Unit 1- Basic Economic Concepts

Which of the following changes is most likely to cause economic growth?

An increase in human capital

What is P in the Quantity Theory of Money

Price level

The Phillips Curve

Shows the tradeoff between inflation and unemployment.

Hyperinflation is typically caused by

continuous expansion of the money supply to finance government budget deficits

To reduce the size of a country's national debt, a government could potentially take all of the following actions EXCEPT

finance spending by borrowing

Assume the government increases deficit spendingWhat will happen to the demand for loanable funds, the real interest rate, and private domestic investment?

-Demand increases-Real interest rate increases-Private investment decreases (QPI)

Which of the following will happen if tax revenues are less than the total government spending plus government transfer payments?

The national debt will increase.

What Is V in the Quantity Theory of money

Velocity

National Debt

the accumulation of all the budget deficits over time.

Crowding out refers to

A decrease in private investment due to increased borrowing by the government

A decrease in the policy rate accompanied by a decrease in income taxes will result in which of the following in the short run?

A decrease in unemployment

In increase in aggregate demand will cause what to the Phillips curve

A movement along a given SRPC

An increase in the expected inflation rate will cause which of the following?

A rightward shift in the short-run Phillips curve

Country X's economy is in an inflationary gap. Which of the following combinations of fiscal and monetary policy actions would be most effective to restore full employment in the short run?

An increase in income taxes and an increase in the central bank's administered interest rates

Which of the following terms describes the adverse effect that results when private sector investment spending competes with government deficit financing?

Crowding out effect

If economic growth through investment in the economy's infrastructure is desirable, which of the following policies will most likely achieve this objective?

Granting tax credits for businesses in the construction sector

What do economists use to measure economic growth and standard of living?

Growth Rate

According to the SRPC lower inflation rates are associated with

Higher unemployment rates

In the long run there is no tradeoff between inflation and unemployment.

In the long run there is no tradeoff between inflation and unemployment.

An increase in the government budget deficit is most likely to result in an increase in

In the real interest rate

Which of the following policies will most likely promote long-run economic growth?

Increasing funding for research and development

What is the formula for the Quantity Theory of money

M*V=P*Y

Capital Stock

Machinery and tools purchased by businesses that increase their output.

why do many economists support expansionary monetary policy?

Monetary policy can increase real output in the short-run.

what is M in the Quantity Theory of Money

Money Supply

Given a constant velocity of money, in the short run a 5% increase to the money supply will translate to a 5% increase to the...

Nominal GDP

What does PY equate to

Nominal GDP

Which of the following will most likely occur if a country's government is continuously borrowing to finance its spending without changing taxes?

Private investment in plant and equipment will decrease, resulting in a lower rate of economic growth in the long run.

Suppose a country's government increases the allowable deduction for individual retirement accounts per person. Holding all other influences constant, how would this policy action affect the country's loanable funds market, its production possibilities curve, and its long-run aggregate supply (LRAS) curve?

Private savings would increase and real interest rates would decrease in the loanable funds market, the nation's production possibilities curve would shift outward, and its LRAS curve would shift to the right.

What is Y in the Quantity Theory of Money

Quantity of output

Suppose that an economy with flexible wages and prices is in long-run equilibrium when the central bank contracts the money supply. What is the long-run effect on real output in the economy?

Real output is unchanged.

Assume the economy is in long-run equilibrium. A decrease in net exports will result in which of the following in the short run? SRPC LRPC

Shift in SRPC to a lower point

Which of the following describes a surplus in the government budget?

Tax revenues exceed government purchases plus transfer payments.

How will a nation's production possibilities curve (PPC) and long-run aggregate supply (LRAS) curve change as a result of an increase in both the labor force and productivity?

The LRAS curve will shift to the right, and the PPC will shift outward.

Crowding Out

The adverse effect of government borrowing on interest-sensitive private sector spending.

Growth Rate

The change in real GDP per capita over time.

Steady advances in technological development will result in which of the following?

The long-run aggregate supply curve will shift to the right, resulting in a higher full employment level of output.

Assume policy makers increased spending and cut taxes to stimulate the economy. If the government's budget was initially in balance, which of the following will occur?

There will be a budget deficit, real interest rates will increase, and investment spending will be crowded out.

Budget Deficit

When annual government spending and transfer payments exceed the tax revenue

An economy with limited reserves in its banking system is in short-run equilibrium as illustrated in the graph provided. Which of the following combinations of policy actions would definitely move the economy toward long-run equilibrium?

A decrease in income taxes and a central bank bond purchase

Assume an economy is in long-run equilibrium and the central bank engages in an expansionary monetary policy for a prolonged time period. If the velocity of money is constant, which of the following is true according to the quantity theory of money?

Price level will increase at the same rate as the money supply.

Suppose nominal GDP is $25 million, the price level is 1.25, and the money supply is $10 million. What is real GDP and the velocity of money according to the quantity theory of money?

Real GDP is $20 million, and the velocity of money is 2.5

Short-run spending eventually leads to what

higher resource prices and inflation.

An advance in Technology will cause

long-run aggregate supply curve to shift to the right

an increase in what will cause an increase in long run growth

subsides to businesses for purchases of capital growth(SUPPLY SIDE)

Budget Surplus

when tax revenue is greater than government spending and transfer payments in a given year