Macroeconomics Exam 1
The Bureau of Economic Analysis reported that the U.S. capital stock was $56.1 trillion at the end of 2013, $58.2 trillion at the end of 2014, and $59.3 trillion at the end of 2015. Depreciation in 2014 was $2.7 trillion, and gross investment during 2015 was $3.1 trillion. Calculate U.S. net investment and gross investment during 2014 US net investment during 2014 was _________ US gross investment during 2014 was _________
$2.1 trillion (58.2-56.1) $4.8 trillion (2.1+2.7)
Aggregate income in an economy in 2017 is $200 billion. Saving $20 billion and imports are $25 billion. Aggregate expenditure in the economy in 2017 is _________
$200 billion
In January 2013, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30%. During 2013, Tim spent $200,000 on new machines. During 2013, Tim's gross investment totaled:
$200,000
During a year, a firm's net investment is $1600 and depreciation is $400. The firm's gross investment is _________
$2000
Michael, an Internet service provider, bought an existing business worth $200,000 on Dec. 31, 2017. During 2018, his business grew, and he bought $300,000 of new servers. The market value of his older servers fell by $200,000. What is the value of Michael's capital at the end of 2018? The value of Michael's capital at the end of 2018 is _____________
$300,000
Michael, an Internet service provider, bought an existing business worth $400,000 on Dec. 31, 2017. During 2018, his business grew, and he bought $300,000 of new servers. The market value of his older servers fell by $200,000. What is Michael's gross investment, depreciation, and net investment at the end of 2018? Michael's gross investment during 2018 was ___________ Michael's depreciation during 2018 was __________ Michael's net investment was _____________
$300,000 (spent on new capital) $200,000 $100,000 (300000-200000)
Cindy takes a summer job painting houses. During the summer, she earns an after-tax income of $4500 and she spends $1000 on living expenses. What was Cindy's saving during the summer? Cindy's savings during the summer was __________
$3500 (4500-1000)
Lori is a student who teaches golf on Saturdays. In a year she earns $15,000 after paying her taxes. At the beginning of 2017, Lori owned $4,000 worth of books, DVDs, and golf clubs and she had $5,000 in a savings account at the bank. During 2017, the interest on her savings account was $250 and she spent a total of $10,000 on consumption goods and services. There was no change in the market values of her books, DVDs, and golf clubs. How much did Lori save in 2017? What was her wealth at the end of 2017? In 2017 Lori saved ________ Lori's wealth at the end of 2017 was _________
$5250 (15000-10000+250) $14250 (15000-10000+250+4000+5000)
On Jan 1, 2017, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2017, Sophie's bought 3 new beds at a total cost of $10,000, and at the end of the year the market value of all of Sophie's beds was $26,000. What was Sophie's net investment? Sophie's net investment during 2017 was ___________
$6000 (26000-20000)
Karrie is a golf pro, and after she paid taxes, her income from golf and interest from financial assets were $4,000,000 in 2016. At the beginning of 2016, she owned $800,000 worth of financial assets. At the end of 2016, Karrie's financial assets were worth $1,600,000. How much did Karrie save during 2016? How much did she spend on consumption goods and services? During 2016 Karrie saved _______________ During 2016 Karrie spent ______________ on consumption of goods and services
$800,000 (1600000-800000) $3200000 (4000000-1600000)
CPI=
(Cost of CPI basket at current-period prices / Cost of CPI basket at base-period prices) x 100
Real GDP growth rate = [(Real GDP in ______ year - Real GDP in ______ year) + Real GDP in ______ year] x 100
Current; previous; previous
The money price of a textbook is $90 and the money price of a Wii game is $45 The relative price of a Wii game in terms of a textbook is __________
.5
The CPI in 2013 was 233.0. The CPI in 2014 was 234.8. The inflation rate in 2014 was ______ %
0.8
Choose the correct statement(s): 1. A single buyer on a competitive market cannot influence the price 2. A competitive market has many buyers 3. In a competitive market, prices are eventually driven down to zero 4. A competitive market is a market for services but not for goods
1 and 2
China's real GDP per person was 11,480 yuan in 2011 and 12,515 yuan in 2012. India's real GDP per person was 45,045 rupees in 2011 and 47,995 rupees in 2012. The population of China is growing at 1 percent a year and the population of India is growing at 1.4 percent a year. Calculate the growth rate of real GDP in each country. The growth of real GDP in China is _________ The growth rate of real GDP in India is _________
10% (12515-11480/11480)+1 7.9% (47995-450450/45045)+1.4
A typical family on Sandy Island consumes only juice and cloth. Last year, which was the base year, the family spent $20 on juice and $30 on cloth. In the base year, juice was $4 a bottle and cloth was $5 a length. This year, juice is $9 a bottle and cloth is $7 a length. The CPI in the current year is ______ The inflation in the current year is ______ %
174; 74
Over the past 100 years, the average growth rate of the US real GDP per person is ______
2%
In 2018 Brazil's real GDP is growing at a 1.7% a year and its population is growing at 0.7% a year. If these growth rates continue, Brazil's real GDP per person will be twice what it is in 2018 in _________
2088
If real GDP per person doubles in 20 years, then the annual growth rate of real GDP per person is ______ a year
3.5%
The money price of a pound of bananas is $0.20 and the money price of a pack of frozen waffles is $1 The opportunity cost of a pack of frozen waffles is ___________
5 lbs of bananas, which is the relative price of a pack of waffles
Hyperinflation is an inflation rate of __________ or higher that grinds the economy to a halt and causes a society to collapse
50% a month
A typical family on Sandy Island consumes only juice and cloth. Last year, which was the base year, the family spent $20 on juice and $30 on cloth. In the base year, juice was $4 a bottle and cloth was $5 a length. This year, juice is $9 a bottle and cloth is $7 a length. The CPI basket is ____ bottle of juice and ____ lengths of cloth
5;6
India's real GDP was 105,227 billion rupees in 2014 and 113,575 billion rupees in 2015. Indias population growth rate in 2015 was 1.3% The growth rate of real GDP in India in 2015 was ________ The growth rate of real GDP per person in India in 2015 was _______ The approximate number of year it takes for real GDP per person in India to double if the 2015 growth rate of real GDP and population growth are maintained is _______
7.9% (113575-105227/105227) 6.6% (7.9-1.3) 11 (70/6.6)
A macroeconomic equilibrium in which real GDP is less than potential GDP is __________ equilibrium. And one in which real GDP equals potential GDP is __________ equilibrium
A below full-employment; at full-employment
Some events that could shift aggregate demand rightward are __________
A decrease in taxes or an increase in expected future inflation
Examples of monetary policy that decrease aggregate demand include _______________.
A decrease in the quantity of money and an increase in interest rates
Classify each of the following items as a final good or service or an intermediate good or service and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services: Item 1. Upper A new bridge across the creek in the Augusta National Golf Club Item 2. Upper A haircut bought by a student Item 3. The purchase of a new helicopter for the president Item 4. Fertilizer bought by a Florida tomato grower Item 1 is _______ and item 2 is _______
A final good that is an investment; a final good that is a consumption expenditure
Classify each of the following items as a final good or service or an intermediate good or service and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services: Item 1. Upper A new bridge across the creek in the Augusta National Golf Club Item 2. Upper A haircut bought by a student Item 3. The purchase of a new helicopter for the president Item 4. Fertilizer bought by a Florida tomato grower Item 3 is _________ and item 4 is _______
A final good which is a govt. expenditure; an intermediate good
Statement regarding govt. budget
A govt budget deficit competes with investment fro funds
Economic growth results from _____________.
A growing supply of labor and increasing labor productivity, which increases long-run aggregate supply
A rise in the money wage rate with no change in potential GDP creates __________
A leftward shift of the SAS curve and no change in the LAS curve
Inflation results from _____________
A persistent increase in aggregate demand at a faster pace than that of the increase in long-run aggregate supply
According to classical growth theory, the growth of real GDP per person stops when ________________
A population explosion eventually occurs and real GDP per person returns to the subsistence level
Examples of fiscal policy that increase aggregate demand include ___________.
An increase in govt. expenditure, a decrease in taxes, and an increase in transfer payments
A final good is __________. An example of a final good is __________.
An item that is bought by its final user during a specified time period; bread sold to a consumer
An intermediate good is ___________. An example is _____________.
An item that is produced by one firm, bought by another firm, and used as a component of a final good or service; wheat old to a baker to bake bread
Labor market equilibrium occurs _______________
At the real wage rate at which the quantity of labor demanded equals the quantity of labor supplied
The reference base period for the CPI is 1982-84. In April 2017, the CPI was 244.5 This CPI in April 2017 tells us that the ________ of the prices paid by urban consumers for a fixed basket of consumer goods and services was ___________
Average; 244.5% higher in April 2017 than the average of 1982-84
The aggregate demand curve slopes downward because ___________
Of the wealth effect and the substitution effect
The financial institutions that the G-20 might require to hold more capital are __________. The capital referred to in the news clip is ___________
Banks and insurance companies; the institutions own funds
Gross domestic product and gross investment are measured __________. Net domestic product and net investment are measured ___________.
Before the depreciation of capital; after the depreciation of capital
The four price indexes that are alternatives to the CPI are ______
Chained CPI, personal consumption expenditure deflator, GDP deflator, and core PCE
Economic growth is measured by
Changes in real GDP
Statement regarding financial institutions
Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households
Firms make investment decisions by ____________
Comparing the expected profit with the real interest rate and making investment if the project has a positive net present value
The income approach to measuring GDP sum together ________, which equals net domestic income at factor cost
Compensation of employees, net interest, rental income, corporate profits and proprietors' income
Bottled water and health club memberships are _________
Complements
If as the price of wheat bran decreases, the quantity of bread the firm plans to sell decreases, then wheat bran and bread are
Complements in production
Low-fat milk and cream are _______
Complements in production for a dairy
A smartphone and text message are ________. A text message and email are ________
Complements; substitutes
Pizza and sausage are __________. Wheat and corn are _________.
Complements; substitutes
The expenditure approach to measuring GDP sums together __________, and the largest component is __________
Consumption expenditure, investment, govt. expenditure on goods and services and net exports; consumption expenditure
A decrease in current income taxes __________ the supply of loanable funds today because it ___________
Increases; increases disposable income, which encourages greater saving
A decrease in the price of leather jackets, a substitute in production of leather belts, will ____________ the equilibrium price of leather belts and ___________ the equilibrium quantity of leather belts
Decrease; increase
Govt. funded retraining ____________ the natural unemployment rate because ________________
Decrease; natural unemployment includes structural unemployment
What is the effect of the event on the demand for Xbox One games and the quantity of Xbox One games demanded, other things remaining the same? Programmers who write code for Xbox One games become more costly to hire. This event _________ the _________ of Xbox games
Decrease; the quantity demanded of
A rise in wages in China ___________.
Decreases China's short-run aggregate supply and the quantity of real GDP supplied does not change
Explain how a rise in wages in China will influence the quantity of real GDP supplied and aggregate supply in China. A rise in wages in China ______________.
Decreases China's short-run aggregate supply and the quantity of real GDP supplied does not changed
The following events have occurred at times in the history of the United States: 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Explain the effect of each of the following events on aggregate supply and aggregate demand in the United States. Event 1 _____________. Event 2 ______________. Event 3 _____________
Decreases aggregate demand; decreases short-run aggregate supply, decreases aggregate demand
Mexico trades with the United States. Explain the effect of each of the following events on the quantity of real GDP demanded and aggregate demand in Mexico. When Mexico decreases the quantity of money, Mexico's aggregate demand ________________
Decreases and its AD curve shifts leftward
The requirement to hold more capital can make financial institutions safer because holding more capital, a financial institution ______________
Decreases its risk of insolvency
Paychecks in Kansas are growing, according to the U.S. Department of Labor. Jacqueline Midkiff, with the department's office in KansasCity, says the average overall increase across the board through the Midwest, is 1.9 percent over this time last year, while inflation grew at 1.4 percent for the same time period. The "average overall increase across the board" wage increase _____________
Decreases short-run aggregate supply because it increases firms' costs
An increases in the price of gym memberships _________
Decreases the quantity of gym memberships demanded and results in a movement up along the demand curve for a gym membership
The US price level rises. This event ___________.
Decreases the quantity of real GDP demanded
What is the effect of the event on the demand for Xbox One games and the quantity of Xbox One games demanded, other things remaining the same? A new game console comes onto the market, which is a close substitute for Xbox. This event _________ the ________ of Xbox games
Decreases; demand for
What is the effect of the event on the demand for Xbox One games and the quantity of Xbox One games demanded, other things remaining the same? The expected future price of an Xbox game falls. This event _________ the ________ of Xbox games
Decreases; demand for
The price of a wireless plan rises. The equilibrium quantity of smartphones _________ and the equilibrium price ___________
Decreases; falls
An increase in population ________ real wage rate and ________ equilibrium quantity of labor
Decreases; increases
General Motors cuts its fourth-quarter production schedule by 1% because Ford Motor, Chrysler, and Toyota sales declined in August. This news clip illustrated a decrease in __________ and ___________ in the market for cars
Demand; a decrease in the quantity supplied
In new growth theory, ________________
Discoveries result from choices
A rise in the money wage rate ____________
Does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied _________ and there is a movement up along the __________ aggregate supply curve
Does not change; long-run
The Rule of 70 states that the number of years it takes for the level of any variable to ___________ is approximately ____________
Double; 70 / the annual percentage growth rate of the variable
Statement about real GDP
Each additional hour of labor increases real GDP by successively smaller amounts
The supply of loanable funds is influenced by ___________
Expected future income, and the higher a household's expected future income, the smaller is it's savings today
The real interest rate __________, household saving ____________.
Falls; decreases and investment increases
GDP equals aggregate income and also equals aggregate expenditure because _________________
Firms pay out as incomes (aggregate income) everything they receive from the sale of their output (aggregate expenditure)
Three Indian firms are producing components for Boeing fighter jets F15 and F18 and for the Chinook heavy-lift helicopter in Bangalore, Hyderabad, and other places in India. The sale of Boeing's fighter jets and heavy-lift helicopters is recorded as __________, and the Boeing's outsourcing of components to India is recorded as ____________
Government expenditures in US GDP; imports in US GDP
The ___________ the greater is the amount that a household decides to save
Greater a household's disposable income and the smaller a household's expected future income
When the unemployment rate is less than the natural unemployment rate, real GDP is _________ than potential GDP and the output gap is __________.
Greater; positive
We are interested in long-term growth primarily because it brings
Higher standards of living
The law of demand states that other things remaining the same, the __________ the price of a good, the ___________
Higher; smaller the quantity demanded
The quantity of labor demanded / supplied is the number of labor hours _____________ during a given period
Hired by all firms in the economy; that all households in the economy plan to work
The aggregate production function is the relationship that tells us __________, when all other influences on production remain the same
How real GDP changes as the quantity of labor changes
The fundamental source of labor productivity growth is _____________
Human capital
The market for bananas is a competitive market ______
If many people buy and many firms sell bananas, so no single buyer or seller can influence the price
The main source of bias in the CPI are ___________
New goods bias, quality change bias, commodity substitution bias, and outlet substitution bias
Statement regarding shortages
If there is a shortage of labor, the real wage rate rises to eliminate the shortage
A person is not in the labor force if they are _________
In the working-age population but neither employed nor unemployed
As the average income in China continues to increases, we would expect the demand for beef to _________ and the demand fro rice to __________
Increase if beef is a normal good; decrease if rice is an inferior good
If the price of a golf club decreases, the demand for golf lessons will ______
Increase, and the demand curve for golf lessons will shift rightward
If all newly hired people had previously given up on their job search, the labor force participation rate would have __________ and the unemployment rate would have __________
Increased; decreased
If the price of a denim jean jacket fall from $80 to $40, while all other influences on buying plans are unchanged, the quantity of denim jackets demanded ______________.
Increases
An increase in expected future profits _________
Increases aggregate demand today
An increase in expected future income _____________. An increase in the expected future inflation rate ___________.
Increases aggregate demand today; increases aggregate demand today
Starting from a full-employment equilibrium, an increase in aggregate demand __________ and creates ___________ gap
Increases real GDP above potential GDP; an inflationary gap
A government budget deficit _________ loanable funds
Increases the demand for
Autoworkers agree to lower money wage rate. This event __________.
Increases the quantity of real GDP demanded
Toyota and Honda build additional plants in the US. This event ______________
Increases the quantity of real GDP demanded
The US price level rises. This event __________.
Increases the quantity of real GDP supplied
A decrease in expected future income _____________
Increases the supply of loanable funds today because households with smaller expected future income will save more today
An increase in population cause potential GDP ________ and potential GDP per hour of labor __________
Increases; decreases
The increase in investment ___________ aggregate demand. The decrease in government expenditures ___________ aggregate demand.
Increases; decreases
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply __________ the price level and ___________ potential GDP
Increases; decreases real GDP below
A rise in the price of a smartphone ________ the quantity supplied and ________ supply
Increases; does not change
Autoworkers agree to lower money wage rate. This event ___________ short-run aggregate supply and __________ long-run aggregate supply
Increases; does not change
An increase in labor productivity ________ potential GDP and ___________ potential GDP per hour of labor
Increases; increases
An increase in labor productivity __________ real wage rate and __________ equilibrium quantity of labor
Increases; increases
An increase in population ___________ the equilibrium quantity of labor and _________ potential GDP
Increases; increases
Automotive firms in the US switch to a new technology that raises productivity. This event ____________ short-run aggregate supply and ________ long run aggregate supply
Increases; increases
The increase in the personal consumption expenditures ____________ aggregate demand. The increase in exports __________ aggregate demand
Increases; increases
First Call, Inc., a smartphone company, plans to build a factory—one that costs $10 million if the real interest rate is 7 percent a year; a larger factory that costs $12 million if the real interest rate is 6 percent a year; or a smaller one that costs $8 million if the real interest rate is 8 percent a year. First Call expects its profit to double next year. Explain how this increase in expected profit influence First Call's demand for loanable funds. This increases in expected profit _______ the demand for loanable funds and brings __________ the demand for loanable funds curve
Increases; rightward shift
If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied __________ and there is a movement up along the _________ aggregate supply curve
Increases; short-run
A demand curve
Is a marginal benefit curve
A demand curve that illustrates the law of demand ______________
Is downward sloping
The natural unemployment rate is ______________
Is the unemployment rate at full employment
The bias in the CPI is a problem because ____________
It distorts wage agreements linked to the CPI
The key proposition of new growth theory that makes growth persists is that ___________ is not subject to diminishing returns
Knowledge capital
Statement regarding production
Labor hours are not equally productive
The three main types of markets for financial capital are __________
Loan markets, stock markets, and bond markets
When potential GDP increases ______________
Long-run aggregate supply and short-run aggregate supply increase. The LAS and the SAS curve shift rightward
A government budget surplus __________ the real interest rate, decreases ___________
Lowers; private saving and increases investment
The CPI is a __________
Measure of the average of the prices paid by urban consumers for a fixed basket of consumer goods and services
Mexico trades with the United States. Explain the effect of each of the following events on the quantity of real GDP demanded and aggregate demand in Mexico. When the US economy goes into a recession _____________
Mexico's exports to the US decrease, Mexicos aggregate demand decreases and Mexico's AD curve shifts leftward
Statement about capital
Most technologies are embodied in physical capital
If the price of a milkshake rises, a _______ the demand curve occurs. If any factor that influences buying plans other than the price changes, then a ________ the demand curve occurs
Movement up along; shift of
When the economy goes into recession, the output gap is __________
Negative
Examples of physical capital are ___________. Examples of financial capital are ___________.
Ovens used by Pizza Hut and lawnmowers used by Larry's Mowing; bonds issued by Wal-Mart and stocks issued by Boeing
The chained CPI _______
Overcomes the sources of bias in the CPI by giving extra weight to the measures of the goods and services with most volatile prices
The firm that printed your textbook bought the paper from XYZ Paper Mills. The value of the aper is counted in GDP as __________
Part of the value of the book
Gustavo graduates from college and his income increases by $30,000 a year. Nothing else changes. Gustavo decreases the quantity of pasta and French fries that he buys and increases the quantity of books that he buys. For Gustavo, ______
Pasta and French fries are inferior goods
Some unemployment is unavailable because ___________
People are making transitions through the stages of life and businesses are making transitions
China was the world's largest economy until 1890 because ____________
People in all countries had approximately the same subsistence level of income and China had the largest population
Unemployment arises when __________
People leave their jobs and spend time searching for another job that better suits their abilities
According to new growth theory, the growth of real GDP per person ______________
Persists indefinitely
Once the preconditions for growth are in place, the influences on the pace of labor productivity growth are _________________
Physical capital growth, human capital growth, and technological advances
Short-run aggregate supply is the relationship between the quantity of _________ supplied and the ___________ when the money wage rate, the prices of other resources, and potential GDP remain constant
Real GDP; price level
Net domestic income at factor cost _________ indirect taxes less subsidies _________ depreciation gives GDP (income approach)
Plus; plus
Statement about an increase in population
Potential GDP per hour of labor decreases with an increase in population
Statement regarding labor productivity
Potential GDP per hour of labor increases with a growth in labor productivity
Domestic product is ___________. National product is ___________.
Production within a country; the value of goods and services produced anywhere in the world by the residents of a nation
When the real interest rate falls, the ________ because the _________ is the opportunity cost of loanable funds
Quantity of loanable funds demanded increases; real interest rate
A government budget deficit __________ the real interest rate, increases ____________
Raises; private savings and decreases investment
A govt. budget deficit _________ the real interest rate because ___________
Raises; the demand for loanable funds increases
The output gap is the gap between _________
Real GDP and potential GDP
Real GDP per person grows when ___________
Real GDP grows at a faster rate than the population grows
the demand for loanable funds is determined by ____________. The demand for loanable funds changes when ____________ changes
Real interest rate and expected profit; expected profit
The supply for labor is the relationship between the quantity of labor demanded and the ___________
Real wage rate
The demand for loanable funds increases and the supply of loanable funds increases. As a result, the equilibrium real interest rate _________ and the equilibrium quantity of loanable funds __________.
Rise, falls, or remains the same; increases
According to classical growth theory, when real GDP per person __________, the population grows
Rises above the subsistence level
When the CPI __________
Rises slowly, the inflation rate is low
When a shortage arises, the price ______ to its equilibrium, which ________
Rises; Decreases the quantity demanded and increases the quantity supplied
In the long-run, the money wage rate __________, short-run aggregate supply __________, and the economy returns to a full employment equilibrium
Rises; decreases
When the increase in demand is less than the decrease in supply, the equilibrium price ________ and the equilibrium quantity _________
Rises; decreases
When the increase in demand is greater than the decrease in supply, the equilibrium price _________ and the equilibrium quantity _________.
Rises; increases
The demand for loanable funds increases and the supply of loanable funds decreases. As a result, the equilibrium real interest rate __________ and the equilibrium quantity of loanable funds __________
Rises; increases, decreases, or remains the same
When the increase in demand equal the decrease in supply, the equilibrium price ________ and the equilibrium quantity
Rises; remains unchanged
In 2007, the price of a gallon of gas was $2.59. In 2017, the price of a gallon of gas was $2.32. In 2007, the price of a dozen eggs was $1.63. In 2017, the price of a dozen eggs was $1.40. Between 2007 and 2017, the relative price of a gallon of gas with respect to a dozen eggs _______ and the relative price of a dozen eggs with respect to a gallon of gas _______.
Rose; fell
Since 1980, the gap between the US and ___________
Russia and Nigeria narrowed, the gap between the US and Mexico widened, and the gap between the US and the Europe BIG 4 remained constant
I =
S + (T-G) + (M - X)
According to the Ricardo-Barro effect, when a govt. budget deficit occurs today ____________
Saving increases, the supply of loanable funds increases, and the real interest rate does not change
An increase in labor productivity ______________
Shifts the demand for labor curve rightward and the production function upward
What is the main type of unemployment that retraining programs seek to avoid? Retraining programs seek to avoid ___________ unemployment because _______________
Structural; the programs aim to give workers the skills needed for the available jobs
Diet Coke and regular Coke are ___________
Substitutes for consumers and substitutes in production for producers
French fries and baked potatoes are ____________
Substitutes or substitutes in production
Pasta and pizza are _________ A video game and a laptop are _________
Substitutes; complements
Coal and oil are __________. A skateboard and roller blades are ________.
Substitutes; substitutes
Real GDP is calculated by___________
Summing together the value of the year's production using prices of the reference base year
According to neoclassical growth theory, the fundamental cause of economic growth is ______________
Technological change, which induces saving and investment that make capital per hour of labor grow
Statements concerning neoclassical theory
Technological changes result from chance and as income increase both the birth and death rate decrease
According to neoclassical growth theory, the growth of real GDP per person stops when ___________
Technology stops advancing
The growth rate of real GDP per person __________
Tells us about changes in the standard of living and the growth rate of real GDP tells us how rapidly the total economy is expanding
Over the past 100 years, growth was most rapid during ___________ and the slowest during __________
The 1960s; Great Depression
Statement regarding LAS curve
The LAS cure is vertical because potential GDP is independent of the price level
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ___________. Potential GDP ___________.
The LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along _________. The quantity of real GDP supplied __________.
The SAS curve; increases
The loanable funs market is ____________
The aggregate of all individual financial markets
Statement regarding real GDP
The annual growth rate of real GDP fluctuates widely over business cycle
In 1890, the US surpassed China to become the world's largest economy because ______________
The benefits of the Industrial Revolution were greater in the US than in China
When an event occurs that changes the demand for coffee makers, _________ if demand increases and ___________ if demand decreases
The demand curve shifts rightward; the demand curve shifts leftward
The expected price of a smartphone next year rises. What is the result of this event?
The demand for smartphones today increases
Economic growth is ____________
The expansion of production possibilities
Potential GDP is determined by ____________
The full-employment quantity of labor
Cyclical unemployment is ________________. An example of cyclical unemployment is ________________.
The higher than normal unemployment at a business cycle trough and the lower the normal unemployment at a business cycle peak; a restaurant worker who losses her job because of a downturn in the economy
Gross domestic product is __________
The market value of all the final goods and services produced within a country in a given time period
As we move up the short-run aggregate supply curve, _____________
The money wage rate, the prices of other resources, and potential GDP remain constant
The money price of a textbook is $90 and the money price of a Wii game is $45 The opportunity cost of the textbook in terms of the Wii game is ______
The number of Wii games you must give up to get the textbook
The aggregate demand curve shows the relationship between the quantity of real GDP demanded and _________ when everything else remains the same
The price level
A movement along the aggregate demand curve occurs if _____________
The price level changes and all other factors remain the same
The demand for gym memberships does not change when a change in _______ occurs
The price of gym memberships
Potential GDP increases when ____________.
The quantity of capital increases
Mexico trades with the United States. Explain the effect of each of the following events on the quantity of real GDP demanded and aggregate demand in Mexico. When the price level falls in Mexico ____________
The quantity of real GDP demanded in Mexico increases
Statement regarding Real GDP
The quantity of real GDP is the sum of the real consumption expenditure, investment, govt. expenditure, and exports minus imports
An increase in the price level when the money wage rate remains unchanged increases _________________.
The quantity of real GDP supplied
Statement regarding real GDP
The quantity of real GDP supplied equals potential GDP at the price level at which real wage rate is at full-employment equilibrium
With a rise in the money wage rate, __________
The quantity that firms are willing to supply at each price level decreases
The real interest rate is the opportunity cost of loanable funds because
The real interest paid on borrowed funds is the opportunity cost of borrowing and the real interest rate foregone is the opportunity cost of not saving or not lending those funds
When a shortage or surplus arises in the loanable funds market
The real interest rate is pulled to the new equilibrium level
Statement regarding the real interest rate
The real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money
As we move up along the long-run aggregate supply curve _______________
The real wage rate remains constant
Statement regarding real GDP
The relationship between the quantity of real GDP supplied and the price level is different in the long run than in the short run
The money price of a pound of bananas is $0.20 and the money price of a pack of frozen waffles is $1 The relative price of a pack of frozen waffles is an opportunity cost because
The relative price tells us how many pounds of bananas we must give up to get a pack of frozen waffles
The two broad sources of potential GDP growth are the growth of ________ and growth of __________
The supply of labor; labor productivity
Physical capital is __________. Financial capital is ____________.
The tools, instruments, machines, buildings, and other items that have been produced in the past that are used today to produce goods and services; the funds that firms use to buy physical capital
Gross investment is ____________. Net investment is ____________.
The total amount spent on new capital; the change in the value of capital
An economy is at full employment when ________
The unemployment rate = the natural unemployment rate
Frictional unemployment is ________________. An example is _____________.
The unemployment that arises from normal labor turnover - from people entering and leaving the labor force and from the ongoing creation and destruction of jobs; new college graduates looking for work
Structural unemployment is __________________. An example is __________________.
The unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations for jobs; coal miners who are unemployed because new technology has made other types of energy cheaper and more accessible
Nominal GDP is __________. Real GDP is ____________
The value of the final goods and services produced in a given year valued at the prices of that year; the value of final goods and services produced in a given year when valued at the prices of a reference base year
The unemployment rate is never zero, even at full employment because _______________
There are always new workers entering the labor market to search for work leaving one job to search for another, and workers who have been laid off and are searching for another job
An unemployed person _________
Wants work, has made specific efforts to find a job within the previous four weeks, or is waiting to be called back to a job from which he or she has been laid off, or is waiting to start a new job within 30 days
Explain the relationship between asset prices and the interest rate
When the price of an asset rises, the interest rate falls and everything else remaining the same
Mitsubishi Heavy Industries makes the wings of the new Boeing 787 Dreamliner in Japan. Toyota assembles cars for the U.S. market in Kentucky. Explain where these activities appear in Japan's National Income and Product Accounts.
When the wings are sent to the US, their value appears as Japanese exports in calculating Japan's GDP
A consequence of scarcity is
Whether to sleep after attending an all-night party or to attend your Econ lecture Whether to take a part-time job or to take an extra course this term Whether to play the piano or to study for the next hour
_________ is an example of US consumption expenditure
Your purchase of a tire for your car
The inflation rate is calculated as _________
[(CPI this year - CPI last year) / CPI last year] x 100
When labor productivity increases, there is _________ the production function and ____________ in potential GDP
an upward shift; increase
If demand and supply change in the same direction, we ________ the direction of change of the equilibrium quantity and we _________ the direction of change of the equilibrium price
can predict; cannot predict
The FED cuts the quantity of money and all other things remain the same. In the short run, aggregate demand _____________
decreases because interest rates rise and it is more difficult to get a loan to buy homes and large consumer goods
Aggregate demand ___________ when a decrease in foreign income occurs. Aggregate demand __________ when a decrease in taxes occur.
decreases; increases
In June 2015 the US unemployment rate was between 5.2%. In June 2017 the unemployment rate was 4.4%. If unemployment remained constant between June 2015 and June 2017, then the labor force ___________
increased
A government budget surplus occurs, which ___________ loanable funds
increases the supply of
An increase in the population __________ potential GDP and _________ potential GDP per hour of labor
increases; decreases
What is the effect of the event on the demand for Xbox One games and the quantity of Xbox One games demanded, other things remaining the same? The number of people writing and producing Xbox games increases This event _________ the ________ of Xbox games
increases; quantity demanded
The firm that printed your textbook bought the paper from XYZ Paper Mills. This purchase of paper _________ part of GDP because the paper is _________ good
is not; an intermediate good
An increase in population ____________ the real wage rate
lowers
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _________ changes in step with the price level to maintain full-employment
money wage rate
If all newly hired people had been unemployed, the labor force participation rate would have __________ and the unemployment rate would have ________
not changed; decreased
In the long-run macroeconomic equilibrium, _____________
potential GDP and aggregate demand determine the price level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the long-run equilibrium price level
The inflation rate is the percentage change in the _________ from one year to the next. Deflation is a situation in which the ________ is ________ and the inflation rate is _________.
price level; price level; falling; negative
The crowding out effect is the tendency for a govt. budget deficit to ___________ the real interest rate and decrease ___________
raise; investment
The demand for labor is the relationship between the quantity of labor demanded and the ________
rea wage rate
The price at which the quantity demanded equals the quantity supplied is the equilibrium price because
the plans of producers and consumers are coordinated and there is no influence on the price to change