Macroeconomics

Some countries today are much poorer than other countries because a) some countries have more resources than others. b) some countries have lower tax levels than others. c) some countries began the process of modern economic growth sooner. d) some countries are located in more temperate climates.

C

The benefits of economic growth, particularly as measured by rGDP per captia, include a) greater mental health for the vast majority of people. b) improved international trade. c)higher living standards for the vast majority of people. d) improved physical health for the vast majority of people.

C

Today's poor countries are a) destined to always be poor, because they have too few resources. b) not always destined to be poor, since they can borrow money from wealthier countries. c) not always destined to be poor if they can develop the appropriate institutions to catch up to the wealthier countries. Correct d) destined to always be poor, because they started the economic growth process too late.

C

How is cost-push inflation unique? It results in an overall reduction in prices. It redistributes income and output. It negatively impacts companies, not consumers. It reduces the overall quantity of real output.

It reduces the overall quantity of real output

An economy is "fully employed" when the unemployment rate _____. -equals the frictional unemployment rate -equals 5% or higher -equals the structural and frictional unemployment rate - is equal to 0 -equals the structural unemployment rate

= structural + frictional

What is the most fundamental assumption behind the Keynesian aggregate expenditure model?

Prices in the economy are fixed

What happened to the real economic growth per capita in the U.S between 1950-2018?

Real GDP per capita rose nearly fourfold.

More labor inputs can explain _________ in real GDP over the last 65 years or so.

SOME of the increases

A nations acquires funds for investment spending on plant and equipment by __________ income. - borrowing -saving -financing - generating

Saving

What is the descending order of the contributors to the growth of productivity according to their quantitative importance

Technological advance, quantity of capital, education and training, economies of scale, and quantity of capital.

Economists define and measure economic growth as ______.

an increase in rGDP per capita over some period of time.

The net export schedule lists the amount of net exports that will occur ____________________.

at each level of GDP.

The noneconomic effects of unemployment include a) a sense of failure created in parents and in their children b) the costs of moving for unemployed persons. c) the unemployment benefits that are paid. d) the additional expense of helping unemployed family members.

A

What is potentially the result of overcapacity and the stalling of technological progress? - The antigrowth movement - An increase in productivity growth rates - A decline in productivity growth rates - Sustainable economic growth

A decline in productivity growth rates

Net export schedule?

A list of the amount of net exports that will occur at each level of GDP

Lump-sum

A tax that yields the same amount of tax revenue at each level of GDP, regardless of the level of gov't purchases

A difficult aspect of measuring the unemployment rate is a) making sure that all adults are included. b) determining who is eligible and available to work. c) each state uses a different process to calculate its unemployment data. d) the survey response rate is low.

B

An economywide expectation that a recession is over and that a robust expansion will occur. The consumption schedule will shift _________________. The saving schedule will shift ________________.

upward; downward.

What is the equilibrium level of output?

when the total quantity of goods produced = total quantity of goods purchased.

The type of inflation that is more likely to be associated with a positive GDP gap is a) output inflation. b) cost-push inflation. c) demand-pull inflation. d)international inflation.

demand pull

The relationship between spending and GDP is? Indirect Not enough information to determine Direct There is no relationship

direct

A 5-year increase in the minimum age for collecting Social Security benefits. The consumption schedule will shift ______________. The saving schedule will shift ______________.

downward; upward

A large decrease in real estate values, including private homes. The consumption schedule will shift ____________. The saving schedule will shift ______________.

downward; upward.

If the private closed economy is at equilibrium rGDP, then savings....

equals planned investment by businesses

If inventories unexpectedly rise, then production __________ sales and firms will respond by __________ output. - exceeds; reducing - trails; expanding - trails; reducing - exceeds; expanding

exceeds; reducing

If inventories unexpectedly rise, then production ________________ sales, and firms will respond by ________________ output.

exceeds; reducing

In a private, closed economy, consumption and gross private investment are the components of aggregate

expenditures

Equilibrium rGDP will decline when

exports > imports

What happens to inventory at equilibrium GDP? (2 options)

firms may increase or decrease inventory

Strong property rights, ______ trade, patents and ______ market systems are all growth-promoting institutional structures. - restricted; competitive - free; competitive - restricted; monopolistic - free; monopolistic

free; competitive

Workers that are unemployed because they are "between jobs" are: structurally unemployed discouraged workers cyclically unemployed not in the labor force frictionally unemployed

frictional

Increases in investment demand occur when businesses collectively expect: - greater rates of return on their investments - lower rates of return on their investments - lower returns on productivity - higher marginal tax rates

greater rates of return on their investments.

Increases in investment demand occur when businesses collectively expect: - higher marginal tax rates - greater rates of return on their investments - lower rates of return on their investments - lower returns on productivity

greater rates of return on their investments.

If an economy has an inflationary expenditure gap, the government could attempt to bring the economy back toward the full-employment level of GDP by ________ taxes or ________ government expenditures. - decreasing; decreasing - decreasing; increasing - increasing; decreasing - increasing; increasing

increasing; decreasing

The ________________ relationship between interest rates and quantity of investment conforms to the law of demand.

inverse, negative, indirect, downward sloping

Most of the fluctuations in output and employment over time are due to changes in what? Government spending Consumption Net exports Investment

investment

Which of the following has historically had the greatest swings in spending? Investment Net exports Consumption Government spending

investment

The two main supply-side elements that contribute to changes in real GDP are increases in hours worked and increases in ______.

labor productivity.

The inverse relationship between interest rates and quantity of investment conforms to ______. -the law of supply -the law of demand -marginal utility -opportunity cost

law of demand

Saving is a _____________ of spending from the economy's circular flow of income and expenditures.

leakage

When developing macroeconomic models, economists change their focus from the relationship between consumption and disposable income to the relationship between consumption and ______. real GDP nominal GDP NDP personal income

rGDP

Firms will produce at a given level of output if their sales ______________ exceeds their production _________________.

revenue, cost/ expenses

A withdrawal of spending from the economy's circular flow of income and expenditures is also called....

saving

Spending on ______ drains off some of the additional consumption created by the increases in income. (2 choices) - exports - capital goods - taxes - imports

taxes, imports

Inflationary expenditure gap?

the amount by which aggregate expenditures at the full-employment GDP exceed those required to achieve full-employment GDP.

Planned investment

the amount that firms intend to invest

What is planned investment?

the amount that firms intend to invest

Firms are willing and able to produce any level of output as long as....

the costs of producing output are lower than the revenues from selling the output.

Forgone output is a basic economic cost of ______. unemployment surpluses hyperinflation inflation

unemployment

A sharp, sustained increase in stock prices. The consumption schedule will shift ______________. The saving schedule will shift ______________.

upward; downward.

A substantial increase in household borrowing to finance auto purchases. The consumption schedule will shift ___________. The saving schedule will shift _____________.

upward; downward.

If GDP is above equilibrium, where will the aggregate expenditure schedule lie?

below the 45 line

If the multiplier = 5 and investment increases by $3 B, equilibrium rGDP will increase by:

$15 B

If the multiplier is 5 and investment increases by $3 billion, equilibrium real GDP will increase by: $2 billion $3 billion. $8 billion. $15 billion. None of the above.

$15 B

What two different policies did Keynes propose a gov't to pursue to close the recessionary expenditure gap and achieve full employment?

- decrease taxes - increase gov't spending

Private.... closed mixed

- does not engage in international trade or incorporate net exports - included govt spending and international trade

How does the economic success of trading partners affect the U.S.?

- if they prosper, they buy more U.S goods - trade passes foreign success to the U.S

In a closed economy, what are two characteristics of equilibrium GDP?

- there are no unplanned changes in inventories - savings = planned investment (S = Ig)

What 3 things does the U.S. benefit from its foreign trading partner's experience of higher incomes?

1. Increase in U.S GDP 2. Increase in U.S income 3. Increase U.S exports

The _____________________________ helps to explain the situation of massive unemployment, as well as to better understand how an economy will react to such economic shocks as changes in tax rates as well as gov't and household spending.

Aggregate expenditure model

What reflects the total amount that will be spent at each possible output or income level?

Aggregate expenditures schedule

The losers from inflation are those with a) incomes rising as fast as the rate of inflation. b) fixed incomes in nominal terms. c) no savings. d) significant debt.

B

Unemployment is an economic problem because a) there are additional expenses of helping unemployed family members. b) a unit of labor resource that could be engaged in production is sitting idle. c) unemployment benefits are paid. d) there are costs of moving for unemployed persons.

B

Human capital refers to ________________. a) the machinery and tools that each individual workers owns b) the amount of money earned by humans from wages, interest, and profits c) the improvement in labor created by education and knowledge that is embodied in the work force d) robots that can perform tasks that only humans could do in the past

C

Which of the following illustrates the difficulty of distinguishing among frictional, structural, and cyclical unemployment? a) A person loses his job during a recession and finds another one in a different industry. b) A person quits her job in search of a better one and then finds one after the economy recovers from a recession. c) A person quits his job in search of a better one, but the former job is in a declining industry and disappears completely. d) A person loses her job during a recession and then starts her own business.

C

Formula for Aggregate Expenditures

C + Ig

Formula for finding equilibrium GDP in a mixed, open economy?

Ca + Ig + G + Xn

Two components of aggregate expenditures in a private closed economy are (C + Ig)...

Consumption and gross investment

What does a mixed economy include? (5 things - C.IS. GS. T. IT)

Consumption, Investment spending, Gov't spending, Taxes, and International trade.

Open mixed economy in mind: Aggregate expenditures = __________+______________+_____________+_____________

Consumption, investment, gov't purchases, and net exports

Who gains from inflation? a) Those with the most skill. b) No one benefits from inflation. c) Lenders d) Borrowers

D

Relationship status between equilibrium GDP and full-employment GDP?

Don't always have to be equal

Why does a $5B increase or decrease in investment spending by firms cause the real GDP to increase or decrease by $20B?

Due to the multiplier effect

__________________ are included as part of the U.S GDP because they create jobs and income when purchased by foreigners.

Exports

____________________ are included as part of U.S. GDP because they create jobs and income when purchased by foreigners

Exports

T or F : Equilibrium GDP always occurs at the full-employment GDP.

False. It doesn't necessarily imply that the economy is also at full-employment GDP.

How did Keynes describe the relationship between labor, capital, and inventory during the Great Depression? - Firms acted predictably to expected inventory levels. - Firms acted unpredictably to unexpected inventory levels. - Firms acted unpredictably to expected inventory levels. - Firms acted predictably to unexpected inventory levels.

Firms act predictably to unexpected inventory levels.

What was the relationship between labor, capital, and inventory during the Great Depression? *has to do with firms

Firms acted predictably to unexpected inventory levels.

Which of the following are excluded from core inflation so that it better reflects the general trend in overall prices? Food items Real estate Electronics Energy products

Food items and energy products

Which of the following are consequences of the widespread joblessness of cyclical unemployment? Greater ethnic tensions Increased mental health Increased poverty Lower morale

Greater ethnic tensions, increased poverty, lower morale.

What is true about inventories at equilibrium GDP?

There are no unplanned changes in inventories

In the United States, inflation reached double-digit rates in the 1970s and early 1980s but has since declined and recently, has been relatively mild. True or False

True

What did Keynes think was responsible for the large amount of idle labor and capital during the Great Depression?

Unplanned inventory increase

Which of the following statements is true? a) Deflation means that the price level is falling, whereas with inflation overall prices are rising. b) Deflation means that the inflation rate is falling, whereas with inflation overall prices are rising. c) Deflation means that the inflation rate is falling, whereas with inflation the inflation rate is rising. d) Deflation means that the price level is falling, whereas with inflation the inflation rate is rising

a

Which statements describe how even low levels of inflation may negatively affect real output? (2) a) Households and businesses spend time and effort distinguishing between real and nominal wages and interest rates. b) Businesses see even mild inflation as a threat and slow or stop production. c) People hold more cash and have to spend less time going to the bank or online to transfer money. d) Businesses incur the costs of changing prices to reflect inflation.

a & d

The economy's current level of equilibrium GDP is $780 billion. The full-employment level of GDP is $800 billion. The multiplier is 4. Given those facts, we know that the economy faces __________ expenditure gap of __________. - an inflationary; $20 billion - an inflationary; $10 billion - an inflationary; $5 billion - a recessionary; $5 billion - a recessionary; $10 billion - a recessionary; $20 billion

a recessionary; $5 B

If GDP is below equilibrium, the aggregate expenditure schedule is located on the graph in a position ___________.

above 45 line

The ______ helps to explain the situation of massive unemployment, as well as to better understand how an economy will react to such economic shocks as changes in tax rates as well as government and household spending. investment schedule consumption schedule aggregate expenditure model investment demand curve

aggregate expenditure model

A nation's economic growth from one year to the next depends on its _______. a) increase in labor inputs and decrease in labor productivity b) increase in labor inputs and increase in labor productivity c) decrease in labor inputs and increase in labor productivity d) decrease in labor inputs and decrease in labor productivity

b

The Bureau of Labor Statistics (BLS) calculates the inflation rate from one year to the next by a) subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the most recent year. b) subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the previous year. c) adding the CPI of the previous year to the CPI of the most recent year, and then dividing by the average of both years. d) adding the CPI of the previous year to the CPI of the most recent year, and then dividing by 2

b

The Consumer Price Index (CPI) is determined each month by a) averaging all the prices of goods and services in the economy. b) comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in a base year. c) estimating the prices of goods and services in the economy at the same rate as the cost of living increases. d) comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in cities around the country.

b

The nominal interest rate a) plus the inflation rate is the real interest rate. b) minus the inflation rate is the real interest rate. c) plus the real interest rate is the inflation rate. d) minus nominal income is the inflation rate.

b

Demand-pull inflation occurs when a) there are increases in per-unit costs of production. b) there is a negative GDP gap. c) prices rise because of an increase in aggregate spending not fully matched by an increase in aggregate output. d) there is a negative price gap.

c

Firms and industries producing capital goods are affected most by the business cycle and the negative effects of a recession because purchases of capital goods Blank______. cannot be postponed can be postponed are made frequently are typically unexpected

can be postponed

The index most widely used by the government and the private sector to measure changes in the cost of living is the: consumer price index producer price index the GDP deflator the chain-type price index

consumer price index

The index most widely used by the government and the private sector to measure changes in the cost of living is the: the chain-type price index consumer price index producer price index the GDP deflator

consumer price index

Social security payments automatically increase when the CPI goes up because of the ______. marital status age of the recipient years receiving social security cost of living adjustments

cost of living adjustments

The type of inflation that is more likely to be associated with a negative GDP gap is a) demand-pull inflation. b) output inflation. c) international inflation. d) cost-push inflation

cost-push inflation

A major new invention can lead to an expansion if there are a) decreases in saving and increases in consumption and unemployment. b) decreases in wealth and increases in consumption and unemployment. c) increases in saving, the money supply, and employment. d) increases in investment, consumption, output, and employment.

d

The consequence of a negative GDP gap is that a) people will not be able to afford to go to college. b) interest rates will fall and lower national saving. c) it requires public policy to correct. d) what is not produced is lost forever and future economic growth will be less.

d

Any factor that leads businesses to collectively expect lower rates of return on their investments ______ investment demand. Not enough information to determine causes no change to decreases increases

decreases

The paying of taxes drains off some of the additional consumption spending created by the increases in ______. interest rates inflation income supply

income.

Why the economy sees business cycle fluctuations rather than slow, smooth growth is a central issue of ______. unemployment long-run economic growth microeconomics macroeconomics inflation

macroeconomics

When real interest rates fall, households tend to borrow ______, consume ______ and save _______. more, more, more more, less, more less, more, less more, more, less less, less, less

more, more, less

A business purchases a new piece of equipment. Another firm earns income from this sale and with this income builds a new factory. The contractor that built the factory earns income and uses the income to take a vacation. The resort earns income from the contractor. This scenario describes the: multiplier system law of supply multiplier effect law of investment demand

multiplier effect

The demand factor involves households, businesses, and government purchasing the economy's expanding output of goods and services so that there will be ______.

no unplanned increase in inventories and resources will remain fully employed

Food and energy prices often complicate the measurement of inflation because supply and demand for these products ______. - are constant, so equilibrium prices rarely change - are stable in the short run and unstable in the long run - typically lag behind other goods and services - often change, creating temporary changes in prices

often change

A private ___________ economy is a private economy that includes international trade in its GDP.

open

A mixed economy is ________________ economy that includes government spending and taxation

open; public

Aggregate expenditures and GDP will be increased beyond what they would be in a closed economy with the addition of ________________.

positive net exports

the aggregate expenditure model can be used to explain short-run adjustments in

private and public spending

Since at least 1995 the majority of increases in U.S. real GDP are from

productivity growth

A mixed economy is a(n) ________________ economy that includes gov't spending and taxation.

public or open

Inflation redistributes: prices interest rates real income nominal income

real income

labor productivity is:

real output per hour of work

A depression abroad will tend to _______________ our exports, which in turn will _____________ net exports, which in turn will _____________ equilibrium rGDP.

reduce, reduce, reduce.

A depression abroad will tend to __________ our exports, which in turn will __________ net exports, which in turn will __________ equilibrium real GDP. - increase; reduce; reduce - increase; increase; increase - reduce; reduce; reduce - reduce; increase; increase

reduce; reduce; reduce

Inflation.... - reduces the purchasing power of the dollar. - lowers interest rates. - increases the purchasing power of the dollar. - reduces the export power of the dollar.

reduced the purchasing power of the dollar

Cost-push inflation can contribute to a recession by increasing prices, which ______. - increases output and causes real incomes to rise - increases interest rates and reduces consumer debts - reduces output while increasing employment - reduces output and leads to lower employment

reduces output and leads to lower employment

What are economies of scale?

reductions in unit cost resulting from increased size of operations/ output levels

What is the efficiency factor?

the level of economic efficiency and full employment needed to reach full production potential.

what is the demand factor?

the level of purchases needed to maintain full employment

The multiplier effect means that _________________.

there is a bigger change in equilibrium GDP than the change in aggregate expenditures.

Exports are included as a component of US aggregate expenditures because...

they create income to U.S