Macro Economics Test 2
Which of the following institutional structures is most likely to promote growth?
A well-enforced system of patents and copyrights.
National Income
all income earned through the use of american owned resources. NDP - statistical discrepancy + net foreign factor income or add employee comp, rent, interest, proprietors income, coporate profit, and taxes on production and imports.
what does an economy need to experience modern economic growth?
an increase in output per person promote savings and interest
Savings are generated whenever:
current income exceeds current spending.
what are the two types of inflation
demand pull and cost push
Real income is found by:
dividing nominal income by the price index (in hundredths).
As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by:
dividing the annual rate of inflation into 70
Final goods and services refer to:
goods and services purchased by ultimate users, rather than for resale or further processing.
Between 1995 and 2012, the U.S. productivity rate
grew substantially compared to prior years, leading some economists to predict a long-lasting resurgence of productivity growth.
Higher rates of unemployment are linked with:
higher crime rates as the unemployed seek to replace lost income
Disposable income
income available for personal consumption and personal saving personal income- personal taxes
Real GDP is preferred to nominal GDP as a measure of economic performance because:
nominal GDP uses current prices and thus may over- or understate true changes in output.
Strong property rights are important for modern economic growth because:
people are more likely to invest if they don't fear that others can take their returns on investment without compensation.
The growth of GDP may understate changes in the economy's economic well-being over time if the:
quality of products and services improves.
A recession is defined as a period in which:
real domestic output falls.
Modern economic growth refers to countries that have experienced an increase in:
real output per person.
Demand shocks
refer to unexpected changes in the desires of households and businesses to buy goods and services.
What is the business cycle?
reoccurring increases and decreases in economic activity that is characterized by peak, recession, trough and growth phase. always on an up trending slope
What is frictional unemployment?
search unemployment and wait unemployment—for workers who are either searching for jobs or waiting to take jobs in the near future
The two topics of primary concern in macroeconomics are:
short-run fluctuations in output and employment and long-run economic growth.
Value added can be determined by:
subtracting the purchase of intermediate products from the value of the sales of final products.
what is irregular innovation?
such drastic changes such as the railroad or internet that require a massive investment but lead to a greater output
what is meant by "modern economic growth" .
sustained increases in real GDP per capita generated by increasing the output per personraise
The largest contributor to increases in the productivity of American labor is:
technological advance.
If intermediate goods and services were included in GDP:
the GDP would be overstated.
what is real income?
the amount of goods and services nominal income an buy
personal income
the earned and unearned income available to resource suppliers and others before the payment of personal taxes national income- taxes on production and imports- social security contributions- corporate income taxes-undistributed coporate profits+transer payments
what is nominal income
the number of dollars recieved by an individual for their resources
In the second quarter (three-month period) of 2001, U.S. nominal GDP increased but U.S. real GDP declined. We can conclude that:
the price level rose by more than nominal GDP.
what is full employment rate of unemployment?
the unemployment rate when there is no cyclical unemployment in the labor force. typically there is about 5-6%
what is structural unemployment?
those whose skills arent needed or dont have enough skills for the job
Cost-of-living adjustment clauses (COLAs
tie wage increases to changes in the price level.During a period of hyperinflation:
what is the cause productivity changes?
when extreme increases or decreases occur in the productivity and subsequently result in a booming/declining economy
What is demand-pull inflation?
when spending increases, the demand curve moves to the right and this increases prices "too much spending chasing too little goods"
If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP is:
$360 billion
If the rate of inflation is 12 percent per year, the price level will double in about:
5.8 years.
Why do you think macroeconomists focus on just a few key statistics when trying to understand the health and trajectory of an economy? Would it be better to try to make use of all possible data?
Because those statistics are relative constant month to month. I.e. Inflation..Housing Starts, Employment Numbers etc. [ It also makes is simpler for people to understand. When you use all possible data to look at a economy that is good but there error factor go;s way up!! I.e. Food and Fuel very widely in costs from month to month.
In a typical year, which of the following measures of aggregate output and income is likely to be the smallest?
Disposable income.
When do economists say full employment as occurring?
Economists say that the economy is "fully employed" when it is experiencing only frictional and structural unemployment. That is, full employment occurs when there is no cyclical unemployment.
most common approach for calculating GDP
Expenditures Approach
Which of the following results from firms holding inventories?
Firms can maintain production levels and adjust inventories in response to demand shocks.
Which of the following best explains why prices tend to be inflexible even when demand changes?
Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.
Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?
Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels
NDP
GDP - consumption of fixed capital
What are the elements of the formula used in calculating the GDP? Name them.
GDP = C + I + G + N(exports-imports) Expenditures Approach
How is economic growth measured?
GDP, unemployment, inflation
how to calculate real GDP
GDP/ GDP price index
Under what circumstances do rates of economic growth understate the growth of economic well-being?
Product quality has improved.
There are six main ingredients in economic growth. We can put them into three categories. What are the categories?
Supply Factor Demand Factor Efficiency Factor Six ingredients of economic growth Natural Resources Human Resources Capital Goods Technology The Demand Factor The Efficiency Factor
Explain is meant by the term "Underground Economy." Is the underground economy measured in some way?
The underground economy has been with us every since "people" came together in "forms" of government, and will be with us as long as government exists. The underground economy involves the exchange of goods and services, which are hidden from official view. Examples of underground activities will range from babysitting, "off the books", to the selling of narcotics. Over time, the underground economy has changed as lawmakers redefine what is legal or what is to be taxed. How far "underground" an activity is depends not only on its legal status but also on the capacity of government to enforce laws and/or collect taxes. The underground economy serves willing customers. However, the fact that it is hidden from official view may impose unique costs on participants (e.g., bribes), create opportunities for monopoly, reward a suboptimal scale of operations, or even encourage violence.
how are unemployment and inflation measured?
Unemployment rate=unemployed/labor force×100 Inflation is measured by CPI=(price of the most recent marketbasket in the particular year/price estimate of the marketbasket)×100
What is cyclical unemployment?
Unemployment that is caused by a decline in total spending and typically begins in the recession phase of the business cycle
what is the cause financial instability
Unexpected financial bubbles (rapid asset price increases) or bursts (abrupt asset price decreases) can spill over to the general economy by expanding or contracting lending, and boosting or eroding the confidence of consumers and businesses
what is the cause political events?
Unexpected political events, such as peace treaties, new wars, or the 9/11 terrorist attacks, can create economic opportunities or strains. In adjusting to these shocks, the economy may experience upswings or downswings.
what is the cause monetary factors?
When a nation's central bank shocks the economy by creating more money than people were expecting, an inflationary boom in output occurs. By contrast, printing less money than people were expecting triggers an output decline and, eventually, a price-level fall.
what is recession?
a period of decline outcome, income, and employment. it leads to a decline in GDP and is a large contributing factor to unemployment.
In the treatment of U.S. exports and imports, national income accountants:
add exports, but subtract imports, in calculating GDP.
(Consider This) When making a capital stock and reservoir analogy, the:
inflow from the river is gross investment.
what triggers the inner business cycle?
irregular innovation productivity changes monetary factors political events financial instablity
define inflation
is a rise in the general level of prices. When inflation occurs, each dollar of income will buy fewer goods and services than before. Inflation reduces the "purchasing power" of money.
Skeptics of the 1995-2012 rise in the average rate of productivity growth say that:
it is too soon to judge whether the high productivity advances between 1995 and 2012 are long lasting or transitory.
The percentage of the working-age population in the labor force (= employed + officially unemployed) is called the:
labor force participation rate.
Most economists agree that the immediate determinant of the volume of output and employment is the: level of total spending.
level of total spending.
natural rate of
no cyclical unemployment and the economy is reaching its potential output
