Economics 202

Assume the market basket for the consumer price index has two products - meat and potatoes - with the following values in 2004 and 2009 for price and quantity: The Consumer Price Index for 2009 equals

129

According to the "Rule of 70", how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%

14 years

Ceteris paribus, an increase in households' expectations of their future income would be represented by a movement from

AD1 to AD2

Ceteris paribus, an increase in interest rates would be represented by a movement from

AD2 to AD1

___ consumption is consumption that does not depend upon the level of GDP

Autonomous

In March 2009, automobile sales in the US fell 35% from the previous month. The decrease in auto sales impacts GDP because new automobiles are counted as ___ when purchased by households and ___ when purchased by businesses

consumption; investment

Higher personal income taxes

decrease aggregate demand

The best measure of the income households actually have available to spend is

disposable personal income

The Bureau of Labor Statistics would categorize a retiree who is not working as

out of the labor force

Firms free ride on the research and development of other firms when they

use knowledge other firms have developed without paying for that knowledge

If an economy experiences deflation, the real interest rate

will be greater than the nominal interest rate

The unemployment rate for this simple economy equals

(100/1100)x100%

Potential GDP is the maximum output a firm is capable of producing

False

Which of the following is consistent with the graph depicted above

Technological change increases the profitability of new investment

Which of the following government policies would most likely result in an increase in economic growth

a decrease in the interest rate at which the government provides student loans

The process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is known as

an automatic mechanism

The output of Mexican citizens who work in Texas would be included in the

gross national product of Mexico

A government budget surplus from reduced government spending (no change in net taxes) will ___ the level of investment in the economy and ___ the level of saving (private plus public) in the economy

increase; increase

If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium

inventories will rise, and GDP and employment will decline

If the quantity of goods and services produced in the economy decreases

it may be possible for nominal GDP to increase

How does a decrease in government spending affect the aggregate expenditure line

it shifts the aggregate expenditure line downward

Your grandfather tells you that he earned $5000/year in his first job in 1949. You earn $35000/year in your first job in 2009. You know that the average prices have risen steadily since 1949. You earn

less than 7 times as much as your grandfather in terms of real income

The industrialized group of countries has growth rates that are consistent with the findings of the economic (Solow) growth model. That is, Ireland and Japan had ___ incomes in 1960 than the US and Switzerland, and Ireland and Japan grew ___ the US and Switzerland between 1960 and 2008

lower; more rapidly than

Under the Soviet system of communism

technological progress was slow because managers had little incentive to develop new technologies

According to Douglass North, the Industrial Revolution occurred in England because

the British Parliament took control of the government and could credibly commit to upholding property rights

If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then

the multiplier is 8