Econ Test 1

GDP Expenditures for 2010 Expenditure Billions Personal consumption $10,353.5 Gross private domestic investment 1,769.1 Exports 1,746.1 Imports 2,251.5 Government purchases 2,975.1 Capital consumption allowance 1,030.2

$14,592.3 billion

If $1,000 of additional spending occurs (from investment, say) and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

$5,000

If your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be, assuming the CPI has risen from 110 to 114?

$51,818

The U.S. median household income in 2013 was about

$55,000

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

$900

MPC,MPS,APC,APS

MPC-Marginal propensity to consume MPS-Marginal propensity to save APC-Average propensity to consume APS-Average propensity to save

Which of the following factors is NOT generally viewed by economists as critical to economic growth?

access to large amounts of natural resources

After the acceptance of Keynesian analysis, government:

actions toward macroeconomic policy grew significantly

Developing countries can achieve higher productivity per unit of capital because they can use technologies developed by other countries. This is known as the:

catch-up effect

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the

circular flow diagram

The largest component of GDP is

consumption expenditure

If AE = $7,600 and Y = $8,000, businesses will produce

less, lowering both employment and income

Developed nations tend to have

limited labor supplies but lots of capital

Full employment:

occurs if cyclical unemployment is zero

What is the primary explanation for the rapid growth of the U.S. economy over the last century?

technological progress

Thomas Malthus' predictions

that short-term gains in living standards would inevitably be undermined as human population growth outstripped food production, and thereby drive living standards back toward subsistence

Which organization determines the beginning and end dates of a recession?

the National Bureau of Economic Research

Recessionary gap

the amount of government spending needed to increase GDP to its full-employment level

Inflationary gap

the cut in government spending needed to decrease GDP to its full employment level

What event was a major influence on the development of macroeconomics?

the great depression

rule of 70

the number of years for a value to double =70/annual percentage increase

phases of business cycle

the peak, recession(contraction),

A business cycle is?

the periodic fluctuation of economic activity

If a country's population increases at a higher rate than the growth in its real GDP

the standard of living in the country has declined

total factor productivity

tied to entrepreneurship the increase in output no explained by the increase in inputs

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is:

$0.1 trillion

what is economic growth?

-a sustained rise in the standard of living -an increase in real GDP per capita -an economy producing make of many different types of goods *Did not exist in the past but sustained to our living today

Components of spending in GDP

-consumption -investment spending -government spending -net exports (exports-imports)

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume?

0.6

If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was

0.625%

The slope of the saving schedule is:

1 minus the marginal propensity to consume

How does economic growth occur?

1. acquiring more resources 2. finding ways to make better use of resources we have

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is

125

Current value of US GDP

17 trillion

If the current year's consumer price index is 214 and last year's was 209, then the rate of inflation is

2.4%

If an economy's GDP will double in 25 years, then its growth rate must be about

2.8%

If the marginal propensity to consume is 0.85, how much is the spending multiplier?

6.67

Which of the following illustrates the paradox of thrift?

Consumer uncertainty causes people to save more; consumption drops; equilibrium income and production drop; savings drop because income is lower.

The 45-degree line in the Keynesian model represents

AE = Y

Paradox of thrift

It states that individuals try to save more during an economic recession, which essentially leads to a fall in aggregate demand and hence in economic growth. Renowned economist John Maynard Keynes.

catch up effect

It's easier for relatively poor countries to grow more quickly why? 1.diminishing marginal returns to capital 2.poor countries can free ride on others innovation

Balanced-budget multiplier

The balanced-budget multiplier measures the change in aggregate production triggered by an autonomous change in government taxes.

_____ is the change in consumption associated with a change in income.

The marginal propensity to consume

Which of the following persons is considered to be unemployed

Tiffany, who is going on interviews, hoping to get her first job

Multiplier

a factor of proportionality that measures how much an endogenous variable changes in response to a change in some exogenous variable.

who benefits from unexpected inflation?

borrower's

Circular flow diagram

business+ households

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income

decreases by $10 billion

disinflation

decreasing rate of inflation

what causes inflation?

demand side factors(people have money to spend) supply side factors(higher costs of production) government factors(controlling the money supply)

GDP Gap

difference between actual GDP and full employment

Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as

discouraged workers

_____ is a reduction in the rate of inflation.

disinflation

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____.

disposable income; consumption

aggregate expenditure line

embodies the key Keynesian principle of effective demand, shows the relation between aggregate expenditures and the actual level of aggregate income or production in the domestic economy.

The government decides to subsidize the development of a new communications network. It is acting in its role to promote economic growth by

enhancing physical and human capital

The ability to use physical resources in creative ways to produce goods and services is known as

entrepreneurial ability, technology, and ideas

U.S. business cycles since 1950 have shown

expansions to be longer than recessions

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living

fell by about 1%

The U.S. gross domestic product is equal to the total market value of all

final goods and services produced by resources in the United States

Core inflation is found by removing _________ from the consumer price index.

food and energy

deflation

general decrease in price

What is inflation?

generalized in price increase

In the Keynesian model, the principal determinant of saving is:

income

Which one of the following would NOT lead to higher prices?

increases in the supply of food

The twin evils of the modern macroeconomy are said to be

inflation and unemployment

If actual unemployment is at its natural rate:

inflation is very low

hyperinflation

inflation over 100%

The role of government in promotion economic growth

infrastructure subsidize education subsidize scientific research provide a good legal system-> contracts property rights stable financial system competitive market economic freedom

why is inflation a bad thing?

interferes with the communicative ability of the price

The value of the cars that the Ford Motor Company produces in a German plant

is a part of U.S. GNP

The relationship between economic freedom and per capita GDP is:

positive

Over the past century, when worker productivity rose:

real wages rose

keynes' motivation for using this framework known as the keynesian cross

shows that an economy will reach an equilibrium level of income, but it may not be the full employment level of income.

GDP can be found either by adding up all of the __________ or all of the __________ in the economy.

spending; income

stabilization policy as compared to economic growth

stabilization policy: how can we make the GDP line smoother economic growth: how can we make the GDP line steeper over the course

If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, then they are experiencing

structural unemployment

According to Joseph Schumpeter, what is the driving force behind business cycles?

waves of innovations