econ exam 3 ch 7-9
if a country's population is 5 million and its output is 196 billion, its per capital output is about
$39,000
Given the following information, we can infer that aggregate income equals: Profits $100 Rent $150 Compensation to employees $500 Interest $150 Taxes $100 Transfer payments $50
$900
how to find inflation between year A and year B
(B price - A price) then divided by A price. multiply by 100 for rate of inflation
the rule of 72 implies that a country with a growth rate of 6 percent will double its income in about
12 years
if the real interest rate is 2 percent and inflation rate is 1 percent, what is the nominal interest rate
3 percent
the rule of 72 implies that a country with a growth rate of 8 percent with double its income in about
9 years
how to see only long run equilibrium in graph
AD and AS curve intersect with straight potential output line
the total market value of all finals goods and services produced in a country in a year is
GDP
how to calculate GDP
GDP = C + I + G + (X-M)
how to calculate GDP per capita
GDP divided by the total population
what does aggregate mean
a whole formed by combining several elements, a total
GDP measures output in how long?
a year and is a flow concept. GDP excludes intermediate products so it is the value of final output.
how to calculate per capita income
aggregate income of group /divided/ by total population in that group
potential income is that level of income that
an economy is capable of producing without generating higher inflation
in 2008, us aggregate income increased roughly $460 billion. which of the following could possibly account for this increase in aggregate income
an increase in profits of $460 billion
the paradox of thrift occurs when
an increase in saving reduces output
which of the following is an example of a contractionary fiscal policy
an increase in taxes
an increase in the aggregate demand curve will, in the short run, change
both output and the price level
an economy's resources
can be overutilitzed, but only temporarily
the growth model in which capital accumulation plays the key role is called the
classical growth model
small differences in growth rates can create large differences in income levels because of
compounding
according to keynes why might deflation create problems for an economy
consumers might expect prices to fall further and cut back consumption now
the largest expenditure component of GDP is
consumption
in 2009, the personal savings rate rose. if additional savings were not translated into investment, keynes would predict that aggregate income would
decline and remain there
according to keynes, the economy could become stuck at a low income level if
declines in aggregate demand and aggregate supply reinforce one another
In the early 2000s, analysts feared that low academic achievement in math in the United States may reduce U.S. economic growth by as much as half a percentage point a year. In terms of factors leading to growth, the low math scores indicate that the U.S. may be at a disadvantage in terms of:
human capital
A depreciation of the dollar should increase and decrease what
increase US exports and decrease US imports
what does real GDP control
inflation
a change in business inventories is counted in GDP as
investment
Haiti has a literacy rate (the percentage of those over 15 who can read and write) of about 66 percent. In terms of the various factors that explain the wealth of nations, where does this low literacy rate fit?
it indicates that haiti is short on human capital
how is the AS/AD model related to the supply and demand model of microeconomics
it looks similar to the supply and demand model but it is not based on it
one of the limitations of aggregate accounting is that
it measures market activity, not social welfare
suppose that consumers decide to save less and spend more. what effect would this have in the market for loanable funds
it will increase interest rates and the quantity of funds lent will fall
suppose that a business discovers an opportunity that requires funds to exploit. what effect would this have in the market for loanable funds
it will increase interest rates and the quantity of funds lent will rise
How would the AD curve shift if consumers expect to earn lower incomes in the future
left shift
How would the AD curve shift if the distribution of income shifts towards wealthier families that purchase more imported goods
left shift
How would the AD curve shift if the dollar appreciates in value
left shift
when a decline in aggregate demand causes firms to cut output and lay off workers, households have
less income to spend, which reinforces the decline in aggregate demand, triggering an additional reduction in aggregate supply and so on
GDP is a good measure of
market activities at market prices
the US produces and sells millions types of products. to add them up to a single aggregate, each good is weighted by its
market price
according to keynes, market economies
may recover slowly after they experience a significant decline in aggregate demand.
the difference between gross domestic product (GDP) and gross national product (GNP) is that GDP:
measures the economic activity that occurs within a country while GNP measures the economic activity of all the people and businesses of a country
the substitution effect pertains to
microeconomic supply and demand curves and is not relevant for the discussion of the aggregate economy
How would the AD curve shift if consumers substitute from a good rising in price to an alternative
no shift
How would the AD curve shift if the us price level rises as expected
no shift
the total annual market value of a nation's final output of goods and services computed at existing prices is called
nominal GDP
real interest rate equals
nominal interest rate -minus- inflation
if the market prices of publicly traded stocks and bonds rise, while the productive capacity of those assets has not increased, which of the following has occurred
nominal wealth has increased
for keynes, the short run was more important because
output seldom reached its potential, even over long periods of time
what are the four components of aggregate income
profits, rent, employee compensation, interest
suppose that both nominal GDP and prices double. we can conclude that real output:
remained constant
payments for the use of land and buildings are included in aggregate accouting as
rents
How would the AD curve shift if foreign income increases
right shift
if you decide not to spend $1,000 you earned at your summer job but instead intent to buy shares in a mutual fund, in terms of aggregate economic accounting you would be:
saving
In 2009 Iran was experiencing inflation of about 20 percent per year. Other things equal, the expectations by the people of Iran of worsening inflation in the future would probably:
shift the AD curve to the right
From the mid-1980s to 2009, the value of the Japanese yen fell from over 300 yen per dollar to about 100 yen per dollar. Considering the impact of this alone, this would likely:
shift the US AD curve to the right.
if total income remains the same but profits fall and real wages rise, the aggregate demand curve will most likely
shift to the right
to combat inflation in 1955 and 1956, the fed reduced the money supply. in terms of the AS/AD model, this change should have
shifted the AD curve to the left
we can show economic growth in terms of the production possibility curve by:
shifting the production possibility curve outward
an increase in US exports and decrease in US imports shifts the US AD curve where
shifts curve to the right
the legal system is an example of
social capital
Which of the following is not a reason why the AD curve slopes downward
substution effect
value added is calculated by
subtracting the cost of materials used in production from the value of sales
according to estimates in the text, which of the following factors made the most important contribution to the growth of the us from 1928 to today
technology
new growth theory emphasizes the importance of increases in what factor in explaining growth
technology
according to estimates in the text, which of the following factors made the most important contribution to the growth of the US from 1928 to today
techonolgy
an economy is in short and long-run equilibrium where
the AD, SAS, LAS curves intersect
the reason why the AS/AD model does not depend upon the concepts of substitution and opportunity cost is that
the AS/AD model considers total output. There are not goods to substitute
a short run equilibrium exists at the point at which
the aggregate demand curve intersects the short run aggregate supply curve.
keynes argued that
the short run is a more important policy concern than the long run
according to the income approach, aggregate income equals...
the sum of profits, rent, interest, and employee compensation
which of the following is not part of the US GDP
the value of a BMW imported from Germany
which of the following is part of GDP
the value of a haircut... only market transactions are included in GDP
equilibrium income is that level of income
toward which the economy gravitates in the short-run
while the us government has a budget of roughly $2 trillion, less than half of this budget counts as part of GDP. This is because
transfer payments are not counted as part of GDP
if potential output is less than actual output, eventually the short-run aggregate supply curve will shift
up and eliminate the inflationary gap
which of the following is a stock concept
wealth
what is a recessionary gap
when aggregate output is below potential output (intersection of AD curve and AS curve below straight potential line)
the rule of 72 implies that a country with a growth rate of 2 percent
will double its income in about 36 years
the reason economists include only the value of final goods and services when they calculate GDP is that intermediate goods:
would be double counted otherwise
GNP equals
C + I + G + (X - M) plus foreign net factor income
GDP is concerned with the location of production while
GNP is concerned with the ownership of the factors of production
How to calculate GDP deflator
Nominal GDP/Real GDP x 100
the study of growth assumes that an economy is operating
ON its production possibility curve and focuses on how increases in output can be obtained by moving a given PPC outward
in 2008, us GNP exceeded US GDP by approximately $133 billion. This implies that
US Factor income earned abroad exceeded foreign factor income by $133 billion
which of the following factors will shift the long-run aggregate supply curve
a change in available resources
what does the rule of 72 say
a country's income will double in the number of years equal to 72 divided by the country's growth rate.
what is social capital
a habitual way of doing things that guides people in how they approach production
What is the multiplier effect?
a phenomenon whereby a given change in a particular input, such as government spending, causes a larger change in an output, such as gross domestic product.
an increase in the price level
decreases the purchasing power of money, leading to higher interest rates and decreases investment
saving is done by persons who
do not spend income
an increase in aggregate demand
does not change potential output
which of the following is not included in GDP but is included in GNP
economic activity of US citizens working abroad
the study of economic growth focuses on the factors that causes an
economy's production possibility curve to shift out
the multiplier effect makes the aggregate demand curve
flatter
GDP is a:
flow concept and refers to the market value of final output
what are intermediate goods
goods used to produce other goods
In the early 2000s, analysts feared that low academic achievement in math in the United States may reduce U.S. economic growth by as much as half a percentage point a year. "That drag will become increasingly apparent...as other countries dismantle regulatory obstacles and alter tax laws that put them at a disadvantage." In terms of sources of growth, the quotation suggests that some other countries are currently at a disadvantage because of:
growth-compatible institutions
by the 1950s, the views of the classical economists among american economists
had been largely eclipsed by keynesian views
aggregate income is a measure of
household and business earnings from the sale of productive resources
