Macro Test 2
Two examples of financial intermediaries are
Banks and mutual funds
an excess of tax revenue over govt spending also known as public saving and is positive
Budget surplus
What are the three public policies that shift demand and supply curves?
Saving incentives, investment incentives, and government budget deficits and surpluses
A claim to partial ownership in a firm is called a ______
Stock
an average of a group of stock prices. Example: Dow Jones Industrial Average.
Stock index
If the quality of a good improves while its price remains the same, then the value of a dollar______ and the cost of living ______.
rises; decreases
When the government reduces national saving by running a budget deficit, the interest rate ______ and investment ______
rises; falls
The inflation rate you are likely to hear on the nightly news is calculated from
the CPI
The CPI is better than GDP deflator at reflecting the goods and services bought by
consumers
In the calculation of the CPI, books are given greater weight than magazines if
consumers buy more books than magazines
The probability that the borrower will fail to pay some of the interest or principal is called_______
credit risk
The fall in investment because of government borrowing is called ______
crowding out
Institutions through which savers can directly provide funds to borrowers are called________
financial markets
The group of institutions that helps match the saving of one person with the investment of another is called_______
financial system
A capital investment that is owned and operated by a foreign entity is called__________
foreign direct investment
In the CPI, goods and services are weighted according to
how much consumers buy of each good or service
CPI formula
the price of the basket of goods and services in the given year divided by the price of the basket in the base year, then multiplied by 100; (price now/price base)(100)
In a particular production process, if the quantities of all inputs used double, then the quantity of output doubles as well. This means that
the relevant production function has the constant-returns-to-scale
________________ can be measured by the level of real GDP per person, but not _____________
the standard of living; productivity
Over extended periods of time, population growth has ___________ effects on the standard of living
uncertain
If the price of Italian shoes imported into the United States increases, then the consumer price index will _______, but the GDP deflator will _______
increase; not increase
Buy all rocks in a stock index
indexed funds
If a reform of the tax laws encouraged greater savings, the result would be _______ interest rates and _________ investments
lower; greater
Managed funds usually have a _______ return and ______ cost than indexed funds
lower; higher
Shareholders of _______ accept all the risk and return
mutual funds
The basket of goods in the consumer price index changes_________, whereas the group of goods used to compute the GDP deflator changes __________
occasionally; automatically
In the US, each year of schooling raises a worker's wage by_____(percentage)
10%
Rule of 70 formula
70 divided by the annual growth rate of the variable
Examples of what households do with saving
Buy corporate bonds or equities Purchase a certificate of deposit at the bank Buy shares of a mutual fund Let accumulate in saving or checking accounts
When a country starts off poor tend to grow more rapidly than countries that start of rich is called_________
Catch-up effect
_______is the purchase of new capital, structures and inventory
Investment
Who sells bonds?
Large corporations and governments
Sold by local and state governments. Interest not counted in federal income tax. Interest typically low because of this.
Municipal bonds
Institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bonds are called_____
Mutual funds
Real Interest Rate formula
Nominal Interest Rate-Rate of Inflation
The portion of households' income that is not used for consumption or paying taxes is called_____
Private saving
Suppose that the prices of dairy products have risen relatively less than the prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?
Substitution bias
Saving incentives increase the _______ of loanable funds and would cause a shift to the ________
Supply; right
Public saving formula
T-G
What is a good gauge of economic prosperity?
The level of real GDP per person
Given that a country's real output has increased, in which of the following cases can we be sure that its productivity also has increased?
The total number of hours worked stayed the same or fell
The consumer price index tries to gauge how much incomes must rise to maintain
a constant standard of living
What does rule of 70 measure?
a way to estimate the number of years it will take for a certain variable to double
If government spending exactly equals tax revenue, the government is said to have a _______
balanced budget
A certificate of indebtedness or an IOU is called a _____
bond
The length of time until the bond matures is called the _______
bond's term
An increase in the price of dairy products produced domestically will be reflected in
both the GDP deflator and the consumer price index
a shortfall of tax revenue from govt spending also known as public saving and is negative
budget deficit
Changing all inputs by the same percentage causes output to change by the percentage is called ________
constant-returns-to-scale
When the loan will be repaid is called the ______
date of maturity
Because the tax credit would reward firms that borrow and invest in new capital, it would alter investments at any given interest rate and , thereby, change the _______ for loanable funds
demand
accounting profits (revenue - explicit costs) paid out to shareholders are called____
dividends
Changes in the quality of a good can lead to
either an increase or a decrease in the value of the dollar
Real interest rates can be _____________ and nominal interest rates are ____________.
either positive or negative; always positive
Sale of stock is called ____
equity finance
The quantity of loanable funds demanded ______ as the interest rate rises
falls
Institutions through which savers can indirectly provide funds to borrowers are called _____
financial intermediaries
A capital investment financed with foreign money but operated by domestic residents is called____________
foreign portfolio investment
Long-term bonds usually pay _________ interest rates because they are riskier
higher
If a reform of the tax laws encouraged greater investment, the result would be ____ interest rates and _______ savings
higher; greater
An_________ gives tax advantage to any firm building a new factory or buying a new piece of equipment
investment tax credit
These policies attempt to increase productivity and living standards within the country by avoiding interaction with the rest of the world is called_______
inward-oriented policies
sold by financially shaky corporations. More risky, highest interest
junk bond
Types of bonds order from highest to lowest interest
junk bonds > corporate bonds > U.S. government bonds > municipal bonds
Human capital is the
knowledge and skills that workers acquire through education, training, and experience
For a given year, productivity in a particular country is most closely matched with that country's
level of real GDP divided by hours worked over that year
mutual funds run by money managers are called____
managed funds
Allows people with little money to diversify their holdings
mutual funds
Policies that integrate their country in the world wide trade and receive widespread support from economists are called ________
outward-oriented policies
By not taking into account the possibility of consumer substitution, the CPI does what to the cost of living?
overstates the cost of living
National savings is _______+__________
private saving+public saving; (Y-T-C)+(T-G)
A country that increases its saving rate increases its future ______________ and future ______________.
productivity; real GDP
The ability of people to exercise authority over the resources they own is called______
property rights
The tax revenue that the government has left after paying for its spending is called_____
public saving
A nation's standard of living is best measured by its
real GDP per person
Over the last ten years productivity grew faster in Mapoli than in Romeria while the population and total hours worked remained the same in both countries. It follows that
real GDP per person grew faster in Mapoli than in Romeria
Historically, the market prices of most natural resources (adjusted for inflation) have
remained stable or decreased
Profits not paid out to shareholders are called _____
retained earnings
Suppose lawnmowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawnmowers deteriorates while the price of lawnmowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal, the CPI will
rise
The quantity of loanable funds supplied ______ as the interest rate rises
rises
Who buys bonds?
savers
A change in the government budget balance represents a change in public savings and thereby, in the _________ of loanable funds.
supply
A budget deficit shifts the _____ curve for loanable funds to the ______
supply; left
An understanding of the best ways to produce goods and services is called
technology
Two alternative measures of overall level of prices are
the GDP deflator and consumer price index
Suppose that in 2010, the producer price index increases about 1.5 percent. As a result, economists most likely will predict that
the consumer price index will increase in the future
Growth rate formula
((real GDP per person current)-(real GDP per person previous)/(real GDP per person previous))*100
Inflation rate formula
(CPI this year-CPI last year)/(CPI last year)x100%
The average income in a rich country is more than _______ times that in a poor country. Further, people in rich countries have _______ life expectancy
10; longer
Over the past century in the United States, real GDP per person has grown, on average, by about
2 percent per year
According to Robert Fogel, what proportion of the British population in 1780 was so malnourished that they couldn't perform manual labor?
20%
According to Robert Fogel, what proportion of the increase in the standard of living in Britain between 1790 and 1980 can be accounted for by greater caloric intake?
30%
The relative importance of housing in the breakdown of consumer spending is (percentage)
41%
The benefit from an extra unit of an input declines as the quantity of the input increases is called________
Diminishing returns
What is a good gauge of economic progress?
Growth Rate of real GDP per person
Which policy effects the demand curve?
Investment incentives
What is the source of demand for loanable funds?
Investments
_____________ is the flow of resources available to fund private investment.
Loanable funds
National savings formula
S=Y-C-G
What is the source of the supply of loanable funds?
Saving
Private saving formula
Y-T-C