennifer earned $80,000 in salary and consumed $50,000 in goods and $23,000 in services. How could we BEST categorize the remaining $7,000?

saving

Economic growth can be pictured in a production possibilities curve diagram by

shifting the production possibilities curve out.

After an unexpected and permanent 10 percent increase in the price of oil, the U.S. economy would:

slow down gradually, fully adjusting after 10 quarters.slow down gradually, fully adjusting after 10 quarters.

In many countries, such as India, when the weather fluctuates:

so does GDP

What can increase structural unemployment?

stronger unions

Imagine that the factory Anna worked in has relocated to China in an effort to save money. What would BEST describe her state of employment?

structural unemployment

persistent, long-term unemployment caused by long-lasting shocks or permanent features of an economy that make it more difficult for some workers to find jobs.(like the transition from a manufacturing economy to a service economy)

structural unemployment

During the financial crisis, when investment banks were highly leveraged and asset prices fell slightly:

the banks suffered tremendous losses, forcing the sale of assets, which drove asset prices even lower.

Monetary and fiscal policy can affect

the length and severity of recessions.

M × V = P × Y (money supply*the velocity of money = amount of real output*price level)

the quantity theory of money

Which factor is cited in the textbook as a factor leading to the dramatic rise of female labor force participation rates during the last half of the twentieth century?

the rise of feminism

To say that research and development generate spillovers is to say that:

the social benefits exceed private benefits

If we assume that the velocity of money is stable:

there is a direct relationship of money and nominal GDP.

In today's economy, if the people with the best ideas are not also the people with the most savings:

they will have to borrow funds to bring their ideas to fruition.

The desire to have goods and services sooner rather than later is called:

time preference

correlated

two things occur together

GDP does not count the _____ economy.

underground

The _____ is equal to [ unemployed ÷ (unemployed + employed) ] × 100 or [ unemployed ÷ (labor force) ] × 100

unemployment rate

percentage of the labor force without a job

unemployment rate

During a recession, the _____ rate tends to _____.

unemployment; rise

Suppose the production function for an economy is Y = √K. Which equation is equivalent to the amount of capital that wears out or depreciates?

δK

Suppose you buy a share of stock at a price of $100 and a year later it is worth $125. Suppose further that the rate of inflation for the year was 10 percent. If you are subject to a 15 percent capital gains tax, how much larger is your tax burden than it would be if you were only required to pay taxes on your real return?

$1.50

Suppose that for an imaginary economy, the velocity of money is equal to 6 and the money supply is $1.5 billion. If the price level in this economy is equal to 2, the real GDP in this economy is equal to:

$4.5 billion

According to the AD curve, if is 5 percent, the rate of inflation is 3 percent, and the rate of real growth is 2 percent, then what must be ?

0

y=consumption+investments+gov purchases+ (exports-imports)

National spending approach

Y=wages+rent+interest+profit

Factor income approach

is not included

For calculating GDP, the purchase of a used car

Y = Nominal GDP (the market value all final goods and services) C = The market value of consumption goods and services I = The market value of investment goods, also called capital goods G = The market value of government purchases NX = Net exports, defined as the market value of exports minus the market value of imports

GDP can also be written as The national spending identity: Y = C + I + G + NX

Nominal GDP/real GDP * 100

GDP deflator

GDP that year - GDP last year/ GDP last year *100

GDP growth rate

If the rate of real growth is fixed by real factors, what will accompany changes in M and v?

If the rate of real growth is fixed by real factors, changes in M and v can change only the inflation rate.

The capital stock shrinks and output next period is smaller.

Investment < Depreciation

The capital stock and output are constant (the steady state

Investment = Depreciation

The capital stock grows and output next period is bigger.

Investment > Depreciation

AIDS has dramatically reduced life expectancies in Africa. What impact would this have on saving rates?

It would reduce the rate of saving, because many Africans expect to die young.