Exam 2 practice
If real GDP is $13,000 billion and aggregate hours are 270 billion, labor productivity equals:
$650 per hour Labor productivity: 13,000/270=~$48 per hour
During an expansion many firms experience increased profits, which increases ____ and ____
cash flow; investment spending
If prices in the economy rise, then the purchasing power of a dollar:
declines
If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would:
decrease
Increase in price level lowers real wealth, which causes consumption to _____
decrease
An increase in the price level results in _______ in household consumption spending and ___________ in investment spending.
decrease; decrease
Activities that encourage faster growth are:
investment in new capital and human capital
A higher savings rate leads to faster growth because:
more saving produces greater additions to capital per hour of labor, raising real GDP
The Bureau of Labor Statistics would categorize a retiree who is not working as:
out of the labor force
To examine how the total production of an economy has changed over time, it would be better to examine what GDP?
real GDP
Slowdonia's current growth rate of real GDP per person is 2 percent a year. How long will it take to double real GDP per person?
35 Years Rule of 70: 70/2=35
Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 and $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?
8 percent
A decrease in the price level in the United States will have what effect on the aggregate expenditure line?
Aggregate expenditure will shift upward
Faster long-term growth can be achieved by discouraging saving and encouraging consumption. T/F?
False
Higher interest rates increase both consumption and investment spending. T/F?
False
In the circular flow diagram, the value of all income in the economy is greater than the value of goods and services produced in the economy. T/F?
False
The classical growth theory shows how technology changes continually generate economic growth. T/F?
False
The total value of production from Ford's manufacturing plant in Cologne, Germany would be included in Germany's gross national product. T/F?
False
The growth theory that predicts perpetual economic growth is:
New growth theory
Why do decreases in the price level result in a rise in aggregate expenditure?
Price level decreases cause firms and consumers to hold less money, which lowers the interest rate. Lower interest rates raise consumption and planned investment expenditures, which raises aggregate expenditure.
An increase in labor productivity ________ the real wage rate and an increase in population ________ the real wage rate.
Raises; lowers
Economists are interested in long-term economic growth because growth increases real GDP per person and improves our standard of living. T/F?
True
High-income countries such as the United States spend a greater amount on services as compared to goods. T/F?
True
A key assumption of new growth theory is:
a successful innovator has the opportunity to earn a temporary, above-average profit.
five variables that determine the level of consumption
disposable income wealth expected future income price level interest rate
The Bureau of Labor Statistics would categorize a person as _____ if they were temporarily away from their job because they were ill.
employed
If an American firm opens a production facility in India, the total value of the production will be included in the:
gross domestic product of India
Suppose that in 2012, all prices in the economy double and that all wages and salaries have also doubled. Is your purchasing power better off, worse off, or remains the same?
remains the same
The advice to "retrain" would be most appropriate for which of the following types of unemployment?
structural employment
Most ________ is embodied in physical capital.
technological change
The average price of goods and services in the economy is also known as:
the price level