Mcgraw Hill SmartBook Econ

structural unemployment

"composition" - changes over time in consumer demand and technology alter the structure of the total demand for labor (buggy wheel maker - new software)

If a banks reserves are $5000 and the required reserves are $4000, how much money do they have in excess reserves?

$1000

Which of the following will result from the depreciation of the US dollar relative to other currencies?

(1) A decrease in the price, in terms of the other currencies, of US goods (2) An increase in US net exports

What is ECONOMIC GROWTH?

(1) An outward shift in the PRODUCTION POSSIBILITIES CURVE that results from an increase in resource supplies or quality or an improvmeent in technology; (2) an increase of real OUTPUT (GDP) or real OUPUT PER CAPITA.

Keynes proposed what two different policies that a government might pursue to close a recessionary expenditure gap and achieve full employment?

(1) Decrease taxes (2) Increase government spending

What are some possible reasons for the slow down in productivity growth rates starting in 2010?

(1) High debt levels that had accumulated. (2) Recent products like Internet apps have a very small effect on GDP.

Which of the following comprise technological advancement?

(1) New managerial methods (2) Innovative production techniques (3) New forms of business organization

Select the five factors that together appear to explain changes in productivity growth rate.

(1) Technological advance (2) Resource allocation (3) Education and training (4) Quantity of capital (5) Economies of scale

Which of the following is likely to occur when aggregate expenditures are so high that the equilibrium level of GDP is beyond the potential output?

(1) The economy is likely to produce either at potential or just above potential output (2) The economy is likely to experience demand-pull inflation (3) Nominal GDP is likely to increase, but real GDP is not likely to increase

Which of the following statements are true of investment schedule and investment demand curve?

(1) The investment demand curve is based upon and determined b the real rate of interest. (2) The investment schedule is the amount of investment forthcoming at each level of GDP.

Equilibrium GDP is the desirable level of output for which of the following reasons?

(1) The total quantity of goods produced equals the total quantity of goods purchased (2) There is no increase in inventories of goods (3) There is no excess of total spending

Which of the following are used by economists to define and measure economic growth?

(1) an increase in real GDP occurring over some time period (2) an increase in real GDP per capita occurring over some time period

What are the two ways that equilibrium GDP will change in a private closed economy?

(1) changes in investment schedule (2) changes in consumption schedule

Which of the following are growth-promoting institutional structures?

(1) efficient financial institutions (2) competitive market systems (3) patents and copyrights (4) strong property rights (5) free trade

Two ways in which the rule of 70 may be applicable are __________.

(1) estimating how long it will take saving accounts to double at various interest rates. (2) estimating how long it will take the price level to double at various percentage rates of inflation.

What are the main sources of increasing returns in recent years?

(a) Use of more specialized inputs as firms grow. (b) Spreading of development costs. (c) Simultaneous consumption by consumers. (d) Network Effects. (e) Learning by doing. Increasing returns mean higher productivity and lower per-unit production costs.

Instability of investment

-Variability of expectations (unsure of future) -Durability (most capital goods= durable, some replaced, so investment depends) -Irregularity of innovation (new innovation could spur competition--> ex) computers and firms were expected to invest in them) -Variability of profits (if profits are high- will be able to invest more, but if low they won't invest as much)

B. Factors that explain the variability/fluctuations of investment:

-Variability of expectations= business expectations change quickly when some event suggests a change (change in exchange rates, trade barriers, legislative action, stock market prives, gov policies, war, etc) -Durability= Capital goods have indefinite useful life spans (might replace achiness, or just repair the older machines) -Irregularity of innovation= new products/processes stimulate investment -Variability of profits= High current profits generate optimism in future profitability of new investments/ low profits generate doubt future of investments

Shifts of Investment Demand Curve

-expect greater rates of return on their investments increases investment demand (shift to right) -expect lower rates of return on investment decreases investment demand (Shifts to left) -acquisition, maintenance, operating costs, business taxes, technological change, stock of capital goods, planned inventory changes, expectations

Income consumption and saving

-is a direct relationship! -primarily determined by disposable income -Consumption schedule is the planned household spending -Saving schedule= DI minus C

In a private closed economy, when aggregate expenditures equal GDP:

. planned investment equals saving.

the marginal propensity to consume is .9 then the marginal propensity to save must be

.1

how many terms can board of governors members have

1 term

the multiplier can be calculated by

1(1-MPC)

What is the EFFICIENCY FACTOR in economic growth? (see Determinants of Growth)

1.) Changes in how well an economy achieves ALLOCATIVE and PRODUCTIVE efficiency.

What are the four SUPPLY FACTORS of economic growth? (see Determinants of Growth)

1.) Changes in the quantity and quality of resources. 2.) Changes in the quantity and quality of human resources. 3.) Changes in the stock of capital goods. 4.) Improvements in technology.

What is the DEMAND FACTOR of economic growth? (see Determinants of Growth)

1.) Changes in total spending.

MULTIPLIER EQUATIONS

1/1-MPC 1/MPS Change in GDP= multiplier x intitial change in spending Multplier= change in real GDP/intitial change in spending

The multiplier is

1/MPS

If nominal interest rate is 18 percent and the real interest rate is 6 percent the inflation rate is

12 percent

terms for board of governors members are _ years

14

Under the rule of 70, if the GDP per capita growth rate in the United States is 2.3%, standards of living double every:

30.43 years

How many different factors are there when discussing DETERMINANTS OF ECONOMIC GROWTH?

4 SUPPLY FACTORS - Changes in physical and technical agents of production. 1 DEMAND FACTOR - There will be no unplanned increases in inventories and resources will remain fully employed because of increased demand. 1 EFFICIENCY FACTOR - The economy must use its resources in the lease costly way (productive efficiency) to produce the specific mix of goods and services that maximizes peoples well-being (allocative efficiency). Expanded production and utilization of all resources not enough--need efficiency. (Details on other card.)

how long are the terms of the chairperson of the Board of Governors

4 years

Assume the MPC is 2/3. If investment spending increase by 2 billion the level of GDP will increase by

6 billion

break even income

= income level at which households plan to consume their entire incomes (C=DI) (saving at zero)

Per-unit production cost

= total input cost/units of output

multiplier effect

A change in spending changes real GDP more than the initial change in spending -multiplier= change in real GDP/ initial change in spending OR -change in GDP= multiplier x intial change in spending If a $100B increase in GDP results from $20B change in spending, what is the multiplier? (100/20) If there is a $50 increase in spending and we know the multiplier is 4, what is the change in GDP? (4 x 50)

What are INCREASING RETURNS?

An increase in a firm's output by a larger percentage than the percentage increase in its inputs.

Why is it that poorer countries can develop more quickly than richer countries?

At this stage, the growth of real GDP PER CAPITA is limited to about 2% per year for richer countries; to continue to grow, they must invent and apply new tech. Poorer countries can at a faster rate because they can simply adopt the institutions and tech developed in richer countries.

The center authority of the US money and banking system is the _ of _ of the Federal Reserve System

Board of Governors

_ are debt contracts that are issued most frequently by governments and corporations

Bonds

When consumption and savings are graphed relative to REAL GDP, an increase in personal taxes will shift

Both the consumption schedule and the savings schedule downwards

The investment curve will shift to the right as a result of

Business becoming more optimistic about future business conditions

What outlets do firms have to sell their output?

Business markets; Consumer markets

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because:

C. a portion of a tax cut will be saved.

Other things equal, if $100 billion of government purchases (G) is added to private spending (C + Ig + Xn), GDP will:

C. increase by more than $100 billion.

Early in the 20th century, congress decided that which of the following were essential for an efficient banking system?

Centralization public control

Lowering the reserve ratio enhances the ability of banks to do what?

Create new money

Economists say that the economy is at "full employment" when the:

Cyclical unemployment rate is zero

. If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:

D. 22 percent.

If the dollar appreciates relative to foreign currencies, we would expect:

D. a country's net exports to fall.

What are the two ways Economic growth can be measured?

Economic growth can be measured either as an increase in real GDP over time or as an increase in real GDP per capita over time.

A percentage rate of growth per quarter or per year

Economic growth is calculated as:

Literacy and widespread ____ is the growth-promoting institutional structure that contributes to a productive labor force.

Education

The two types of investment in human capital are on-the-job training and formal _____.

Education

Full employment

Efficiency factor is when an economy must achieve economic efficiency as well as ___________ ___________ to reach its full production.

Wen prices are sticky in the short-run, the economy is forced to respond by changes in:

Employment Output

Which of the following are true of borrowing from the Federal Reserve Banks by commercial banks?

Enhances the commercial banks' ability to extend credit increases reserves of the commercial banks

Expected returns are influenced by:

Expectations about future business conditions Technology Degree of capacity (unused capital) Business taxes

__________ are included as part of U.S. GDP because they create jobs and income when purchased by foreigners.

Exports

True or false: Equilibrium GDP always occurs at the full-employment GDP.

False

In the United States, the monetary authorities are members of the Board of Governors of the _ _ System

Federal Reserve

The _ _ can make available a particular quantity of money and can change that amount through its policy tools

Federal Reserve

The banking crises of 1907 motivated Congress to appoint the National Monetary Commission to study the monetary and banking problems of the economy, which resulted in the creation of the _ _ Act of 1913

Federal Reserve

When inflation occurs, each dollar of income will buy ____ goods and services than before.

Fewer

Identify all of the consequences of unexpected lower total spending in the short-run when prices are sticky.

Firms cut back on production GDP declines Unemployment rises Firms sell fewer units of output Fewer items are purchased

business cycles

Fluctuations between periods of economic growth and recession, or periods of boom and bust

Economic growth

Frantic paces on jobs, worker burnout, and alienated employees are all effects of:

____ unemployed workers live in areas where jobs exist and they have marketable skills, while ____ employed workers do not.

Frictionally; Structurally

Efficiency factor is when an economy must achieve economic efficiency as well as ____ to reach its full production potential.

Full employment

The net export schedule lists the amount of net exports that will occur at each level of

GDP

The net export schedule lists the amount of net exports that will occur at each level of _______.

GDP

The formula for a GDP gap is:

GDP gap = actual GDP - potential GDP

Which of the following describe why unemployment rates are higher for African Americans and Hispanics than for whites?

Greater concentration in lower-skilled occupations Discrimination in the labor market Lower rates of educational attainment

The expansion of total output relative to population results in which of the following?

Higher standards of living. Rising real wages. Rising incomes.

Purchase

Households, businesses, and government must ___________ the economy's expanding output of goods and services in order to achieve higher production potential created by supply factors.

- Inefficiency in the use of resources may translate into higher costs of goods and services and lower profits which may slow innovation - Low spending on investment may cause insufficient spending and unemployment - Unemployment caused by insufficient total spending may lower the rate of new capital accumulation and delay expenditures on research

How are the supply, demand and efficiency factors are related:

Which of the following cannot be properly be called a part of infrastructure?

Human capital

- Global warming - Pollution - Ozone depletion

Identify the negative externalities that result from industrialization:

$400,000

If country A has a total input of labor hours of 20,000 hours and the productivity is $20, then real GDP in country A is:

Workers moving over time from low-productivity to high-productivity employment refers to which of the factors of productivity growth?

Improved resource allocation.

In the U.S., increases in REAL GDP are mostly the result of what?

Increases in LABOR PRODUCTIVITY. The increase in labor productivity can bee attributed to technological progress, increase in the quantity of capital per worker, improvements in the education and training of workers, the exploitation of economies of scale, and improvements in the allocation of labor across different industries.

Increases in capital are important to productivity growth because:

Increases in the quantity and quality of capital make workers more productive

Identify the supply factors that are "determinants" of economic growth.

Increases in the quantity and quality of natural resources. Increases in the quantity and quality of human resources. Increases in the supply of capital goods. Improvements in technology.

What are NETWORK EFFECTS?

Increases in the value of a product to each user, including existing users, as the total number of users rises.

A situation in which a given percentage increase in the amount of inputs a firm uses leads to an even larger percentage increase in the amount of output the firm produces is called _____ returns

Increasing

____ reduces the purchasing power of money.

Inflation

Real Interest Rate

Interest cost of the investment is computed by multiplying the interest rate, i, by the $1000 borrowed to buy the machine -If expected rate of return exceeds the interest rate, the investment should be undertaken (expects investment to be profitable) (R should exceed I)

__________ is an injection into the income-expenditure circular flow in a private closed economy.

Investment

Generally, technological advance is generated by the discovery of new _____ which allows ____ to be combined in improved ways that increase output.

Knowledge; resources

Multiplier and MPC directly related

Large MPC results in larger increases in spending multiplier= 1/ 1-MPC

Multiplier and MPS inversely related

Large MPS results in smaller increases in spending multiplier= 1/MPS

The number of persons unemployed for long periods as a percentage of the labor fore is ______ the overall unemployment.

Lower than

Which of the following are actions that the Fed may take to increase the money supply?

Lower the legal reserve ratio Buy government securities in the open market

Which of the following is correct

MPC+MPS=APC+APS

if the savings schedule is a straight line

MPS must be constant

Which of the following relations is not correct

MPS=MPC+1

Why the economy sees business cycle fluctuations rather than slow, smooth growth is a central issue of:

Macroeconomics

Which of the following are reasons why the average worker in the United States today produces more than his or her counterpart a century ago?

Modern workers have more physical capital available to use at work. Modern workers are better educated. Modern workers have better technology at work.

Which of the following are results of restrictive monetary policy?

Money supply falls interest rates rise

nominal income

Nominal income is money income. Real income - the amount of goods and services nominal income can buy. Real income is equal to nominal income divided by price index (in hundredths)

Which of the following are tools of monetary control that the Fed can use to alter the reserves of commercial banks

Open-market operations Reserve ratio Discount rate

What underlies an economy's growth of real wages and its standard of living?

Over long time periods, the growth of labor productivity underlies an economy's growth of real wages and its standard of living. 1973 - 1995: Productivity rose 1.5% annually. 1995 - 2009: Productivity rose 2.8% annually.

The growth-promoting institutional structure that involves giving inventors and authors the exclusive right to market and sell their creations is:

Patents and copyrights

The phase of the business cycle at which the economy is at full employment is known as a

Peak

per-unit production costs

Per-unit production cost equals total input cost divided by units of output. (costs are pushing the price level upward - demand-pull inflation demand is pulling it upward)

GIven the consumption schedule, it is possible to graph the relevant savings schedule by

Plotting the vertical differences between the consumption schedule and the 45 degree line

The competitive market system tends to drive the economy toward ____ efficiency and ____ efficiency.

Productive; allocative

- Better machinery - Well organized and managed production - Labor is reallocated from less-efficient industries to more-efficient industries - Improvement in health, education and training - Improvement in motivation

Productivity rises due to:

Households, businesses, and government must ____ the economy's expanding output of goods and services in order to achieve higher production potential created by supply factors.

Purchase

Real GDP = Hours of work x Labor productivity

Real GDP = ___________ x ___________

How much has REAL GDP PER CAPITA grown since 1950?

Real GDP per capita has grown at roughly a 2% annual rate since 1950.

Per person

Real GDP per capita is the amount of real output ___________ ___________ in a country.

Annual population growth exceeds that of real GDP

Real economic growth can be misleading when:

Three fold

Real per capita GDP has risen over ___________ since 1950.

Select examples of infrastructure.

Roads and bridges Water supply system

The number of years for a variable to double equals 70 divided by its annual growth rate is called the:

Rule of 70

At the point where the consumption schedule intersects the 45 degree line

Savings is 0

If the consumption schedule is linear, then the

Savings schedule will also be linear

The savings schedule is drawn on the assumption that as income increases

Savings will increase absolutely and as a percentage of income

Which of the following could be considered a cost of unemployment?

Severe psychological costs to the job loser Higher crime, suicide and divorce rates Wasted resources because a worker is not being utilized

Unexpected events that drive economic cycles and fluctuations are called economic _____.

Shocks

aggregate expenditures schedule

Shows the amount (C + Ig) that will be spent at each possible output or income level.

shifting consumption function:

Stock Market Surges (+ shift) Interest Rates Fall (+ shift) Home Ownership is Discouraged (+ shift) Taxes Fall (no shift) Cash for Clunkers Another recession is Looming (- shift)

An auto worker in Michigan who loses his job because the company relocated the plant to another country is an example of:

Structural unemployment

The six "determinants" of economic growth are grouped into three categories: one demand factor, four ____ factors and one efficiency factor.

Supply

17.5 years (# of years required to double = 70 / 4%)

Suppose the annual growth rate of GDP in the US is 4%. The GDP in the US will double in:

DI is heavily dependent on

TAXES

core inflation

Take out volatile food and energy prices from the CPI, isolating the core inflation - the underlying increases in the CPI.

_____ advancement and investment are related because they promote further economic investment in new machinery and equipment.

Technological

Select the five factors that together appear to explain changes in productivity growth rate.

Technological advance Quantity of capital Education and training Economies of scale Resource allocation

the investment demand curve will shift to the right as a result of

Technological programs

What does growth accounting attribute increase in REAL GDP to?

The AMOUNT OF LABOR being employed or to increases in the PRODUCTIVITY OF LABOR being employed.

Stability

The Consumption and Saving schedules are typically stable unless deliberately shifted by the government

Who establishes reserve requirements or the fraction of checking account balances that banks must maintain as currency reserves?

The Fed

The United States' 12 Federal Reserve banks act as a central bank because their policies are coordinated by _

The Fed's Board of Governors

Working-age

The fraction of the ___________-___________ population that is in the labor force is called the labor-force participation rate.

peak

The height of an economic expansion when real GDP stops rising

What is MODERN ECONOMIC GROWTH?

The historically recent phenomenon in which nations for the first time have experience sustained increases in real GDP per capita.

Dissaving means

The households are spending more than their current incomes

Which of the following helps explain why the growth rate in the United States has been positive during the 1900s?

The increase in labor productivity

What is HUMAN CAPITAL?

The knowledge and skills that make a person productive.

The real interest rate is

The percentage increase in purchasing power that the lender receives on a loan

What is LABOR-FORCE PARTICIPATION RATE?

The percentage of the working-age population that is actually in the labor force.

An expansion is a period in which:

The price level may rise Output rises

MPC

The proportion or fraction of any change in income consumed = the marginal propensity to consume (MPC) = (change in comsumption/ change in income)

Demand

The purchase of the economy's expanding goods and services by households, businesses, and the government is known as the ___________ factor.

deflation

When the CPI declines from one year to the next

leakage

Withdrawal of spending from the economy's circular flow of income and expenditures.

Economic growth is normally calculated as a percentage rate of growth per quarter or per ____.

Year

Which of the following will not cause the consumption schedule to shift

a change in consumers income

The growth-promoting institutional structure that involves prices and profits serving as signals to guide production is called:

a competitive market system

The relationship between consumption and disposable income is such that

a direct and relatively stable relationship exist between consumption and income

Aggregate demand

a schedule or curve that shows the totally quantity of good and services demanded (purchased) at different price levels; Household, businesses, governments domestically and abroad; Relationship btw price level and amount of real GDP is inverse/negative - when price level rises, the quantity of real GDP demanded decreases, vise versa

Aggregate supply

a schedule or curve that shows the totally quantity of good and services supplied (produced) at different price levels

investment schedule

a table of numbers that shows the amounts firms plan to invest at various possible values of of real gross domestic product

Efficiency wages

a wage that minimizes wage cost per unit of output by encouraging greater effort or reducing turnover

The __________ helps to explain the situation of massive unemployment, as well as to better understand how an economy will react to such economic shocks as changes in tax rates as well as government and household spending.

aggregate expenditure model

Assume the economies consumption and savings schedule simultaneously shift downward. This must be a result of

an increase in personal taxes

Economists define and measure economic growth as:

an increase in real GDP per capita over some period of time

The investment demand curve will shift to the left as a result of

an increase in the exess production capacity available in industry

A positive GDP gap is associated with a recessionary expenditure gap. a consumption expenditure gap. a production expenditure gap. an inflationary expenditure gap.

an inflationary expenditure gap.

Investment is _______ of spending into the income-expenditure stream.

an injection

Equilibrium real GDP occurs where C + Ig = GDP in a private closed economy because this is where GDP equals the value of income. at this level of output, consumption creates sufficient total spending to purchase that spending level. this is where GDP equals the value of production. at this level of output, production creates sufficient total spending to purchase that output.

at this level of output, production creates sufficient total spending to purchase that output.

The investment demand curve will shift to the right as the result of:

businesses becoming more optimistic about future business conditions.

The Multiplier is defined as

change in GDP/Initial change in spending

The Multiplier is useful in determining

change in real GDP resulting from a change in spending

If C + Ig exceeds GDP, the economy will accumulate unplanned inventories, ordering will increase, and real GDP will rise. draw down inventories faster than planned, ordering will increase, and real GDP will rise. draw down inventories faster than planned, ordering will slow, and real GDP will fall. accumulate unplanned inventories, ordering will slow, and real GDP will fall.

draw down inventories faster than planned, ordering will increase, and real GDP will rise.

The investment demand slopes downwrd and to the right because lower real interest rates

enable more investment project to be undertaken profitably

The investment demand slopes downward and to the right because lower real interest rates:

enable more investment projects to be undertaken profitably.

The level of GDP at which the total quantity of goods produced equals the total quantity of goods purchased is the __________ level of output.

equilibrium

wealth effect

events that suddenly boost the value of existing wealth, tend to increase spending and reduce savings (shifts consumption schedule upward and saving downward)

An inflationary gap is the amount by which aggregate expenditures at the full-employment GDP:

exceed those required to achieve full-employment GDP

An inflationary expenditure gap is the amount by which aggregate expenditures at the full employment GDP equal those required to achieve the full employment GDP. exceed those required to achieve the full employment GDP. divided by the multiplier equal those required to achieve the full employment GDP. fall short of those required to achieve the full employment GDP.

exceed those required to achieve the full employment GDP.

the federal funds rate is the rate of interest that banks charge one another on overnight loans made from what?

excess reserves

When the reserve requirement is changed, this will result in a change in which of the following

excess reserves the money multiplier lending capacity of the banking system

banks with excess reserves desire to lend out their temporary excess reserves in the federal funds market because

excess reserves loaned out to other banks earn high rates of interest without sacrificing long-term liquidity

smaller reserves in the banking system produce results opposite to those under _ monetary policy

expansionary

interest-rate investment deals with . . .

expected rate of return the real interest rate investment demand curve

The immediate determinants of invesment spending are the

expected rate of return on capital goods and the real interest rate

Investment consists of

expenditures on new plants, capital equipment, machinery, inventories, etc

which of the following are benefits of the long-term appointments of board members

experienced membership independence from political pressures continuity

net exports (Xn)

exports minus imports (X - M)

A recessionary gap is the amount by which aggregate expenditures at full-employment GDP __________ those required to achieve full-employment GDP.

fall short of

A recessionary expenditure gap is the amount by which aggregate expenditures at the full employment GDP divided by the multiplier equal those required to achieve the full employment GDP. fall short of those required to achieve the full employment GDP. exceed those required to achieve the full employment GDP. equal those required to achieve the full employment GDP and net exports.

fall short of those required to achieve the full employment GDP.

true or false: the purchase of securities from the public decrease the lending ability of the commercial banking system

false

If the fed engages in open market operations such that Wahoo Banks total reserves increase, wahoo will find that it has excess reserves. it may supply these funds overnight in the

federal funds market

The growth-promoting institutional structures that involve banks and the stock and bond markets are called efficient __________ institutions.

financial

Economic growth is made possible by the:

four supply factors that shift the production possibilities curve outward

Although an economy may be at equilibrium GDP on the aggregate expenditure model, this does not mean that the economy is also at _______ real GDP.

full-employment; potential

A private closed economy is one without international trade or __________ spending.

government

A private open economy is a private economy that includes international trade but not __________ spending.

government

A high rate of inflation is likely to cause a

high nominal interest rate

if banks sell a bond to the Fed, their reserves _

increase

when federal reserve banks buy securities in the open market, what happens to commercial banks' reserves?

increase

Assuming the economy is operating below its potential output, an increase in net exports will increase aggregate expenditures but decrease real GDP. increase aggregate expenditures and real GDP. decrease aggregate expenditures but increase real GDP. decrease aggregate expenditures and real GDP.

increase aggregate expenditures and real GDP.

If the MPC is .70 and investment increases by 3 billion the equilibrium will

increase by 10 billion

Banks reducing their transaction deposits will do which of the following

increase the interest rate shrink the money supply

when the federal reserve banks purchase securities from commercial banks, what happens to the lending ability of the commercial banks

increases

Saving is called a leakage because it is a removal from the flow of aggregate consumption. goes directly to investment. is less than consumption. is put into the banking system.

is a removal from the flow of aggregate consumption.

Planned investment is called an injection because it is greater than consumption. goes directly to profit levels. comes from the banking system. is an addition to the flow of aggregate spending.

is an addition to the flow of aggregate spending.

Generally, technological advance is generated by the discovery of new __________ which allows __________ to be combined in improved ways that increase output.

knowledge; resources

When GDP is __________ than its equilibrium level, businesses will raise the rate of production, leading to more employment and consequently raising the levels of consumption and income.

lower

if the federal reserve _ the discount rate, it will become cheaper for banks to borrow reserves from the fed

lower

to achieve a _ federal funds rate, the Fed will use open-market operations to buy bonds from banks and the public

lower

When the Fed sells government bonds, which of the following elements make them attractive purchases for banks and the public

lower bond prices higher interest yields

Which of the following prompts banks, securities firms, and individual holders of government bonds to sell them to the Federal reserve banks?

lower interest higher bond prices

if the Fed increase the reserve requirement, the commercial bank would be forced to do which of the following?

lower its checkable deposits increase its reserves

When the Federal REserve banks sell government bonds, commercial banks' reserves are

lowered

It is difficult, if not impossible, for a country to boost its net exports by increasing its tariffs during a global recession. This is because other countries will respond in-kind by increasing U.S. imports and net exports. increasing U.S. exports and net exports. lowering U.S. exports and net exports. lowering U.S. imports and net exports.

lowering U.S. exports and net exports.

A tax that yields the same amount of tax revenue at each level of GDP regardless of the level of government purchases is called a __________ tax.

lump-sum

A tax that yields the same amount of tax revenue at each level of GDP regardless of the level of government purchases is called a:

lump-sum tax

the practical significance of the multiplier is that

magnifies initial change in spending into larger changes in GDP

Consumer Price Index (CPI)

main measure of inflation. used to adjust social security benefits and income tax brackets. Looks at 300 consumer goods and services. CP equals the price of the most recent market basket in the particular year divided by the price estimate of the market basket in 1982-1984 times 100.

A __________ economy includes both private and public (government) sectors.

mixed

What type of operations serve to control the nation's money supply and influence interest rates?

open-market

When society increases its inputs of resources and raises the productivity of those resources it can increase real __________ and __________.

output; wages

Personal Saving

part of disposable (after-tax) income not consumed

The growth-promoting institutional structure that involves giving inventors and authors the exclusive rights to market and sell their creations are called __________ and __________.

patents and copyrights

Real GDP per capita means GDP:

per person

unemployment rate

percentage of the labor force unemployed Unemployment rate -- Unemployed divided by labor force times 100

The amounts that business firms collectively intend to invest at each level of GDP is called their _______ investment.

planned

The amounts that businesses firms collectively intend to invest at each level of GDP is called their:

planned investment

During the 2007-2009 recession, which components of aggregate expenditures were significant contributors to the downturn?

planned investment spending; consumption

In a private closed economy, C + Ig = GDP, but two other characteristics of GDP at equilibrium are that saving and _______ investment are equal and there are no _______ changes in inventories.

planned; unplanned

When exports are greater than imports, net exports will be:

positive

The competitive market system tends to drive the economy toward __________ efficiency and __________ efficiency.

productive; allocative

The growth-promoting institutional structure that involves the ability of citizens to own land, houses and businesses is called private _____ rights

property

the federal reserve banks do not deal with the _ but rather, they interact with the government, commercial banks and thrifts

public

Households, businesses, and government must __________ the economy's expanding output of goods and services in order to achieve higher production potential created by supply factors.

purchase

If the real interst rate in the economy is (i) and expected rate of return from additional investment is (r), then more investment will be forthcoming when

r is greater than i

If the real interest rate in the economy is (i) and the expected rate of return on additional investment is r, then other things equal

r will fall as more investment is undertaken

When the government imposes a lump-sum tax on its citizens, this has the effect of _______ equilibrium real GDP by reducing both consumption and _______.

reducing; savings

consumption schedule

reflects the direct consumption-disposable income relationship (various amounts planned to consume at each disposable income)

When reserve ratios are raised, excess reserves are transformed into what?

required reserves

Raising the _ ratio forces banks to reduce the amount of checkable deposits they create through lending

reserve

The federal reserve targets the federal funds rate by manipulating the supply of what that are offered in the federal funds market?

reserves

Ideally, a nation acquires funds for investment spending on plant an equipment by __________ income.

saving

The investment _______ shows the amount of investment forthcoming at each level of GDP.

schedule

The investment __________ shows the amount of investment forthcoming at each level of GDP.

schedule

investment demand curve

shift right= if increase shift left= decrease

Other thing equal, a 10 percent decrease in cooperate income taxes will

shift the investment demand curve to the right

A new firm focused on creating and introducing a particular new product or employing a new production or distribution method is called a __________ firm.

start-up

To avoid overstating the value of domestic production, the amount spent on important goods in the U.S. must be subtracted from exports or total spending because __________.

such spending generates production a and income abroad

The six "determinants" of economic growth are grouped into three categories: one demand factor, four __________ factors and one efficiency factor

supply

Say's law says supply will equal demand. supply and demand create GDP. demand creates its own supply. supply creates its own demand.

supply creates its own demand.

The supply factors that are part of the "determinants" of economic growth include increasing the quality and quantity of natural and human resources, increasing the stock of capital and, improvement in __________.

technology

Equilibrium real output

the GDP at which the total quantity of final goods and services purchased (aggregate expenditures) = total quantity of final goods and services produced (the real domestic output); the real domestic output at which the aggregate demand curve intersects the aggregate supply curve

Multiplier effect

the effect on equilibrium GDP of a change in aggregate expenditures or aggregate demand - caused by a change in the consumption schedule, investment, gov expenditures, or net exports

MPS

the fraction of any change in income saved (change in saving/ change in income)

APS

the fraction of total income that is save (APS= saving/ income)

When we draw an investment demand curve, we hold consistant all of the following except

the interest rate

Foreign purchases effect

the inverse relationship between the net exports of an economy and its price level relative to foreign price levels; The rise in the price level reduces the quantity of US goods demanded as net exports

The investment demand schedule shows how expected rates of profit and real interest rates determine the level of GDP. how expected rates of profit and real interest rates determine the level of investment spending. the level of investment spending for a given level of GDP. the level of investment spending for a given level of saving.

the level of investment spending for a given level of GDP.

Real-balance effect

the tendency for the increase in price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level; Higher price level = less consumption spending

Interest-rate effect

the tendency for the increase in the price level to increase the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price level decreases) • By increasing the demand for money and consequently the interest rate, a higher price level reduces the amount of real output demanded

The multiplier effect means that:

there is a bigger chance in equilibrium GDP than the change in aggregate expenditures

Exports are included as a component of US aggregate expenditures because:

these are goods and services that created income in the US

discouraged workers

unemployed individual who is not actively seeking employment

It is undesirable for actual GDP to be less than the equilibrium level because there will be a(n):

unplanned decline in business inventories

if megan writes a check on her San Fransisco bank to Aaron, who deposits it in his Cleveland bank, how does the Cleveland bank collect the money represented by the check drawn against the San Francisco bank?

using the federal reserve banks

If an unintended increase in business inventories occurs:

we can expect businesses to lower the level of production

Other thing equal, f the real interest rate falls and business taxes rise

we will be uncertain as to the resulting change in investment

Borrowing

when a household borrows, it can increase current consumption beyond what would be possible if its spending were limited to its disposable income, necessitates lower consumption in the future when the debts that are incurred due to the borrowing must be repaid, increases borrowing also increases debt

Real interest rates

when real interest rates fall, households borrow more, consume more and save less! (low interest rate decreases loan payments and induces consumers to purchase automobiles and other goods bought on credit) (also diminishes saving)

Keynes's view is that the economy can operate with no unemployment on the production possibilities curve. without constraints on the production possibilities curve. with some unemployment inside the production possibilities curve. at full employment on the production possibilities curve.

with some unemployment inside the production possibilities curve.

frictional unemployment

workers who are either searching for jobs or waiting to take jobs in the near future. "frictional" implies economy does not operate smoothly without friction can be a bit of a delay -search unemployment -wait unemployment

saving schedule

-To find amount saved, subtract consumption from disposable income -dissaving when negative

The multiplier is defined as:

. change in GDP/initial change in spending.

What are START-UP FIRMS?

A new firm focused on creating and introducing a particular new product or employing a specific new production or distribution method.

A business cycle is:

A short-run alternation between economic upturns and downturns

lump-sum tax

A tax of a constant amount.

The ratio of capital to labor

An important source of increasing labor productivity is an increase in:

An increase in the ratio of capital to labor

An important source of increasing labor productivity is:

What is INFORMATION TECHNOLOGY?

New and more efficient methods of delivering and receiving information through the use of computers, fax machines, wireless phones, and the Internet.

Continual economic growth and increases in living standards are driven by:

New innovation New technologies

Which of the following comprise technological advancement?

New managerial methods. New forms of business organization. Innovative production techniques.

Historically, have surges in productivity and real GDP growth been indicative of long-lived trends?

No, skeptics have adopted a wait and see approach because with this recent rise in productivity and growth.

Six fold

Real GDP has increased over ___________ since 1950.

How much has REAL GDP grown in the US since 1950?

Real GDP in the US has grown at an annual rate of about 3.2% since 1950.

In the trough of a _____, output and employment "bottom out" at their lowest levels.

Recession

the size of the multiplier is equal to the

Reciprocal of the slope of the saving schedule

What are ECONOMIES OF SCALE?

Reductions in the average total cost of producing a product as the firm expands the size of plant (its output) in the long run; the economies of MASS PRODUCTION.

changes along schedules

Referred to a change in amount consumed

The Federal Reserve Banks deal with which of the following?

Commercial Banks thrifts Government

DI=

Consumption + Saving

Ideally, a nation acquires funds for investment spending on plant and equipment by _____ income.

Saving

Why are some countries today richer than others?

Some nations have experienced nearly two centuries of MODERN ECONOMIC GROWTH while others have only recently begun to experience it.

An upward shift of the savings schedule suggest

That the APC has decreased and the APS has increased at each GDP leve

at the point where the consumption schedule intersects the 45 degree line

The APC is 1.00

Supply

The six "determinants" of economic growth are grouped into three categories: one demand factor, four ___________ factors and one efficiency factor.

If there is a $100 decrease in spending and we know the multiplier is 5, what is the change in GDP?

-100 x 5= -$500 (decrease in GDP)

Non-income determinants of consumption and saving

-Amount of disposable income is the basic determinant -wealth, borrowing, expectations, interest rates

multiplier effect

-Deals with relationship between changes in spending and changes in real GDP (more spending= higher GDP, less spending= lower GDP) -Change in component of total spending leads to larger change in GDP (it determines how much larger the change will be/ the ratio of a change in GDP to the initial change in spending)

Investment spending in the United States tends to be unstable because

profits are highly variablw

The growth-promoting institutional structure that involves the ability of citizens to own land, houses and businesses is called private __________ rights.

property

Marginal Propensities (MPC)

proportion of a change in income consumed mpc= change in consumption/ change in income MPS + MPC= 1 (Always)

marginal propensities (MPS)

proportion of a change in income saved MPS= change in saving/ change in income

Which of the following are functions that the Federal Reserve Banks perform?

providing for check collection issuing currency setting reserve requirements and holding reserves lending money

Labor productivity is:

real output per hour of work

Which of the following actions are undertaken by the Federal Reserve Bank in a restrictive monetary policy?

sells government bonds in the open market increase reserve requirement increases discount rate

The wealth effect is shown graphically as a

shift of the consumption schedule

The wealth effect is shown graphically as a:

shift of the consumption schedule.

If trents MPC is .80 this means that he will

spend eight tenths of any increase in his disposable income

The MPC for an economy is

the slope of the consumption schedule or line

The greater the marginal propensity is

the smaller is the marginal propensity to save

labor force

the total number of workers, including both the employed and the unemployed

If the consumption schedule shift upwards and the shift was not caused by a tax xhange, the savings schedule

will shift downward

Economic growth is normally calculated as a percentage rate of growth per quarter or per __________.

year

Economic growth

What reduces the burden of scarcity?

which of the following will cause a movement down along an economies consumption schedule.

a decrease in disposable income

investment decision

a marginal-benefit-marginal-cost decision (businesses will invest in all projects that expected rate of return exceeds the interest rate)

Productivity

a measure of average output or real output per unit of input = total output/total inputs

When there is overproduction of goods leading to output levels above equilibrium GDP, this results in:

a piling up of unsold goods and a cutback in production rates

A negative GDP gap is associated with a production expenditure gap. an inflationary expenditure gap. a consumption expenditure gap. a recessionary expenditure gap.

a recessionary expenditure gap.

45 degree line

a reference line (the space between disposable income line and consumption line= the savings)

When government spending and taxes are equal, government spending will have a greater impact on aggregate expenditures and GDP because:

aggregate expenditures are impacted by only a fraction of the tax, T*MPC; part of the tax is paid out of income that would otherwise have been saved

How many of the federal reserve banks implement the basic policy decisions of the Board of Governors?

all 12

Investment spending in the United States tends to be unstable because

all of these contribute to instability

45-degree line on a graph relating consumption and income shows:

all the points at which consumption and income are equal.

When an economy uses its resources to maximize people's well-being by producing a specific mix of goods and services, it is called:

allocative efficiency

main nonincome determinant:

amount of disposable income is the main determinant!

planned investment

amounts business firms collectively intend to invest at each level of GDP

injection

an addition of spending into the income-expenditure stream: any increment to consumption (C), investment (Ig), Government purchases (G), or net exports (Xn)

Immediate short run aggregate supply curve

an aggregate supply curve for which real output, but not the price level, changes when the aggregate demand curve shifts; a horizontal aggregate supply curve that implies an inflexible price level

Short run aggregate supply curve

an aggregate supply curve relevant to a period of time in which input prices (particularly nominal wages) do not change in responses to the price level

If for some reasons households become increasingly thrifty, we could show this by

an upward shift in the savings schedule

As disposable income increases, consumption

and savings both increase

potential output

at NRU, the economy is said to be producing its potential output

GDP __________ is the desired level of output because total spending is just sufficient to purchase total output.

at equilibrium

The view held by classical economists is that the economy will operate without constraints on the production possibilities curve. with no unemployment on the production possibilities curve. with maximum efficiency within the production possibilities curve. at full employment on the production possibilities curve.

at full employment on the production possibilities curve.

When GDP is _______ its equilibrium level, businesses will raise the rate of production, leading to more employment and consequently raising the levels of consumption and income.

below

which of the following are actions that the Fed may take to increase the money supply

buy government securities in the open market lower the legal reserve ratio

What are the two ways that equilibrium GDP will change in a private closed economy?

changes in investment schedule; changes in consumption schedule

When __________ over many years, an apparently minor difference in the rate of growth becomes highly significant.

compounded

When many products and services can satisfy large numbers of consumers at the same time it is called simultaneous __________.

consumption

the central bank accepts as _ from banks and thrifts any portion of their mandated reserves not held as vault cash

deposits

When the dollar __________ relative to other currencies it enables people abroad to obtain more dollars with each unit of their own currency.

depreciates

What is the interest rate charged on loans from the Fed to banks in their district?

discount rate

The Federal Reserve focuses monetary policy on the interest rate that it can best control: the federal _ rate

funds

when the commercial banks lend new reserves, the money supply _

increases

If 100 percent of any change in income is spent, the multiplier will be

infinitely large

Human capital refers to:

investment in education and training

GDP gap

is the actual GDP minus the potential GDP

Real GDP = hours of work multiplied by

labor productivity

The numerical value of the multiplier will be smaller the

larger the slope of the saving schedule

The purchase of securities from the public increases the _ ability of the commercial banking system

lending

One of the consequences of a no-growth policy is that it:

limits growth in poor nations

Although an economy may be at equilibrium GDP on the aggregate expenditures model, this does not mean that the economy is also at _______ real GDP.

long-run; potential; full-employment

A(n) _______ open economy includes both private and public (government) sectors.

mixed

An economy that includes consumption spending, investment spending, government spending, taxes and international trade is called a:

mixed economy

The reserve ration, open-market operations, and the discount rate are tools of _ policy used by the Fed to alter the reserves of commercial banks

monetary

In annual percentage terms, investment spending in the united states is

more variable than REAL GDP

Other things equal, a decrease in the real interest rate will

move the economy downward along its existing investment demand curve

smaller reserves in the banking system promote which of the following results

multiple contraction of the nations money supply a decrease in the supply of federal funds an increase in interest rates

as MPC gets smaller

multiplier gets smaller

one can determine the amount of any level of total income that is consumed by

multiplying total income by the APC

full-employment rate of unemployment

natural rate of unemployment (NRU) - the economy is said to be producing its potential output.

Total tax revenues minus transfer payments is called government's __________ tax revenues.

net

The expenditure components of real GDP purposely excluded in a private closed economy are investment and net exports. saving and investment. the government sector and investment. net exports and the government sector.

net exports and the government sector.

What is the RULE OF 70?

A method for determining the number of years it will take for some measure to double, given its annual percentage increase. Ex: To determine the number of years it will take for the price level to double, divide 70 by the annual rate of inflation.

recession

A slowdown in economic activity over a period of time. During one of these periods all of the following things decline: Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation. Meanwhile bankruptcies and the unemployment rate rise.

Suppose a familys consumption exeeds its disposable income. This means that

APC is greater than 1

Economic growth

According to McConnell, better working conditions are best brought about by:

What is LEARNING BY DOING?

Achieving greater PRODUCTIVITY and lower AVERAGE TOTAL COST through gains in knowledge and skill that accompany repetition of a task; a source of ECONOMIES OF SCALE.

When an economy uses its resources to maximize people's well-being by producing a specific mix of goods and services, it is called _____ efficiency.

Allocative

From where does the president select the chairperson of the Board of Governors?

Among the Board members

Which of the following are used by economists to define and measure economic growth?

An increase in real GDP occurring over some time period. An increase in real GDP per capita occurring over some time period.

Given the expected rate of return on all possible investment opportunities in the economy

An increase in the real rate of interest will reduce level of investment

What are FOLLOWER COUNTRIES?

As it relates to ECONOMIC GROWTH, countries that adopt advanced technologies that previously were developed and used by LEADER COUNTRIES.

What are LEADER COUNTRIES?

As it relates to ECONOMIC GROWTH, countries that develop and use advanced technologies, which then become available to FOLLOWER COUNTRIES.

Taxation

Change in taxes will shift the consumption and savings schedule! (increase in taxes will reduce both consumption and savings) (decrease in taxes means upward shift in both consumption and savings)

Simultaneous Shifts

Changes in wealth, expectations, interest rates, and household debt will shift the consumption schedule in one direction and saving schedule in opposite direction

Which of the following are growth-promoting institutional structures?

Competitive market system. Strong property rights. Efficient financial institutions. Patents and copyrights. Free trade.

When ____ over many years, an apparently minor difference in the rate of growth becomes highly significant.

Compounded

The formula for the ______ _____ _____ is the price of the most recent market basket in a particular year divided by the price estimate of the market basket in 1982-1984 multiplied by 100.

Consumer Price Index

The index most widely used by the government and the private sector to measure changes in the cost of living is the:

Consumer Price Index

What do CRITICS argue is wrong with rapid economic growth? What do DEFENDERS argue?

Critics say that it adds to environmental degradation, increase human stress, and exhausts the earth's finite supply of natural resources. Defenders say that it is the primary path to the rising living standards nearly universally desired by people, that it need not debase the environment, and that there are no indications that we are running out of resources. Growth is based on the expansion and application of human knowledge, which is limited only by human imagination.

Saving schedule=

DI minus C

Too much spending chasing too few goods is the essence of _____-_____ inflation.

Demand-pull

An increase in the _ rate discourages commercial banks from obtaining additional reserves from the Federal Reserve Banks

Discount

The interest rate that Federal Reserve Banks charge on loans they grant to commercial banks is called the _

Discount rate

A worker who, after unsuccessfully seeking employment for some time, becomes frustrated and drops out of the labor force is defined as a _____ worker.

Discouraged

the official unemployment rate is understated because it does not count which of the following as unemployed?

Discouraged workers

Automobiles, and refrigerators are examples of ____ goods while food and clothes are examples of _____ goods.

Durable; nondurable

Which of the following reduces the burden of scarcity?

Economic growth

- Higher quality of goods - A wider variety of goods - More goods and services

Economic growth allows a society to consume:

Factors of production

Economic growth is made possible due to ___________ that shift the production possibilities curve outward.

More current consumption while also increasing the capacity to produce more in the future

Economic growth lessens the burden of scarcity by allowing:

Outward shifting of the production possibilities curve

Economic growth made possible by the four supply factors is illustrated by the:

Reductions in per-unit production costs that result from increases in output levels lead to _____ of _____.

Economies of scale

The growth-promoting institutional structures that involve banks and the stock and bond markets are called efficient ____ institutions.

Financial

recessionary expenditure gap

The amount by which aggregate expenditures at the full-employment GDP fall short of those required to achieve the full-employment GDP.

inflationary expenditure gap

The amount by which an economy's aggregate expenditures at the full-employment GDP exceed those just necessary to achieve the full-employment level of GDP.

Real GDP per capita

The best economic growth measurement to compare living standards is:

What is GROWTH ACCOUNTING?

The bookkeeping of the supply-side elements such as productivity and labor inputs that contribute to changes in real GDP over some specific time period.

What is INFRASTRUCTURE?

The capital goods usually provided by the public sector for use by its citizens and firms. Ex: Highways, bridges, transit systems, wastewater treatment facilities, municipal water systems and airports.

- Productive - Allocative

The competitive market system tends to drive the economy toward ___________ efficiency and ___________ efficiency.

- Rising - Higher

The expansion of total output relative to population results in ___________ real wages and income and ___________ standards of living

Economic growth is made possible due to ____ that shift the production possibilities curve outward.

The factors of production

The invest ment demand curve portrays an inverse (negative ) relationship between

The real interest rate and investment

the number of years for a variable to double equals 70 divided by its annual growth rate

The rule of 70 states that:

The investment demand curve suggest that

There is an inverse relationship between the real rate of interest and the level of investment spending

Equilibrium GDP is the desirable level of output for which of the following reasons?

There is not an increase in inventories of goods. The total quantity of goods produced equals the total quantity of goods purchased. There is not an excess of total spending.

How can follower countries catch up to leader countries?

They can utilize technologies that have already been created.

natural rate of unemployment (NRU)

This is the real GDP that occurs when the economy is "fully employed."

What is LABOR PRODUCTIVITY?

Total output divided by the quantity of labor employed to produce it; the average product of labor or output per hour of work.

- how long it will take savings accounts to double at various interest rates - how long it will take the price level to double at various percentage rates of inflation

Two ways the rule of 70 may be applicable is estimating:

Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP, then:

U.S. real GDP will fall. (more imports)

On average, less-educated workers have higher ____ rates than workers with more education.

Unemployment

cyclical unemployment

Unemployment that is caused by a decline in total spending

Several possible sources of shocks that can cause business cycles include:

Unexpected political events Productivity changes Monetary factors Irregular innovation

Other nonincome determinants?

Wealth (more wealth/ more security and more consumption) Borrowing (hinders future consumption/more debt) Expectations (expect economy to do well, consumption will go up!) Real Estate Rates (when interest rates are low, consumption will go up) -all shift consumption schedule)

in the late 1990's the U.s stock marked boomed causing U.S consumption to rise. Economist refer to this outcome as

Wealth effect

- Pollution - Global warming - Environmental problems

What are three negative externalities resulting in rapid economic growth?

- An increase in real GDP occurring over some time period - An increase in real GDP per capita occurring over some time period

What is used by economists to define and measure economic growth?

- Increases in the quantity and quality of natural resources - Increases in the supply of capital goods - Improvements in technology - Increases in the quantity and quality of human resources

What supply factors are "determinants" of economic growth?

A no-growth policy amount industrial nations

What would limit the growth in poor countries because of reduced foreign direct investment and development?

Compounded

When ___________ over many years, an apparently minor difference in the rate of growth becomes highly significant.

compounded

When ___________ over many years, an apparently minor difference in the rate of growth becomes highly significant.

Productive

When an economy uses its resources in the least costly way to produce goods and services it is called ___________ efficiency.

Allocative

When an economy uses its resources to maximize people's well-being by producing a specific mix of goods and services, it is called ___________ efficiency.

Unplanned increases in inventory

When households, businesses, and the government purchase the economy's expanding output, resources remain fully employed and there are no:

cost-push inflation

When output and employment are both declining but general price level was rising. Rising prices that raise per-unit production cost at each level of spending.

demand-pull inflation

When resources are already fully employed, the business sector cannot respond to excess demands by expanding output. so the excess demand bids up the prices of the limited output

- Output - Income/wages

When society increases its inputs of resources and raises the productivity of those resources it can increase real ___________ and ___________.

which of the following will cause a movement up along an economies saving schedule

an increase in disposable income

the mulitplier effect means that

an increase in investment can cause GDP to change by a larger amount

unplanned changes in inventories

changes in inventories that firms did not anticipate; changes in inventories that occur because of unexpected increases or decreases of aggregate spending

more disposable income means more

consumption along a given consumption schedule -more DI, means more C and S

If the MPC is .8 and disposable income is 200$ then

consumption and savings can not be determined from this information

Dissaving occurs where:

consumption exceeds income.

Dissaving occurs when

consumption exeeds income

Teesas break even income is 10,000 and her MPC is .75. If her actual income is 16,000 her level of

consumption spending will be 14500

The aggregate expenditure schedule in a private closed economy is the sum of _______ plus planned _______.

consumption; investment

The aggregate expenditure schedule in a private closed economy is the sum of __________ plus planned __________.

consumption; investment

The formula for aggregate expenditures in an open mixed economy is __________+__________+__________+__________=GDP.

consumption; investment; government purchases; net exports

The formula for aggregate expenditures in an open mixed economy is _______+_______+_______+_______ = GDP.

consumption; investment; government spending; net exports

Modern economic growth has significantly increased the standard of living as well __________, social, political arrangements.

cultural

When GDP is above equilibrium, firms will __________ the rate of production.

cut

decline in disposable income:

decreases consumption by moving downward along a specific consumption schedule.

When the level of GDP is above the equilibrium level, businesses will respond to the unintended accumulation of unsold goods by:

decreasing the rate of production

The purchase of the economy's expanding goods and services by households, businesses, and the government is known as the __________ factor.

demand

the fed had the power to set the

discount rate

to restrict money supply, the fed may raise what

discount rate

Saving (S=

disposable income (DI) minus consumption (C )

The two types of investment in human capital are on-the-job training and formal __________.

education

Those who are working are defined as ____ and those who are not working but actively seeking work are defined as ____.

employed; unemployed

Net exports are calculated as total __________ minus total __________.

exports; imports

Determinants of aggregate supply

factors such as 1.Input prices - domestic resource prices, prices of imported resources 2.Productivity 3.Legal-institutional environment - business taxes and subsidies, gov regulations

Determinants of aggregate demand

factors such as consumption spending, investment, gov spending, and net exports that, if they change, shift the aggregate demand curve 1.Change in consumer spending - real consumer wealth, consumer expectations, household debt/borrowing, taxes 2.Changes in investment spending - interest rates, expected returns (expected future business conditions, technology, degree of excess capacity, business taxes) 3.Change in gov spending 4.Change in net export spending - national income abroad, exchange rates

A recessionary gap is the amount by which aggregate expenditures at full-employment GDP _______ those required to achieve full-employment GDP.

fall short of

A fundamental assumption behind Keynesian aggregate expenditures model is that prices in the economy are:

fixed

A fundamental assumption behind the Keynesian aggregate expenditure model is that prices in the economy are:

fixed

Okun's law

for evey 2 percentage point by which the actual unemployment rate exceeds the natural rate, a negative GDP gap of about 2 percent occurs

Efficiency factor is when an economy must achieve economic efficiency as well as __________ __________ to reach its full production.

full employment

A private closed economy is one without international trade or _______ spending.

government

The method used to identify the contribution to economic growth from increased capital, labor, and technological progress is known as:

growth accounting

A nation's real GDP depends on labor __________ multiplied by labor __________.

hours; productivity

Expectations

household expectations about future prices and income might affect current spending and saving (higher prices tomorrow means more likely to buy today to avoid the high prices) or saving because possible future recession (consumption will shift down and saving will shift up!)

Over time, when workers move from low-productivity to high-productivity employment, it is called:

improved resource allocation

If total spending is just sufficient to purchase an economy's output, then the economy is: in expansion. in debt. in recession. in equilibrium.

in equilibrium.

An increase in government spending will shift the aggregate expenditure schedule upward, as well as __________ the equilibrium level of real GDP.

increase

A decline in real interest rates will

increase the amount of investment spending

the goal for the federal reserve when it decreased the discount rate is to

increase transaction deposits increase the money supply increase reserves of the banks

If the amount of capital per worker __________, labor productivity will increase.

increases

Increases in capital are important to productivity growth because:

increases in the quantity and quality of capital make workers more productive

the saving schedule is such that as aggregate income increases by a certain amount, saving

increases, but by a smaller amount

A situation in which a given percentage increase in the amount of inputs a firm uses leads to an even larger percentage increase in the amount of output the firm produces is called __________ returns.

increasing

If an economy has an inflationary expenditure gap, the government could attempt to bring the economy back toward the full-employment level of GDP by _________ taxes or __________ government expenditures. increasing; increasing decreasing; decreasing increasing; decreasing decreasing; increasing

increasing; decreasing

The Federal funds rate is the rate of _ that banks charge one another on overnight loans made from temporary excess reserves

interest

Expansionary monetary policy will lower the _ rate to bolster borrowing and spending, which will increase aggregate _ and expand real output

interest demand

Expansionary monetary policy will lower the _ rate to bolster borrowing and spending, which will increase aggregate _ and expand real output

interest demand

The two components of aggregate expenditures in a private closed economy are consumption and gross private _______.

investment

The two components of aggregate expenditures in a private closed economy are consumption and gross private __________.

investment

the relationship between the real interest rate and investment is shown by the

investment demand schedule

Using the figure provided, it is evident that no levels of GDP above equilibrium are sustainable because _______ and ________ (no abbreviations) spending fall short of GDP.

investment; consumer

Saving is a __________ or withdrawal of spending from the economy's circular flow of income and expenditures.

leakage

Select all of the following that will cause productivity to rise.

Improvements in: Health, Training, Education, Motivation More and better machinery and natural resources Better organized and managed More-efficient industries

What are SUPPLY FACTORS?

In relation to growth: An increase in the availability of a resource, an improvement in its quality, or an expansion of technological knowledge that makes it possible for an economy to produce a greater output of goods and services

What are EFFICIENCY FACTORS?

In relation to growth: The capacity of an economy to combine resources effectively to achieve growth of real output that the supply factors (of growth) make possible.

What are DEMAND FACTORS?

In relation to growth: The increase in the level of aggregate demand that brings about the economic growth made possible by an increase in the production potential of the economy.

We need to redistribute wealth and income

In the anti-growth view, economic growth has not solved sociological problems such as poverty, homelessness, and discrimination becasue:

Keynes proposed what two different policies that a government might pursue to close a recessionary expenditure gap and achieve full employment?

Increase government spending; Decrease taxes

Identify all of the results of unexpected higher total spending in the short-run when prices are sticky.

Increased output, employment, and incomes GDP rises More goods and services are purchased

If the amount of capital per worker _____, labor productivity will increase.

Increases

The two supply-side elements of real GDP are:

Increases in hours worked. Increases in labor productivity.

According to McConnell, which of the following are reasons why teenagers have a much higher unemployment rate than adults?

Less geographic mobility Quit more frequently More frequently "fired" Lower skill levels

Consumption and Savings shift in opposite direction except for..

Lower taxes causes upward shifts in both C & S, higher taxes causes the opposite

lowering the discount rate encourages commercial banks to

obtain additional revenues

C + Ig + Xn = GDP is the formula for aggregate expenditures in a private _______ economy.

open

which of the following consists of the buying and selling of government bonds to and from the general public?

open market operations

Real GDP per capita means GDP

per person

Public investment in U.S. infrastructure like roads and bridges promotes __________ investment in new factories and retail stores.

private

When an economy uses its resources in the least costly way to produce goods and services it is called:

productive efficiency

The best economic growth measurement to compare living standards is:

real GDP per capita

The level of investment spending by firms is based upon the current _______ interest rate together with the investment _______ curve.

real; demand

The level of investment spending by firms is based upon the current __________ interest rate together with the investment __________ curve.

real; demand

expansion

recovery after a recession. The real GDP, income and employment rise.

Economic growth will __________ the burden of scarcity.

reduce

in contrast to investment, consumption is

relatively stable

The Fed can manipulate the _ in order to influence the ability of commercial banks to lend

reserve ratio

The Federal Reserve Bank sets _ which are the fractions of deposits account balances that banks must maintain as currency reserves.

reserve requirements

under _ monetary policy, the Federal Reserve will sell bonds, increase reserve requirements, or raise the discount rate

restrictive

A withdrawal of spending from the economy's circular flow of income and expenditures is also called:

saving

In the income-expenditure circular flow, investment is a replacement for the leakage of __________.

saving

Stability

saving schedules are stable unless altered by major tax decreases or increases (nonincome determinants frequently work in opposite directions and can be self-cancelling)

In the income-expenditure circular flow, investment is a replacement for the leakage of _______.

savings

When government imposes a lump-sum tax on its citizens, this has the effect of decreasing equilibrium real GDP by reducing both consumption and __________.

savings

Saving must equal planned investment at equilibrium GDP in the private closed economy because when this is so, spending and production will be the same, and there will be no unplanned inventory, or GDP, changes. GDP and production will be the same, and there will be no unplanned inventory, or investment, changes. spending and consumption will be the same, and there will be no unplanned inventory, or GDP, changes. consumption and production will be the same, and there will be no unplanned inventory, or investment, changes.

spending and production will be the same, and there will be no unplanned inventory, or GDP, changes.

If w e know that every time income increases by $2000, consumptions increases by $1600, w hat is the change in GDP w hen spending increases by $500? (multiplier= 1/1-MPC)

step 1) find MPC first? (1600/2000= .8) 2) 1/1-.8..... 1/.2 = 5 MULTIPLIER is 5 3) now have to find change in GDP so multiplier x initial change in spending 5 x 500= 25000

The amount spent on imported goods in the U.S. must be subtracted from exports or total spending because:

such spending generates production and income abroad

Which of the following will not shift the consumption schedule upward

the expectation of a future decline in the consumer index

Who aids the Board of Governors in making the basic policy decisions that provide monetary control of the US money and banking system?

the federal open market committee

C + Ig = GDP is:

the formula for aggregate expenditures in a closed economy

If business taxes are reduced and the real interest rate increases

the level of investment spending might either increase or decrease

Aggregate demand-aggregate supply model

the macroeconomic model that uses aggregate demand and aggregate supply to determine and explain the price level and real domestic output

The Fed's major goal is to control

the money supply

if all excess reserves are lent out, the decline in commercial bank reserves produces a decline in

the money supply

If the rate of return of a firm's potential project or the real interest rate increases or decreases, the size of the effect they will have on the equilibrium GDP is based on:

the multiplier

which of the following are results of greater reserves in the banking system?

the nations money supply expands the federal funds rate lowers the supply of federal funds increase

The rule of 70 states that

the number of years for a variable to double equals 70 divided by its annual growth rate

Equilibrium price level

the price level at which the aggregate demand curve intersects the aggregate supply curve

inflation

the rise in the general level of prices.. Inflation reduces the purchasing power of money. Inflation does not mean that all prices are rising.

The magnitude of the drop in real GDP that will occur when aggregate expenditures fall depends on how quickly the fall in aggregate expenditures occur. the time of year when aggregate expenditures fall. whether or not taxes change. the size of the marginal propensity to consume.

the size of the marginal propensity to consume.

It is undesirable for actual GDP to be less than the equilibrium level because there will be an:

unplanned decline in business inventories

When sales fall short of planned production output, the unsold output is known as _______ changes in inventory and is included in ______ investment.

unplanned; actual

If the MPC is .6 the multiplier will be

2.5

If the inflation rate is 10 percent and the real interest rate is 12 percen, the nominal interest rate is

22 percetn

If the MPS is only half as large as the MPC, the multiplier is

3

The fraction of the ___-____ population that is in the labor force is called the labor-force participation rate.

working-age

APC

the average propensity to consume (APC= consumption/ income)

A decrease in the aggregate expenditures causes a decline in real GDP that is greater than the decline in the aggregate expenditures schedule because the decrease in the aggregate expenditures is multiplied into a larger change in real GDP. consumers will decide to spend less if aggregate expenditures decline. Congress will act to lower real GDP. people will decide to save more.

the decrease in the aggregate expenditures is multiplied into a larger change in real GDP.

Wealth

the dollar amount of all the assets that it owns minus the dollar amount of its liabilities (all debt it owes - wealth= assets- liabilitity

The Federal Reserve Banks perform essentially the same functions for banks as those institutions perform for _

the public

The level of investment and spending by firms and the investment demand curve are based upon:

the real interest rate

The level of investment spending by firms and the investment demand curve are based upon:

the real interest rate

Menu costs

the reluctance of firms to cut prices during recessions (that they think will be short-lived) because of the cost of altering ad communicating their price reductions

Although an economy may be at equilibrium GDP on the aggregate expenditures model, this does not mean that the economy is also at

(1) full-employment (2) long-run (3) potential

The two supply-side elements of real GDP are:

(1) increases in labor productivity (2) increases in hours worked

Growth is an important economic goal because:

(1) it increases standards of living (2) it increases real wages and incomes (3) it increases a society's ability to resolve socioeconomic problems

Economic growth allows a society to consume:

(1) more goods and services (2) a wider variety of goods (3) higher quality goods

During the 2007-2009 recession, which components of aggregate expenditures were significant contributors to the downturn?

(1) planned investment spending (2) consumption spending

In a closed economy, two characteristics of equilibrium GDP are:

(1) savings and planned investment are equal (2) there are no unplanned changes in inventories

The unemployment rate equals:

(Labor force - employed)/ Labor force

Which of the following describes how to calculate the unemployment rate?

(Unemployed/labor force)X100

What contributed to the post-1995 increase in the average rate of productivity in the U.S.?

(a) Rapid technological change in the form of the MICROCHIP and INFORMATION TECHNOLOGY. (b) INCREASING RETURNS and lower per-unit costs. (c) Heightened global COMPETITION that holds down prices.

Average Propensities ( APC)

(fraction of total income consumed) APC= consumption/income APC + APS= 1 (always)

Average propensities (APS)

(fraction of total income saved) APS= saving/income

shifts on investment demand:

-Acquisition, maintenance, and operating costs (if costs more to keep up with capital then will decrease investment) -Business taxes (more taxes= less investment) -Technological change (forces to keep up/speeds up investment) -Stock of capital goods on hand (if too much on hand, then less investment, will decrease) -Planned inventory changes -Expectations

a rightward shift of the investment demand curve might be caused by

Business planning to increase their stock of inventories

Expected Rate of Return

Businesses buy capital goods only when think purchases will be profitable (if will increase output and sale's revenue) r= profit/cost

The difference between actual and potential GDP is called a GDP ______.

Gap

The supply of money is directly increased by the Federal Reserve Banks' purchase of what?

Government bonds

which of the following describe favorable business conditions under which banks desire to lend out their excess reserves in the federal funds market?

1. excess reserves held at the Federal reserve are highly liquid, but draw very little interest 2. excess reserves loaned out to other banks earn higher rates of interest and do not sacrifice long-term liquidity 3. normal day to day flows of funds rarely leave all banks with their exact levels of required reserves

the following highlight how bonds work

1. the series of payments made is called interest 2. an investor lends the government or a firm a certain amount of money for a certain period of time 3. The government or firm promises to make a series of payments in addition to returning the initial money at the end of a predetermined period of time

The labor force is the sum of the _____ and ____.

Employed; unemployed

The method used to identify the contribution to economic growth from increased capital, labor, and technological progress is known as:

Growth accounting

- It increased a society's ability to resolve socioeconomic problems - It increases real wages and incomes - It increases standards of living

Growth is an important economic goal because:

Workers in lower skilled occupations have ____ unemployment rates than workers in higher-skilled occupations.

Higher

What is REAL GDP PER CAPITA?

Inflation-adjusted output per person REAL GDP / POPULATION

What are the characteristics of MODERN ECONOMIC GROWTH?

Institutional structures that promote: SAVINGS, INVESTMENT, and DEVELOPMENT OF NEW TECH STRONG PROPERTY RIGHTS, PATENTS, EFFICIENT FINANCIAL INSTITUTIONS, EDUCATION, and COMPETITIVE MARKET SYSTEM.

trough

Output and employment "bottom out" at their lowest levels. Can be short-lived or quite long

True or false: Actual investment equals savings at all GDP levels.

True

Economists pay attention to small changes in economic growth because small changes in economic growth can make a big difference in the living __________ of a country.

standards

equilibrium GDP

GDP = C(consumers) + Ig(investments)

Labor productivity

Output per hour of work is the definition of:

Inflation exists when there is an increase in _____ over a sustained period of time.

Prices

When an economy uses its resources in the least costly way to produce goods and services it is called:

Productive efficiency