econ test 2
A _______ is a final good and _______ is an intermediate good.
. tank of gasoline bought by you; jet fuel bought by Southwest Airlines
If the population growth rate is 2 percent, real GDP per person will double in 7 years if real GDP grows by ______ percent per year.
12
If real GDP increases from $5 billion to $5.25 billion and the population increases from 2 million to 2.02 million, real GDP per person increases by ______ percent.
4.0 percent
Explain why, other things remaining the same, a country with a well-educated population has a faster economic growth rate than a country that has a poorly educated population.
A country with a well-educated population has more human resources to invest in expanding human capital, which can develop new and more productive technologies.
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. A- packing boxes bought on amazon B- DVD bought by household C- computer purchased for senators office D- new car bought by hertz
A is an intermediate good, B is a final good that is a consumption expenditure, C is a final good that is government expenditure, and D is a final good that is investment
Why does classical growth theory predict that economic growth will eventually end?
A population explosion that leads to a fall in labor productivity and the return of real GDP per person to the subsistence level
The U.S. economy is at full employment when the following events occur: 1. A deep recession hits the world economy. 2. The world oil price rises by a large amount. 3. U.S. businesses expect future profits to fall. Explain the combined effect of these events on the U.S. real GDP and price level.
All three events decrease real GDP. Events 1 and 3 lower the price level and Event 2 raises the price level, so we can't tell whether the price level rises or falls.
Why does unemployment continue to rise as an expansion begins?
As an expansion begins, previously marginally attached workers look for jobs, exceeding the number of people hired.
If the economy is at full employment and the Fed increases the quantity of money, ______.
B. aggregate demand increases, an inflationary gap appears, and the money wage rate starts to rise
If the BLS included all marginally attached workers as being unemployed, the _______ would be _______
D. unemployment rate; higher
How do the events change aggregate demand and aggregate supply?
Event 1 and Event 3 decrease aggregate demand and Event 2 decreases aggregate supply.
When Europe trades with Mexico and goes into a recession,
Mexico's exports to Europe decrease, Mexico's aggregate demand decreases, and Mexico's AD curve shifts leftward
The U.S. economy is at full employment when the following events occur: 1. A deep recession hits the world economy. 2. The world oil price rises by a large amount. 3. U.S. businesses expect future profits to fall. Which event, if any, brings stagflation?
Stagflation is rise in the price level and a decrease in real GDP. Only Event 2 has this effect.
When using the income approach to measure GDP at market prices, in addition to summing all factor incomes it is necessary to _______.
add indirect taxes less subsidies to convert aggregate income from factor cost to market prices
When potential GDP increases, ______
aggregate supply increases
The expenditure approach to measuring U.S. GDP equals _______.
all expenditure on final goods and services produced in the United States in a given time period
All of the following increase labor productivity except _____
an increase in consumption
An economy can achieve faster economic growth without ______.
an increase in the population growth rate
The standard of living can be easily compared _______.
between China and Russia or between Canada and the United States, because household production, the underground economy, leisure hours, and the environment are similar in each pair
An increase in expected future income increases ____
consumption expenditure, which increases current aggregate demand
When the economy goes into recession, the biggest increase in unemployment is _______.
cyclical because jobs are lost in many industries as they cut production
Mexico trades with the United States. When the United States experiences negative economic growth, Mexico's aggregate demand _______.
decreases because its exports to the United States decrease. Mexico'sAD curve shifts leftward
Event 1 _______ real GDP and _______ the price level.
decreases; lowers
If the government of Mexico raises income taxes, Mexico's aggregate demand _______.
decreases, and the aggregate demand curve shifts leftward
A marginally attached worker is a person who _______.
doesn't work, is available and willing to work, but hasn't looked for a job recently
Much of Africa experiences slow economic growth because it lacks _______.
economic freedom, private property rights that are enforced, and markets that function well
The preconditions for economic growth are _______.
economic freedom, private property rights, and markets
The standard of living cannot be easily compared in _______ because ___________.
either China or Russia and either Canada or the United States; in each pair household production, the underground economy, leisure hours, and the environment are different
When the unemployment rate _______ the natural unemployment rate, real GDP is _______ potential GDP and the output gap is _______. A. is below; above; negative B. exceeds; above; positive C. is below; below; negative D. exceeds; below; negative
exceeds; below; negative
Gross domestic product is the market value of all the _______ in a given time period.
final goods and services produced by all firms located in the United States
Saving equals _______.
income minus consumption expenditure minus net taxes
In the short run, when U.S. firms moved their IT and data functions to India, India's aggregate supply _______.
increased
in the short run when walmart and starbucks opened india, indias aggregate supply
increased
When Mexico increases the quantity of money, Mexico's aggregate demand _______.
increases and its AD curve shifts rightward
When the Mexican government sets new environmental standards that require factories to upgrade their production facilities, investment in Mexico increases and Mexico's aggregate demand _______.
increases. The AD curve shifts rightward.
The increase in real GDP per hour of labor that results from an increase in capital per hour of labor ______.
is larger at a small quantity of capital than at a large quantity of capital
Economic freedom is crucial for achieving economic growth because _______
it allows people to make choices and gives the incentive to save, invest, expand human capital, and discover and apply new technologies
The following statements about the business cycle are correct except _______.
it is a regular predictable cycle in real GDP around potential GDP
According to new growth theory, the driving force of economic growth is _______.
many people can use one discovery at a time
The increase in real GDP per hour of labor that results from an advance in technology makes labor ______ productive ______.
more; at all quantities of capital
Real GDP per person is not an accurate measure of the standard of living because it _______.
omits the goods and services that people produce for themselves
The classical growth theory is that real GDP per person ______.
only temporarily rises and then returns to the subsistence level
New growth theory predicts that economic growth will never end because _______.
our unlimited wants will lead us to make choices that will bring ever-greater productivity and perpetual economic growth.
Classical growth theory _______.
predicts that the clash between an exploding population and limited resources will eventually bring economic growth to an end
Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China's exports that has outstripped the growth of supply. As a result, China has experienced a ______.
rising price level and demand-pull inflation
Property rights encourage economic growth by _______.
strengthening the incentive to work, save, invest, and accumulate human capital
The economy is at full employment when all unemployment is _______.
structural and frictional
The trend in the labor force participation rate of women is due in part to _______. The trend in the labor force participation rate of men is due in part to _______.
the creation of more white-collar jobs with flexible work hours; some men taking early retirement
Aggregate supply increases when ______.
the money wage rate falls
In new growth theory, the source of economic growth is ______.
the persistent want for a higher standard of living
The quantity of real GDP demanded increases if ______.
the price level falls
When the price level in Mexico rises, _______
the quantity of real GDP demanded in Mexico decreases
Potential GDP is the value of real GDP when _______.
the unemployment rate equals the natural unemployment rate Your answer is correct.
To accurately assess the relative standard of living in these countries, we need additional information about _______.
the value of household production, the underground economy, leisure, and environment differences
The trend in the labor force participation rate of all working-age people is _______.
upward until 2000, and then downward
The BLS counts Jody as being unemployed if she _______.
wants a job and is willing to take a job but after searching last week cannot find a job
The resulting rise in unemployment is mostly a rise in _______ unemployment because _______.
cyclical; it is related to the state of the economy
Event 3 _______ real GDP and _______ the price level.
decreases; lowers
Event 2 _______ real GDP and _______ the price level.
decreases; raises
Macroeconomic equilibrium occurs when the quantity of real GDP ______ equals the quantity of ______.
demanded; real GDP supplied
In the short run, when the price level in India increased, India's aggregate supply _______.
didn't change, but the quantity of real GDP supplied increased
Based on this information, differences in real GDP per person _______ correctly rank the standard of living in these countries because _______.
do; when other factors that influence the standard of living are similar the differences in real GDP per person are small, but when these other factors are not similar, the differences are huge
