Macro Econ ch 6

Which of the following are examples of financial investment?

Bonds and stocks

In order to promote future economic growth, consumers must _______ consumption and _______ savings in order to pay for investments.

Decrease; increase

An event that unexpectedly shifts the demand curve is called a(n):

Demand shock

Which of the following indicate that a nation is not using a large fraction of the talents and skills of its people?

High unemployment rate

Private savings is

Income minus consumption

A well-functioning financial system properly directs ________ into the most productive possible investments.

Savings

Which of the following will lead to better living standards and economic growth?

Savings and economic investment

A situation in which firms expect one thing to happen, but then something else happens is commonly referred to in economics as a ___________.

Shock

True or false: a fear of "price wars" is one factor that increases short-run price stickiness

True

True or false: when demand falls for many goods and services, GDP and employment will fall.

True

Because output prices are _____, the economy is forced to respond in the short run to demand shocks primarily through changes in output and employment.

inflexible

If prices are _________,an unexpected decline in demand that persists for any length of time will eventually force a firm to cut production

inflexible

Output that has been produced but not yet sold is called ___________

inventory

Actions by businesses today that incur current costs and provide benefits in the future are called:

investments

Before the 1700s, output per person did not increase because the ___ increased by a rate similar to that of the output of goods and services

population

One way that the government can encourage economic growth is by encouraging:

savings and investment

Which of the following helps to explain how unexpected changes in demand lead to fluctuations in GDP and employment?

sticky prices

Flexible prices are prices:

that adjust feely through the forces of supply and demand

The difference in growth rates among countries can best be explained by

varying economic policies

Which of the following are factors that increase short-run price stickiness?

(1) Consumers preferring stable and predictable prices (2) Firms' fear of price wars

If a country has a growth rate of approximately 2% compounded each year, it will take ______________ for its output to double.

About 35years

If prices are inflexible, which of the following will result in growing inventories?

An unexpected decrease in demand

Savings is important for economic growth because it ________.

Can be used to increase investment activities

The important questions about the government policy that are clarified by macroeconomic models are:

Can the government reduce the severity of recession by smoothing out short-run fluctuations? ; is there a trade-off between lower rates of unemployment and higher rates of inflation?; are some government policy tools more effective than others?; can government provide subsides to the agriculture industry?

Economist and policy makers encourage real GDP growth because it generally ensures that:

Consumers have greater consumption possibilities

The term "economic investment" refers to ____________.

Creating capital goods that have cost today but provide benefits in the future

Normal GDP is calculated by multiplying _________ market prices by currently producing quantities.

Current

Constantly rising inventory occur when _________ is/are unexpectedly low.

Demand

Most short-run fluctuations are the result of what type of shocks?

Demand

________ shocks are unexpected changes in the consumption of goods and services. _________ shocks are unexpected changes in the production of goods and services. (Enter one word in each blank)

Demand; supply

Financial intermediaries reduce the risk faced by savers through:

Diversification of investment projects

To understand how economies and how their performance might improve economists collect and analyze ___________ data.

Economic

When demand is unexpectedly high, inventory will __________ as the quantity demanded ___________ the factory's optimal output.

Fall; exceeds

True or false: prices help to explain how unexpected changes in demand lead to the fluctuations in GDP and employment that occur over the course of the business cycle.

False Reasoning: sticky prices help to explain this.

Price stickiness moderated over time because:

Firms that choose a fixed price in the short run do not have to stick with that policy in the long run.

An example of a good that has flexible prices is

Gasoline Other that work to: corn, oil, natural gas all are raw materials

If demand falls for many goods for an unexpected period of time, firms will be forced to cut production as inventories ___________; GDP will ____________; and unemployment will ___________.

Grow; fall; rise

_____________ are the principal source of savings.

Households

The savings of ___ make their way into the banking system and become the investment funds of ___.

Households; firms

Inventories are useful because they can _______.

Increase or decrease in periods when demand is unexpectedly high or low.

What event began the rapid and sustained economic growth that continues as a modern phenomenon?

Industrial Revolution

The _______ revolution was important to modern economic growth.

Industrial revolution

If a family's income does not increase as fast as the price of the goods and services that it consumes, its standard of living will decline. The scenario describes the problem with _______.

Inflation

Real GDP unemployment and ________ are the main statistics used by economists to assess the health of the economy.

Inflation

Which of the following are the main statistics used by economist to assess the health of the economy? Check all that apply

Inflation and unemployment

__________ prices are prices and wages that change very little in the short run.

Inflexible

The aggregate expenditure model assumes perfectly _________ prices while the aggregate demand-aggregate supply model allows for ________ prices.

Inflexible; flexible

Firms try to predict future trends so that they can ____________.

Invest only in projects that are likely to succeed

Which one of the following is the best reason real GDP is an important measurement for an economy?

It is a monetary measure that allows for comparison of a nation's output across time.

The distinction between an increase in output versus an increase in output per person can be made when discussing _______.

Modern economic growth

Which of the following represents the three consequences of a decline in demand in the short run with inflexible prices?

No changes in prices, a decline in output, and a surge in unemployment

The dollar value of all goods and services produced within the borders of a country by using current prices is known as _________.

Normal GDP

In the short run, as a result of inflexible prices, economies are forced to respond to demand shocks primarily through changes in __________ and __________.

Output; employment

GDP per capita means GDP

Per person

A(n) ______________ demand shock refers to a situation in which demand turns out to be higher than expected. A(n) ____________ demand shock refers to a situation in which demand turns out to be lower than expected. (Enter one word in each blank.)

Positive; negative

Purchasing ______________ _____________ adjusts for the fact that prices are lower in some countries than others. (Enter one word in each blank.)

Power parity

Unlike nominal GDP, real GDP is adjusted for _________ level changes. (Enter only one word.)

Price

In the short run:

Prices are sticky

_____GDP or adjusted GDP is an important measure of output because it allows valid comparisons between different years.

Real

The measure of the market value of all final goods and services produced in a given year, adjusted for price changes, is:

Real GDP

How does real gross domestic product (GDP) differ from nominal GDP?

Real GDP controls for price changes, while nominal GDP does not.

If prices are fully flexible, there will be no short run fluctuations, which mean output will ___________ and unemployment will ___________ because quality demanded will always equal quantity supplied.

Remain constant; not change

Suppose the demand for cars rises and prices are flexible. Firms that produce cars will experience:

Rising prices, an increase in production, and an increase in employment Ex: this is merely an example of the law of supply. Rising prices cause an increase in quantity supplied. As a result of producing more, firms need to hire more labor, a variable input.

An unanticipated event that changes the demand or supply of goods and services either positively or negatively is called an economic ____________. (Use one word for the blank)

Shock

The prices of many goods are _______________, or slow to change.

Sticky

Since the prices of many goods and services take months to change, what type of prices are these?

Sticky prices

Prices that are inflexible in the very short run are referred to as ________; while prices in the long run are referred to as _________.

Sticky; flexible

Which model assumes perfectly inflexible prices and wages?

The aggregate expenditures model

Decisions about savings and investment are complicated because

There must be a trade-off between current consumption and future consumption

Which of the following are true of the prices of many goods and services in the short run?

They are slow to change, they are inflexible, they are "sticky"

Economists do not consider financial investment to be the same as economic investment because financial investments.

Transfer ownership of old assets from one party to another; they do not pay for newly created assets.

The end result of inflation is a decrease in the purchasing power of money.

True

True or false: economists focus on just a few key statistics when trying to understand the health and trajectory of an economy.

True

True or false: short-run fluctuations in output and unemployment are the result of things not going according to plan.

True

True or false: short-run fluctuations in output and unemployment are the result of things not going according to plan.

True Reasoning be business cycle fluctuations due to shock throw markets into disequilibrium. As a result some adjustments will be necessary to bring Qd and Qs back into alignment.

A person who cannot get a job despite being willing to work and actively seeking work is considered

Unemployment

A supply shock is an:

Unexpected change in the production of goods and services

Business cycle fluctuations typically arise because:

actual demand ends up being lower or higher than expected

____________ about the future are particularly important for firms to consider.

expectations

If output prices were fully __________, output would remain constant and unemployment levels would not change

flexible

_______ in a country lead to high living standards

high rates of economic growth

A positive demand shock leads to _______

higher prices and higher employment.

Inflation occurs when there is ________.

A rising aggregate price level