Macro Econ HW 3

If inventories unexpectedly rise, then production __________ sales and firms will respond by __________ output

exceeds; reducing

If the MPS rises, then the MPC will

fall

Computers and increased global competition have retarded economic growth in recent decades

false

Countries that currently have low real GDPs per capita are destined to always have lower living standards than countries that currently have high real GDPs per capita

false

Real GDP is more volatile (variable) than gross investment

false

If an economy has an inflationary expenditure gap, the government could attempt to bring the economy back toward the full-employment level of GDP by _________ taxes or __________ government expenditures.

increasing; decreasing

In year one, Adam earns $1,000 and saves $100. In year 2, Adam gets a $500 raise so that he earns a total of $1,500. Out of that $1,500, he saves $200. What is Adam's MPC out of his $500 raise?

0.8

If real GDP grows at 7 percent per year, then real GDP will double in approximately ____ years

10

Suppose that an economy has 9 million people working full-time. It also has 1 million people who are actively seeking work but currently unemployed as well as 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this economy's unemployment rate?

10%

If a $50 billion initial increase in spending leads to a $250 billion change in real GDP, how big is the multiplier?

5

Suppose that just by doubling the amount of output that it produces each year, a firm's per-unit production costs fall by 30 percent. This is an example of:

Economies of scale

Real GDP equals _________ times _________.

Labor input; labor productivity

In 1820 living standards in various places around the globe were ____ they are today

Less widely varying than

Larger MPCs imply larger multipliers

true

The economy's current level of equilibrium GDP is $780 billion. The full-employment level of GDP is $800 billion. The multiplier is 4. Given those facts, we know that the economy faces ___________ expenditure gap of ________.

a recessionary; $5 billion

What are the variables (the items measured on the axes) in a graph of the (a) consumption schedule and (b) saving schedule? Are the variables inversely (negatively) related or are they directly (positively) related? a. consumption schedule The variable on the vertical (y) axis is____ and the variable on the horizontal (x) axis is _____. These variables are ___ related. b. saving schedule The variable on the vertical (y) axis is____ and the variable on the horizontal (x) axis is _____. These variables are ___ related. c. What is the fundamental reason that the levels of consumption and saving in the United States are each higher today than they were a decade ago?

a. Consumption Disposable Income Directly b.Saving Disposable income Directly c. Real GDP and disposable income are higher

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal? a. A large decrease in real estate values, including private homes b. A sharp, sustained increase in stock prices c. An economy-wide expectation that a recession is over and that a robust expansion will occur d. A substantial increase in household borrowing to finance auto purchases

a. Consumption schedule: Downward Saving schedule: Upward b. Consumption schedule: Upward Saving schedule: Downward c. Consumption schedule: Upward Saving schedule: Downward d. Consumption schedule: Upward Saving schedule: Downward

Identify the following arguments about economic growth as being either anti-growth or pro-growth. a. Growth means worker burnout and frantic schedules b. Rising incomes allow people to buy more education, medical care, and recreation c. The Earth has only finite amounts of natural resources d. We still have poverty, homelessness, and discrimination even in the richest countries e. Richer countries spend more money protecting the environment f. Natural resource prices have fallen rather than increased over time

a. anti-growth b. pro-growth c. anti-growth d. anti-growth e. pro-growth f. pro-growth

Label the scenario as either frictional, structural, or cyclical unemployment. a. Tim just graduated and is looking for a job b. A recession causes a local factory to lay off 30 workers c. Thousands of bus and truck drivers permanently lose their jobs when driverless, computer-driven vehicles make human drivers redundant d. Hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India

a. frictional unemployment b. cyclical unemployment c. structural unemployment d. structural unemployment

Identify each of the following situations as something that either promotes growth or retards growth a. Increasing corruption allows government officials to steal people's homes b. A nation introduces patent laws for the first time c. A court order shuts down all banks permanently d. A poor country extends free public schooling from 8 years to 12 years e. A nation adopts a free-trade policy f. A formerly communist country adopts free markets

a. retards growth b. promotes growth c. retards growth d. promotes growth e. promotes growth f. promotes growth

Which of the following scenarios will shift the investment demand curve right? a. business taxes increase b. the expected return on capital increases c. firms have a lot of unused production capacity d. firms are planning on increasing their inventories

b. the expected return on capital increases d. firms are planning on increasing their inventories

Place the phases of the business cycle in order

peak, recession, trough, expansion, peak

A depression abroad will tend to ____________ our exports, which in turn will ____________ net exports, which in turn will ____________ equilibrium real GDP

reduce; reduce; reduce

Cost-push inflation occurs when there is ________________.

rising per-unit production costs

Irving owns a chain of movie theaters. He is considering whether he should build a new theater downtown. The expected rate of return is 15 percent per year. He can borrow money at a 12 percent interest rate to finance the project. Should Irving proceed with this project?

yes