Quiz/HW Questions
The Federal Reserve System has _________ Federal Reserve districts.
12
In year 2004, in Candamica, consumption expenditure was $13 billion, interest, rent, and profit were $1.5 billion, government expenditures on goods and services were $3 billion, net exports of goods and services amounted to $2 billion, and investment was $8 billion. Hence total expenditure was
13 + 8 + 3 + 2 = $26 billion
Discouraged workers = 1.3 million Unemployed workers = 5.0 million Employed workers = 136.0 million Working-age population = 221.0 million Using the data in the table above, what's the labor force?
141 million
If U.S. real GDP in 1998 was $8.43 trillion and U.S. real GDP in 1999 was $8.80 trillion, what was the economic growth rate of the United States during 1999?
4.4%
This year, real GDP per person in Country A is eight times real GDP in Country B. If Country B's real GDP per person grows at a rate of 5 percent, about how many years will it take for Country B to reach the level of real GDP per person in Country A in this year?
42 years 70/5 = 14 14 x 3 = 42
The Fed's monetary policy is determined by the
Federal Open Market Committee
What's the difference between financial and physical capital?
Financial capital are funds that firms use to buy and operate physical capital. Physical capital are items that have been produced in the past and that are used to produce goods and services.
Who are demanders of funds in the financial market?
Firms and the government
What increases frictional and structural unemployment?
Frictional unemployment is not a direct result of economic factors and occurs when workers search for jobs. Conversely, structural unemployment is caused by shifts in the economy, which makes it difficult for workers to find employment.
Banks lower the risk of making loans by
lending to a large number of individuals and firms
Sherri lives in Canada and is considering buying a new sofa. (Assuming it is the same price!) If the price level in Canada falls and the price level in the United States does not change, Canadian manufactured sofas are relatively
less expensive, so Sherri will likely purchase a Canadian manufactured sofa.
Suppose that in 2006, real GDP is larger than nominal GDP. The GDP deflator in 2006 is definitely
less than 100.
When banks "pool risk," it means that banks
loan funds to many different types of businesses and individuals
Mexico City is notorious for its excessive pollution, Mexico's measure of GDP is
not affected by the value of the pollution's harm.
Discouraged workers who are over 16 years old are
not counted as unemployed, part of the working-age population
Philip is a 22-year old who has no job and is available for work, but has not actively looked for a job in the last month. The Current Population Survey identifies Philip as ________, ________ the labor force, and ________ the working-age population.
not unemployed; not part of; part of
The relationship between real GDP and potential GDP over the business cycle can be best summarized by which of the following statements?
real GDP fluctuates around potential GDP
Labor productivity is defined as
real GDP per hour of labor.
Moving along the AS curve, when the price level increases, the
real wage rate falls and there is an increase in the quantity of real GDP supplied.
A ______________________ is a decrease in real GDP that lasts for at least two quarters.
recession
Discuss why a budget deficit results in a different real interest rate under the Ricardo-Barro effect than under the crowding-out effect.
The crowding-out effect says that a budget deficit will decrease investment while the Ricardo-Barro effect will shift the saving supply curve. Since each effect changes different things, then the real interest rate will be different for both effects as well.
How does market eliminate surplus?
The surplus is eliminated as the price falls to the new equilibrium and the quantity rises to a new equilibrium. If existing firms exit the market, the supply curve will shift to the left, causing the equilibrium price to rise and the equilibrium quantity to fall.
crowding-out effect
The tendency for a government budget deficit to decrease investment
According to the Ricardo-Barro effect, what is the effect on the real interest rate of a government budget surplus?
There will be no effect.
How to calculate real income?
Real income is income of individuals or nations after adjusting for inflation. It is calculated by dividing nominal income by the price level.
Give an example of someone who would be classified as employed in the Current Population Survey?
Rich, who is working 20 hours a week but wants a full-time job
The new growth theory states that
Technological advances are the result of discoveries and choices.
When you see a mansion and think to yourself that it must be worth a million dollars, you are using money to perform which function?
Unit of account
Explain why the purchase and sale of used goods and of financial assets are not included in the calculation of GDP even though transactions in these items amount to billions of dollars daily.
Used goods are only included in the GDP in the year that they were produced. Financial assets are purchased, not produced.
Suppose Timothy is laid off from the automobile plant because of slow automobile sales. Timothy is looking for a new job. Timothy is considered
a job loser.
When you shop and then buy at the local grocery store, money is used as
a medium of exchange and a unit of account
Which is an example of a final good or service?
a new replacement tire installed by Pep Boys for your car
production function
a relationship that shows the maximum quantity of real GDP that can be produced as the quantity of labor employed changes and all other influences on production remain the same
The AS curve shifting to the left with the potential GDP (LAS curve) not shifting might be a result of
a rise in the money wage rate.
Which of the following assets has the most liquidity?
a savings account with $1,000 in it
Credit cards are
a special ID card that is not money
A bank has reserves of $50, deposits of $100, loans of $20, and government securities of $30. Assume the required reserve ratio is 20 percent. a. What's the bank's excess reserve? b. What is the amount of money that the entire banking system can create?
a. $100 x 0.20 = $20 $50 - $20 = $30 b. $30 x 1/0.2 = $150
Zonal company produces waste disposal machines and sells them to militaries all over the world. The company started last year with $10 million of capital on hand and invested $15 million in new capital throughout the year. At the end of the year, the company's capital stock was $17 million. a. What is gross investment? b. What is depreciation? c. What is net investment?
a. $15 million b. $8 million c. $7 million
During 2006, suppose a country's total purchases of newly produced capital goods is $2,000 billion, issues $1,600 billion of stock, and has $500 billion in depreciation. a. What is gross investment? b. What is net investment?
a. $2000 billion b. $2000 - $500 = $1500 billion
GDP deflator
an average of current prices expressed as a percentage of base-year prices (Nominal GDP/Real GDP x 100)
A rightward shift on the investment demand curve could be the result of
an increase in the expected rate of profit
The potential real GDP and aggregate supply shifting to the right can be a result of
an increase in the quantity of capital
During the late 1960s, U.S. defense spending increased as the United States fought in Vietnam. This increase in government expenditures on goods and services created
an inflationary gap.
Which of the following decreases aggregate demand and shifts the AD curve leftward?
an interest rate hike
The medium of exchange is defined as
an object that is accepted in return for goods and services
As the central bank, the Federal Reserve System provides banking services to
banks and regulates financial institutions and markets.
What is a problem with barter that makes it so difficult to use?
barter requires a double coincidence of wants
For a commodity or token to be money it must
be accepted in exchange for all other goods and services.
In order for any given commodity to be considered money, it has to
be generally acceptable as a means of payment
Nominal and real GDP
can change either in the same direction or the opposite direction.
What is included as investment in GDP?
cars produced during the year but unsold at the end of the year, new capital equipment produced and purchased during the year
According to neoclassical growth theory, technological advances are the result of
chance.
In the neoclassical growth theory, technological advances are the result of ____________ and in the new growth theory, technological advances are the result of _____________.
chance; people's decisions
What changes aggregate supply and shifts the aggregate supply curve?
change in potential GDP, change in the money wage rate
A change in the price level
changes the quantity of real GDP supplied.
Which of the following is money?
checkable deposit
Which of the following is NOT held as an asset by banks?
checkable deposits
Expenditures on U.S. produced steaks, shoes, and doctor visits are most likely classified as
consumption expenditures
shoe-leather cost
costs that arise from an increase in the velocity of circulation of money and an increase in the amount of running around that people do to try to avoid incurring losses from the falling value of money
The tendency for higher government budget deficits to decrease investment is called the
crowding-out effect.
M1 is composed of
currency held by individuals and businesses, traveler's checks, and checkable deposits owned by individuals and businesses
Which of the following is an example of money?
currency in your wallet
What are the factors that change the supply of saving and shift the saving supply curve?
disposable income, the buying power of net assets, expected future disposable income
According to classical growth theory, when real income __________, the population grows.
exceeds the subsistence real income
If real GDP is less than potential GDP, then the money wage rate __________, aggregate supply _________, and the price level ___________.
falls; increases; falls
The U.S. dollar is called
fiat money because the law decrees it is money
Monetary institutions, such as commercial banks, perform all of the following economic functions EXCEPT
fighting inflation
GDP is the sum of the market value of all
final goods and services produced within a country in a given time period.
The store of value function is defined as the
holding of money from one transaction to be used later in another transaction
Economic freedom is a precondition for economic growth. Which of the following is a characteristic of economic freedom? i. The form of government must be democratic. ii. Property rights must be protected. iii. The government must support and pay for invention and innovation.
ii only.
As measured, GDP omits which of the following?
illegal sales of goods and services, changes in the amount of leisure time and household production of goods and services
What shifts demand curve?
income, prices of related goods, tastes, expectations, number of buyers
What are the 2 causes of unemployment at full employment?
job creation and job destruction and from the movement of people into and out of the labor force
The real wage rate definitely falls if the money wage rate __________ and the price level __________.
remains constant; rises
If real GDP and population grow at the same rate, then the standard of living, as measured by real GDP per person,
remains the same
When a commercial bank receives a deposit, it must keep part of the deposit as cash reserves to satisfy its
required reserves
Suppose that there is an increase in future expected disposable income and simultaneously an increase in the profitability of investment. As a result, the equilibrium real interest rate ____________ and the equilibrium quantity of investment ___________.
rises; might increase, decrease, or not change
A country initially has an equilibrium real interest rate of 4 percent and an equilibrium quantity of investment of $2 trillion. The government then runs a budget deficit. According to the crowding-out effect, the
saving supply curve shifts leftward, the real interest rate rises, and investment decreases.
The Ricardo-Barro effect refers to how the ___________ in response to a government budget ___________.
saving supply curve shifts; deficit
Joe has been unable to find a job because he lacks the necessary computer skills. Joe is
structurally unemployed.
How to calculate marginal cost curve?
subtract original price from the total price of a one-unit increase in output
Investment Private saving Net taxes Government expenditures Real interest rate (trillions of (trillions of (trillions of (trillions of (percent per year) 2000 dollars) 2000 dollars) 2000 dollars) 2000 dollars) 3 60 20 40 20 4 50 30 40 20 5 40 40 40 20 6 30 50 40 20 7 20 60. 40 20 The government has a budget
surplus of $20 trillion. NT - G = 40 - 20 = 20
In the neoclassical growth theory, growth stops when _________.
technology stops advancing
comparative advantage
the ability of a person to perform an activity or produce a good or service at a lower opportunity cost than anyone else
If real GDP is greater than potential GDP, then in order to restore equilibrium, ___________ and the price level ___________.
the aggregate supply curve shifts leftward; rises
What is money multiplier?
the amount of money the banking system generates with each dollar of reserves; 1/Required Reserve Ratio (RRR)
Potential GDP is
the amount of real GDP that the economy would produce if it were at full employment
What influence firms decision to hire?
the economy
consumption
the expenditure by households on consumption goods and services
cyclical unemployment
the fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion
In the figure above, the shift in the aggregate demand curve to the left could be the result of an increase in
the foreign exchange rate.
Unemployment increases when
the government decreases its expenditures on goods and services.
What is an example of what would NOT be directly included in the U.S. GDP in 2006?
the market value of the computer chips produced in 2006 and used by Dell in their latest personal computer
The short run aggregate supply curve shifts rightward when
the money wage rate falls.
The idea of continuous economic growth as a "perpetual motion machine" best reflects the prediction of which growth theory?
the new growth theory
Suppose the population of Toon Town is 100 people and the working-age population is 70. If 10 of these people are unemployed, what other information do you need to find the unemployment rate?
the number of people employed
What influences the price elasticity of demand?
the number of substitutes available to consumers, the price of the good relative to total income, the time period buyers have to respond to a price change, whether the good is a necessity or a luxury
What affects potential GDP?
the quantity of labor employed, the quantity of capital and human capital, the amount of entrepreneurial talent available, the quantity of land and natural resources
When people read a price tag on an article of clothing, money is functioning as a
unit of account
The Consumer Price Index measures the average prices paid by
urban consumers for a fixed market basket of goods and services.
The word "fiat" is
used to describe today's money because it is money set by law
When does full employment occur?
when there is no cyclical unemployment
A bank receives new deposits equal to $200,000 and the required reserve ratio is 10 percent. What is the amount of total deposit expansion that can occur for the entire banking system?
$200,000 x 1/0.10 = $2,000,000
If labor productivity is $30 per hour and there are 300 billion hours worked in a year's time, what is real GDP?
$30 x 300 billion = $9,000 billion.
If currency held by individuals and businesses is $800 billion; traveler's checks are $10 billion; checkable deposits owned by individuals and businesses are $700 billion; savings deposits are $4,000 billion; small time deposits are $1,000 billion; and money market funds and other deposits are $800 billion, then M1 equals ___________ billion.
$1,510
The price of a bag of pretzels rises from $2 to $3 and the quantity demanded decreases from 100 to 60. Use the total revenue test to determine whether the good has elastic or inelastic demand? Show work and explain.
$2 x 100 = $200 $3 x 60 = $180 The good has elastic demand because the total revenue decreases.
Investment Private saving Net taxes Government expenditures Real interest rate (trillions of (trillions of (trillions of (trillions of (percent per year) 2000 dollars) 2000 dollars) 2000 dollars) 2000 dollars) 3 60 20 40 20 4 50 30 40 20 5 40 40 40 20 6 30 50 40 20 7 20 60. 40 20 When the real interest rate is 4 percent, total saving is equal to
$50 trillion. PS + (NT - G) = TS 30 + (40 - 20) = 50
Data for 2006 Magazines - 10 - $5 Paperback books - 10 - $10 Data for 2007 Magazines - 30 - $10 Paperback books - 20 - $15 Use the chained-link method and find the real GDP for 2007.
(10 x 5) + (10 x 10) = 150 (30 x 5) + (20 x 10) = 350 ((350 - 150)/150) x 100% = 133.33% (30 x 10) + (20 x 15) = 600 (10 x 10) + (10 x 15) = 250 ((600 - 250)/250) x 100% = 140% (133.33 + 140)/2 = 136.665 150 increased by 136.665 percent 150(2.37) = $355.50
Discouraged workers = 1.3 million Unemployed workers = 5.0 million Employed workers = 136.0 million Working-age population = 221.0 million Using the data in the table above, what is the labor force participation rate?
(141/221) x 100 = 63.80%
Suppose the population is 250 million people, the labor force is 150 million people, the number of people employed is 130 million and the working-age population is 200 million people. What is the unemployment rate?
(20/150) x 100 = 13.33%
Suppose the price of a box of cereal rises from $4 to $6. Using the midpoint method, what is the percentage change in price?
(6-4)/((6+4)/2) = 2/5 = 40 percent
Wages - $220 billion Consumption expenditure - $210 billion Interest, rent, and profit - $65 billion Statistical discrepancy - $0 billion Government expenditures - $60 billion Indirect taxes minus subsidies - $15 billion Net exports of goods and services - $-11 billion Depreciation - $16 billion Using the information in the table above, what is the GDP? What is net domestic product at factor cost equal?
220 + 65 = $285 billion - net domestic product at factor cost 285 + 15 + 16 + 0 = $316 billion - GDP
If the U.S. population grew at a 0.9 percent during 2005 and real GDP grew at a 4.4 percent during the same period, what was the growth rate of real GDP per person?
3.5 percent 4.4 - 0.9 = 3.5
During 2005, net domestic product at factor cost equals $3,300 billion. Indirect taxes minus subsidies equals $200 billion, consumption is $1,000 billion, government spending is $2,300 billion, depreciation equals $800 billion, and the statistical discrepancy equals zero. The country's GDP equals
3300 + 200 + 800 + 0 = $4,300 billion
Investment Private saving Net taxes Government expenditures Real interest rate (trillions of (trillions of (trillions of (trillions of (percent per year) 2000 dollars) 2000 dollars) 2000 dollars) 2000 dollars) 3 60 20 40 20 4 50 30 40 20 5 40 40 40 20 6 30 50 40 20 7 20 60. 40 20 The capital market is in equilibrium when the real interest rate is
4 percent I = S + (NT - G) 50 = 30 + (40 - 20) 50 = 50
Approximately how long will it take Ethiopia to double its real GDP per person of $100 if its growth rate of real GDP per person is 0.9 percent?
77.7 years
What is included in GDP calculation?
C (consumption) + I (investment) + G (government) + NX (net exports)
What is CPI bias and its impact on contracts?
CPI bias is when components of the cost of living that are measured by the CPI are not always measured correctly; distorts private contracts
What will change the price of bonds?
Changes in interest rates affect bond prices by influencing the discount rate. Inflation produces higher interest rates, which in turn requires a higher discount rate, thereby decreasing a bond's price. Bonds with higher risk and lower credit ratings are considered speculative and come with higher yields and lower prices.
Give an example of someone who is frictionally unemployed.
Eugene, a pharmaceutical drug salesman who was laid off when his company when his company lost a large contract with an HMO.
What is in the CPI market basket?
Housing (42 percent), transportation (17 percent), food and beverages (15 percent), other (28 percent)
What's the consequence of hyperinflation?
Hyperinflation erodes the value of currency and can render it worthless. The effect on a nation's economy is substantial. It saps tax revenues, shutters businesses, raises the unemployment rate, and drives the cost of living so high that political instability ensues.
For the global economy as a whole, it must always be true that
I = S + (NT - G)
Assume a technology breakthrough enables extraction of bio-fuel from seaweeds and now production cost of all sectors of businesses will be cheaper. Which curve will shift, ID or SS? To which direction?
ID to the right
How is shortage and surplus created?
If a producer prices his vehicles at too low of a price and the quantity demanded exceeds the quantity supplied, a shortage is created. A surplus, also called excess supply, occurs when the supply of a good exceeds demand for that good at a specific price.
While in school, Keila spends 20 hours a week as a computer programmer for Microsoft and studies 30 hours a week.
Keila is classified as a part-time worker, working 20 hours a week.
What happens to labor productivity when capitals remain the same but population increases?
Labor productivity = Real GDP/Aggregate Hours, so labor productivity will decrease
What kind of products are likely to have an elastic demand?
Lexus automobiles, big screen television sets, lobsters, cruises to Alaska
When Katie withdraws $250 in currency from her savings account through an ATM machine at her credit union,
M1 increases and M2 does not change
If Joe withdraws a $100 bill from his checking account and Jack deposits another $100 bill in his savings account, by how will M1 and M2 change?
M1 will decrease, but M2 will remain the same.
In December 2000, currency was $340 billion, traveler's checks were $4 billion; checkable deposits owned by individuals and businesses were $450 billion, saving deposits were $1,900 billion, time deposits were $1,000 billion; and money market funds were $900 billion. What was the M1 in December 2000? What about M2?
M1: 340 + 4 + 450 = $794 billion M2: 794 + 1900 + 1000 + 900 = $4594 billion
What causes a movement of supply curve?
Movement along the supply curve is driven solely by price.
You write a check to your landlord. After the check clears, does the quantity of money change? What about reserves in the banking system?
No; The reserves stay the same.
investment demand
The relationship between the quantity of investment demanded and the real interest rate, other things remaining the same
saving supply
The relationship between the quantity of saving supplied and the real interest rate, other things remaining the same
During 2006, a country reports that its price level fell and the money wage rate did not change. These changes lead to
a higher real wage rate, lower profits, and a decrease in the quantity of real GDP supplied.
Kimberly decided to open up a cupcake store named Kimberly's Kupcakes. After a busy first day, Kimberly had 10 left over cupcakes. Do the leftover cupcakes count toward the GDP? Explain.
Yes, because they count as an addition toward inventory, which count toward investment, which count toward GDP.
Year CPI Nominal Wage Rate Nominal Interest Rate (dollars) (percent) 2004 100 15.00 3 2005 95 15.00 4 2006 103 17.00 9 The table above has information about the CPI, nominal wage rate, and nominal interest rate for the country of Syldavia for the years 2004 to 2006. The reference base year is 2004. What's the inflation rate from 2005 to 2006?
[(103-95)/95] x 100 = 8.42%
What changes shift the SAS curve?
a change in the price of a major resource, increase in the amount of capital, a change in the money income of workers
Imports - $50 Exports - $30 Wages - $1000 Government Spending - $500 Rent - $300 Investment - $700 Consumption - $950 Indirect taxes less subsidies - $400 Profits - $170 Depreciation - $150 Interest - $100 The table above gives the values of different expenditures in the United States during 1999. Answer the following questions about the United States. a. What was the value of net exports of goods and services in 1999? b. What was GDP equal to in 1999 using income approach? c. What's the statistical discrepancy?
a. $30 - $50 = -$20 b. $1000 + $100 + $300 + $170 + $400 + $150 = $2120 c. ($950 + $700 + $500 - $20) - $2120 = $10
Real interest rate Investment Saving (Percent per year) (trillions of 2000 dollars) (trillions of 2000 dollars) 10 7 15 8 9 13 6 11 11 4 14 9 2 17 7 The table above shows the saving supply and investment demand schedules. a. What is the equilibrium real interest rate and the equilibrium quantity of investment? b. If the real interest rate is 4 percent, is there a shortage or surplus? What will happen in the market?
a. 6%; 11 trillion of 2000 dollars b. Shortage; real interest rate goes up
Explain how and why the following events would affect a country's saving supply curve: a. Massive unemployment causes people's disposable income to decrease. b. Real interest rate increases.
a. saving supply curve would shift left because people would have less money to save b. movement upward the curve; people want to save more if they know the interest is high
Explain how each of the following events would affect the saving supply curve: a. The economy is in a recession so people's income is lower. b. The stock market is booming.
a. shifts left b. shifts left
To measure GDP by using the income approach, we must add all incomes and then _________ depreciation and _________ net taxes less subsidies.
add; add
Money is best defined as
anything accepted as a means of payment
If the AS curve shifts to the right, identify one factor that can lead to the shift.
decrease in money wage rate or decrease in price of major resource
a reduction in unemployment compensation will
decrease the amount of frictional unemployment
To increase the quantity of money, the Fed might
decrease the required reserve ratio
If the money wage rate is constant and the price level increases, what happens to the real wage rate? What will happen to firms' profits? What about the quantity of real GDP supplied?
decrease; increase; increase
According to the crowding-out effect, if the government runs a budget deficit of $100 billion, how will such deficit change the equilibrium quantity of investment? Will the change in investment be greater than, equal to, or less than $100 billion?
decrease; less than $100 billion
In the late 1920s, the U.S. economy experienced a decrease in investment, which perhaps triggered the Great Depression. The decrease in investment _______________ aggregate demand.
decreased
As economies experience sustained increases in real GDP per person, the data show that the birth rate __________ and the death rate ___________.
decreases; decreases
Aggregate demand
increases if the expected inflation rate increases.
An increase in technology ____________ potential GDP and ________ aggregate supply.
increases; increases
After calculating net domestic product at factor cost, to calculate GDP using the income approach, in part we must add
indirect taxes and depreciation
If the percentage change in the quantity demanded is not zero but is less than the percentage change in the price, demand is
inelastic
What shifts supply curve?
input prices, technology, expectations, number of sellers
What is included in the income approach to calculating GDP?
interest, wages, profits, rent
If the percentage change in price is 10 percent and the demand is elastic, then the percentage change in the quantity demanded
is larger than 10 percent.
In order to conduct monetary policy, the Federal Reserve System adjusts the
quantity of money
A rise in the price level ________ the buying power of money and __________ the quantity of real GDP demanded.
lowers; decreases
What would be the effect of falling real interest rate on the investment demand curve?
movement downward the curve
Moving along the potential GDP line, if the price level rises, what will happen to real GDP?
movement upward the curve
On January 1, 2006, United Delivery had trucks valued at $1.3 million. During 2006, United Delivery purchased new trucks valued at $500,000. If the value of the trucks on December 31, 2006 was $1.5 million, what is the amount of its net investment and depreciation during 2006?
net investment: 1.5 - 1.3 = 0.2 million = $200,000 depreciation: $1.3 + 0.5 = 1.8 - 1.5 = 0.3 = $300,000
If profits are high,
new businesses open and the quantity of real GDP supplied increases.
Investment is defined as the purchase of
new capital goods and additions to inventories.
To be considered unemployed, a worker must have had
no employment during the week before the survey and be actively looking for a job
What are the tools of the Fed?
o Open-market Operations: buying or selling US government securities in the open market to influence level of bank reserves o Reserve Requirements policy: setting and changing the legal reserve-ratio requirements on deposits with banks and other financial institutions o Discount window lending: setting the interest rate, discount rate, and the collateral requirements with which commercial banks, other depository institutions, and primary dealers can borrow from the Fed o Lender of last resort - An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.
To measure the change in the standard of living, it is best to use the growth rate
of real GDP per person.
If you make dinner for yourself
only the market value of ingredients that you purchased is added to GDP.
According to classical growth theory, people earn only a subsistence real income because of
population
What is included in Germany's GDP?
porcelain produced by the English owned Wedgewood Company at a factory in Berlin, Germany
(NT-G) is
positive if the government runs a budget surplus
An increase in nominal GDP could result from an increase in
production, prices
Which of the following is a policy tool of the Fed?
setting the required required ratios, conducting open market operations
When potential GDP increases, the SAS will ___________________ to the ___________________.
shift; left
An increase in labor productivity(labor augmenting) _________ and ________ the demand for labor.
shifts the production function upward; increases
Everything else the same, if consumption expenditure increases by $200 billion and imports increase by $200 billion, what happens to GDP?
stay the same
What type of unemployment lasts longer? Frictional or structural? Explain
structural because workers must retrain and possibly relocate to find a job
When the automobile replaced horse-drawn carriages as the principal means of transportation, firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby increasing
structural unemployment
Canada's population is 31 million and Japan's population is 126 million. Labor productivity in the two nations is the same. Hence, real GDP per person is ____________ and real GDP is __________.
the same in Japan and Canada; larger in Japan
If Country A's real GDP per person is growing at 6 percent and Country B's real GDP per person is growing at 3 percent, then
the standard of living is growing more rapidly in Country A.
What is monetary base?
the sum of coins, Federal Reserve notes, and banks' reserves at the Fed
frictional employment
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
structural unemployment
the unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs
The circular flow shows that GDP measures
total income and total expenditures
