chapter 12
suppose an economy's entire output in cars. in 1 year, all manufacturers produce cars at $15,000 each; the real GDP is $300,000. in 2 years 20 cars are produces at $16,000 each. what is the real GDP in year 2?
$300,000
a patent is an exclusive right to produce and sell a good for how long?
20 years
How does an economist compare the standard of living in two different countries?
By comparing real GDP per capita
which of the following is not a situation involving external shock
Consumers reduce spending because they fear that their nation is going to war
what is the difference between a recession and a depression
a depression is a particularly deep recession with high levels of unemployment
business cycle
a period of macroeconomic expansion followed by a period of contraction
what is a recession?
a period when real GDP falls for atleast 6 month
depression
a recession that is especially long and severe
which of the following is an example of a durable good?
a used car
which of these is an example of depreciation
a workers truck breaks down more often after 80,000 miles of driving
concern about an international crisis has caused consumers to save their money and postpone big purchases. what is the effect on aggregate demand and aggregate supply?
aggregate demand will decrease, lowering both real GDP and the price level
aggregate demand
amount of goods and services in the economy that will be purchased at all possible price levels
technological progress
an increase in efficiency gained by producing more output without using more inputs
suppose the savings rate is 15 percent. for every dollar the government collects in tax revenue and spends on public goods and infrastructure, the net result will be_______.
an increase in total investment by 85 cents
price level
average of all prices in the economy
how does a higher level of saving lead to higher GDP in the future?
because more capital is available for investment, leading to higher output through capital deepening
what are the leading economic indicators supposed to predict?
business cycles
if there is a fall in the interest rate
business will be more likely to expand their facilities
how does an economist compare the standard of living in two different countries?
by comparing real GDP per capita
how is nominal GDP converted into real GDP
by eliminating the effects of price increases on GDP growth
how can a trade deficit actually increase the productivity of an economy?
by importing investment goods used for capital deepening
which of the following would be used in calculating GDP?
cars manufactured in Tennessee at a factory owned by a Japanese automobile company
how do fears of future economic problems effect GDP
consumers will spend less and save money in case future economic problems effect them; GDP will be reduced
in a typical business cycle, what stage immediately follows a peak?
contraction
what stage of the business cycle would be most appropriate to describe the years from 1929 to 1933
contraction
stagflation
decline in real GDP combined with a rise in the price level
what is the amount of money a person has left of his or her income after taxes called?
disposable personal income
if a consumer goes to the store and purchases a DVD player the shopper is buying both a__________..
durable and final good
according to the aggregate supply curve, what happens as the price level increases?
firms have more of an incentive to increase output
short-term interest rates show the cost of borrowing money for how long?
for a few days or months
what is an example of a positive external shock to aggregate supply?
good weather leads to an unusually productive harvest for corn farmers
nondurable goods
goods that last a short period of time, such as food, light bulbs, and sneakers
durable goods
goods that last for a relatively long time, such as refrigerators, cars, and DVD players
intermediate goods
goods used in the production of final goods
real GDP
gross domestic product expressed in constant, or unchanging, prices
in the long run, potential growth in the economy and a rise in real GDP per capita might occur from all of the following except________.
growth in population
peak
height of an economic expansion, when real GDP stops rising
saving
income not used for consumption
if the government uses tax money to pay for log term investments such as roads and other infrastructure, what happens to the economy?
investment increases
which of the following is an accurate statement about the great depression?
it was the most severe economic downturn in the history of industrial capitalism
leading indicators
key economic variables that economists use to predict a new phase of the business cycle
what are key economic variables that economists use to predict a new phase of a business cycle referred to as?
leading indicators
compared with the expenditure approach to calculating GDP, the income approach is_______.
more accurate
if economics calculate the GDP for 2009, using current prices of year 2009, what are they estimating?
nominal GDP
nominal GDP
nominal GDP
what are the four main limitations of GDP accuracy?
nonmarket activities, underground economy, negative externalities, and quality of life
which of the following would be an example of capital deepening?
paying for an employee to take college courses
which of the following is the basic measure of a nations economic growth rate?
percentage change of real GDP over a given period of time
contraction
period of economic decline marked by falling real GDP
expansion
period of economic growth as measured by a rise in real GDP
capital deepening
process of increasing the amount of capital per worker
what is the underground economy
products and income that are not reported as income to the government
recession
prolonged economic contraction
what is GDP expressed in constant, or unchanging, prices called?
real GDP
what is the difference between real GDP and nominal GDP
real GDP is based on constant prices; nominal GDP is based on the current year prices
which of the following is found by dividing real GDP by the total population?
real GDP per capita
real GDP per capita
real gross domestic product divided by the total population
which of the following was a lasting effect of the OPEC embargo in the 1970's on the U.S. economy
reduced use of petroleum
which of the following measures does not help promote technological progress?
reducing the scale of the market for a new product
going from left to right on the aggregate demand curve, real GDP_____.
rises as price levels fall
which of the following actions does not promote capital deepening?
saving less and spending more of ones disposable income
what is the proportion of saving disposable income referred to as?
savings rate
an economy that experiences decreasing real GDP and increasing prices is said to suffer from_______.
stagflation
economic growth
steady, long-term increase in real GDP
national income accounting
system that collects macroeconomic statistics on production, income, investment, and savings
which of the following may not be indicated by long term interest rates?
that consumers want to borrow money to invest
gross national product (GNP)
the annual income earned by U.S.-owned firms and U.S. residents
if no foreign companies produce in a country, but many of the countrys companies build products in foreign countries, then it is safe to say that________.
the countrys GNP is greater than its GDP
depreciation
the loss of the value of capital equipment that results from normal wear and tear; also, a decrease in the value of a currency
trough
the lowest point in an economic contraction, when real gross domestic product stops falling
savings rate
the proportion of disposable income that is saved
what is the savings rate?
the proportion of disposable income that is saved
gross domestic product (GDP)
the total value of all final goods and services produced in a particular economy; the dollar value of all final goods and services produced within a country's borders in a given year
aggregate supply
total amount of goods and services in the economy available at all possible price levels
what is one way to measure technological progress?
total growth minus increases in capital and labor
which of the following finally brought the U.S. economy out of the great depression?
world war 2
