Economics Midterm
The unemployment rate equals
(number of people unemployed/labor force) × 100
Using the Rule of 70, if China's current growth rate of real GDP per person was 7 percent a year, how long would it take the country's real GDP per person to double?
10 years
If this year the price level is 135 and last year it was 125, the inflation rate is
8 percent
Economic Expansion vs Economic Recession
A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades
What is the expected profit of a firm and how is it determined?
Expected profit is the probability of receiving a profit multiplied by the profit, by the payoff, and the expected cost is the probability that certain costs will be incurred multiplied by that cost.
Gross Investment vs Net Investment
Gross investment is the total amount that the economy spends on new capital. Net investment = gross investment - capital depreciation.
What are the shifts of loanable fund curves?
If people want to save more, they will save more at every possible interest rate, which is a shift to the right of the supply curve. If people want to save less (MPS goes down), then the supply of loanable funds shifts to the left
What, according to neoclassical growth theory, is the fundamental cause of economic growth?
In neoclassical growth theory, growth results from technological advances, which are determined by chance.
Which economic topics are considered in the field of microeconomics?
Most people are introduced to microeconomics through the study of scarce resources, money prices, and the supply and demand of goods and services.
Physical Capital vs Financial Capital
Physical capital is a tangible asset that can be touched in a real sense, while financial capital refers to the legal ownership of assets such as physical capital.
Convergence of the income gap has been most dramatic between
Taiwan and the United States
CPI vs GDP
The CPI measures price changes in goods and services purchased out of pocket by urban consumers, whereas the GDP price index and implicit price deflator measure price changes in goods and services purchased by consumers, businesses, government, and foreigners, but not importers
What is the Fisher Equation used in?
The Fisher equation is often used in situations where investors or lenders ask for an additional reward to compensate for losses in purchasing power due to high inflation.
Potential GDP vs Real GDP
The GDP gap is defined as the difference between potential GDP and real GDP. When the economy falls into recession, the GDP gap is positive, meaning the economy is operating at less than potential (and less than full employment). When the economy experiences an inflationary boom
Expenditure Approach vs Income Approach (of calculating GDP)
The major distinction between each approach is its starting point. The expenditure approach begins with the money spent on goods and services. Conversely, the income approach starts with the income earned (wages, rents, interest, profits) from the production of goods and services.
What is Peak vs Trough?
The peak is the second phase. It is the month when the expansion transitions into the contraction phase. The trough is the fourth phase.
Economists are interested in long-term economic growth because growth increases real GDP per person and improves our standard of living.
True
How does specialization lead to international trade?
When countries become better at making the product they specialize in. Consumer benefits: Specialization means that the opportunity cost of production is lower, which means that globally more goods are produced and prices are lower, which leads to international trade. Consumers benefit from these lower prices and greater quantity of goods.
An increase in labor hours will lead to
a movement along the aggregate production function but no shift in it
The Fed in the U.S.
allows a flexible exchange rate, though their actions can impact the exchange rate
Economic growth is measured by
changes in the employment rate/changes in nominal GDP/changes in real GDP
Cyclical unemployment ________ during expansions and ________ during recessions.
decreases; increases
The gaps between the United States and the Asian countries of Hong Kong, Singapore, Korea and China have been
decreasing
The relationship between the labor employed by a firm and the real wage rate is shown by the
demand for labor curve
The Rule of 70 is used to
estimate how long it will take the level of any variable to double
The times during which real GDP increases are referred to as
expansions
In general, a higher real wage rate decreases the quantity of labor supplied because fewer people enter the labor force.
false
The classical growth theory's view of the economy and its ability to achieve growth can be compared to a perpetual motion machine.
false
To achieve faster growth, economies can increase income tax rates in order to increase saving rates.
false
Macroeconomics differs from microeconomics in that
focuses on the national economy and the global economy
Define structural unemployment.
focuses on the structural problems within an economy and inefficiencies in labor markets
When a student finishes college and begins looking for work
frictional unemployment increases
According to the Ricardo-Barro effect
households increase their personal saving when governments run budget deficits
Two reasons why valuing goods at their market prices is different than valuing them at their factor costs include
indirect taxes and subsidies
Define cyclical unemployment
is a type of unemployment that occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work
Define frictional unemployment
is the time period between jobs when a worker is searching for or transitioning from one job to another.
The natural unemployment rate
is the unemployment rate when there is no cyclical unemployment
A recession is commonly defined as a period with
negative growth rate in real GDP that lasts at least two quarters
What is the Fisher Equation?
nominal interest rate is equal to the sum of the real interest rate plus inflation.
The working-age population is defined as the number of
people over the age of 16 who are not in jail, hospital, or other institution
If the CPI is 120, this means that
prices are 20 percent higher than in the reference base period
The term "crowding out" relates to the decrease in
private investment from a government budget deficit
If the price level rises by 4 percent and workers' money wage rates increase by 2 percent, then the
quantity of labor supplied decreases
An aggregate production function shows the relationship between
real GDP and the quantity of labor employed
Suppose the country of Tiny Town decided to open its borders to free trade. As a result, a number of its workers lost their jobs to international competition and can't find new jobs because their skills don't match what is required for job openings. The workers who lost their jobs and searched for new ones are best be considered part of
structural unemployment
Which economic topics are considered in the field of macroeconomics?
studies economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.
If net taxes exceed government expenditures, the government sector has a budget ________ and government saving is ________.
surplus; positive
If a rich country grows at a faster rate than a poor one, then
the gap in their standard of living will widen over time
Potential GDP is
the maximum amount of GDP that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation
A business cycle is
the pattern of short-run upward and downward movements in total output
Which labor market statistic tends rise during recessions and fall during expansions?
the unemployment rate
Full employment exists when
there is only frictional and structural unemployment/the economy is at the natural unemployment rate/there is no cyclical unemployment
A time series graph can show both the level of a variable and the speed with which the variable changes over time
true
In neoclassical growth theory, technological progress is the key to continuous growth in labor productivity.
true
New growth theory claims that economic growth occurs because firms reap profits from research and add to the stock of capital.
true
Over the last 100 years, real GDP per person in the United States has grown at an average rate of approximately 2 percent per year.
true
An indirect tax is a tax paid by consumers
when they purchase goods and services