PACK 1

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand?

$50 billion

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by

B

The immediate determinants of investment spending are the

Expected rate of return on capital goods and the real interest rate.

If labor market institutions change so that it becomes easier to find a job, and unemployed people are unemployed for smaller durations of time, what would happen to the natural rate of unemployment?

It would decrease.

Environmental pollution is accounted for in _____.

None of these

The aggregate expenditures model is built upon which of the following assumptions?

Prices are fixed.

What do government purchases include in national income accounting?

Purchases by federal, state, and local governments

The so-called wealth effect will result in households

Spending more and saving less

The investment demand curve will shift to the right as a result of

Technological progress.

The most important determinant of consumer spending is

The level of income

Which of the following is an example of an intermediate good?

The lumber produced by Boise Cascade and sold to a builder of old houses

Which of the following is not a component of gross investment?

The purchase of 100 shares of AT&T by a retired business executive.

Refer to the diagrams. Curve A

is an investment demand curve, and curve B is an investment schedule.

Refer to the diagrams. Other things equal, an interest rate increase will

leave curve A in place but shift curve B downward.

If investment decreases by $60 billion and the economy's MPC is 0.5, the aggregate demand curve will shift

leftward by $120 billion at each price level.

In a recessionary expenditure gap, the equilibrium level of real GDP is

less than full-employment GDP.

The U.S. produces and sells millions of different products. To aggregate them together into a single measure of domestic output, the quantity of each good produced is weighted by its _____.

market price

When gross investment is positive, net investment _____.

may be either positive or negative

The presence of discouraged workers

may cause the official unemployment rate to understate the true amount of unemployment.

Real GDPConsumption (after taxes)Gross InvestmentNet ExportsGovernment Purchases$0-$20$10$+5$1510010+515402010+515704010+5151006010+5151308010+51516010010+515 Refer to the table. The economy shown is a

mixed open economy.

To increase future living standards by pursuing higher current rates of investment spending, an economy must

reduce current rates of consumption spending.

If the real interest rate falls, then the

investment schedule will shift upward.

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. The per-unit cost of production in this economy is

$0.10.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The per-unit cost of production in the economy described is

$2

Real GDPConsumption (after taxes)Gross InvestmentNet ExportsGovernment Purchases$0-$20$10$+5$1510010+515402010+515704010+5151006010+5151308010+51516010010+515 Refer to the table. Equilibrium GDP is

$70.

Which of the following is the correct way to calculate the unemployment rate?

(unemployed/labor force) x 100

With a marginal propensity to save of 0.4, the marginal propensity to consume will be

1.0 minus .4

The multiplier is

1/MPS

If the MPC is 0.6, the multiplier will be

2.5

Over a 10-year period, the Consumer Price Index doubled. On the basis of this information and using the rule of 72, we can say that the average annual rate of inflation over this period was approximately

7%.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by

A and B

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by

A and B.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, inflation is absent in

A and C

Which of the following will not cause the consumption schedule to shift?

A change in consumer incomes

Suppose there are two economies, Alpha and Beta, that have the same production possibilities frontiers. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future

Beta will experience greater economic growth than Alpha.

value of a market basket in year/value of same basket in base year x 100

CPI

In a mixed open economy, the equilibrium GDP exists where

Ca + Ig + Xn + G = GDP.

Which of the following statements is correct?

For a given real interest rate, the nominal interest must increase if expected inflation increases.

Nominal GDP/Real GDP x 100

GDP price index

The MPC can be defined as that fraction of a

change in income that is spent.

real GDP/population

Real GDP per capita

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase

consumption by $80 billion.

Suppose Canada has a population of 30 million people and a labor force participation rate of 2/3. Furthermore, suppose the natural rate of unemployment in Canada is 7%. If the current number of unemployed people is 1.4 million people, what can we conclude about Canada's economy?

There is no cyclical unemployment present in the economy.

If the dollar appreciates relative to foreign currencies, we would expect

a country's net exports to fall.

The consumption schedule shows

a direct relationship between aggregate consumption and aggregate income.

The real-balances effect indicates that

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

GDP can be calculated by summing _____.

consumption, investment, government purchases, and net exports

The APC is calculated as

consumption/income.

The cost of a higher living standard in the future is giving up

current consumption.

Suppose that inventories were $40 billion in 2012 and $50 billion in 2013. In 2013, national income accountants would _____

add $10 billion to other elements of investment in calculating total investment

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

aggregate demand curve would shift to the right.

Other things equal, if the U.S. dollar were to depreciate, the

aggregate supply curve would shift to the left.

Nominal GDP is the market value of _____.

all final goods and services produced in an economy in a given year

In the figure, AD1 and AS1 represent the original aggregate supply and demand curves, and AD2 and AS2 show the new aggregate demand and supply curves. The changes in aggregate demand and supply in the diagram produce

an expansion of real output and a stable price level.

The unemployed are those people who

are not employed but are seeking work.

Real GDP per capita is a

better measure of the physical environment than output.

Higher interest rates may cause

both A and B.

The recurrent ups and downs in the level of economic activity extending over several years are referred to as

business cycles.

The consumption of fixed capital in each year's production is called _____.

depreciation

Other things equal, a serious recession in the economies of U.S. trading partners will

depress real output and employment in the U.S. economy.

The principle that if the amount of labor and other inputs is held constant, then the greater the amount of capital in use, the less an additional unit of capital adds to production is called the principle of

diminishing returns to capital.

In the expenditures approach of national income accounting, C, I, and G include expenditures for _____.

domestically-produced, as well as imported, goods and services

In the expansion phase of a business cycle

employment and output increase.

A trough in the business cycle occurs when

employment and output reach their lowest levels.

The value of corporate stocks and bonds traded in a given year is _____.

excluded from the calculation of GDP because it does not represent new production

Other things equal, a decrease in the real interest rate will

expand investment and shift the AD curve to the right.

The determinants of aggregate demand

explain shifts in the aggregate demand curve.

A private closed economy includes

households and businesses, but not government or international trade.

In the diagram, a shift from AS3 to AS2 might be caused by an increase

in productivity

"Net foreign factor income" in the national income accounts refers to the difference between the _____.

income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the U.S.

Over time, an increase in the real output and incomes of the trading partners of the United States will most likely

increase U.S. exports.

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will

increase by $100 billion.

Other things equal, an increase in an economy's exports will

increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

A rightward shift of the AD curve in the very flat part of the short-run AS curve will

increase real output by more than the price level.

Usually an abundance of natural resources ______ labor productivity.

increases

The short-run aggregate supply curve represents circumstances where

input prices are fixed, but output prices are flexible.

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result, the

official unemployment rate will remain unchanged.

Economic growth can best be portrayed as a(n)

outward shift of the production possibilities frontier.

If an economy produces 100 pencils and 100 pens, and pencils sell for twice as much as pens, _____

pencils are weighted as twice as important in the economy compared to pens

When a firm builds a new factory, this is an example of an investment in

physical capital.

A lower real interest rate typically induces consumers to

purchase more goods that are bought using credit.

Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE3, the

recessionary expenditure gap is ed.

If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, its real GDP per capita will

remain constant.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. All else being equal, if the price of each input increased from $4 to $6, productivity would

remain unchanged.

Graphically, demand-pull inflation is shown as a

rightward shift of the AD curve along an upsloping AS curve.

The aggregate supply curve

shows the various amounts of real output that businesses will produce at each price level.

Consumption of fixed capital (depreciation) can be determined by _____.

subtracting net investment from gross investment

The inflation rate measures the percentage growth rate of

the CPI from one year to the next.

Which of the following measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?

the Consumer Price Index

Which measure of inflation would include consumer goods and capital goods?

the GDP Price Index

A recessionary expenditure gap is

the amount by which the full-employment GDP exceeds the level of aggregate expenditures.

Net foreign factor income is _____.

the difference between the income people in a country receive from resources owned in foreign countries and the income people in foreign countries receive from resources owned domestically

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes

the foreign purchases effect.

Nominal GDP is _____.

the sum of all monetary transactions involving final goods and services that occur in the economy in a year

Human capital is

the talents, training, and education of workers.

The investment demand curve suggests that

there is an inverse relationship between the real rate of interest and the level of investment spending

GDP tends to overstate economic well-being because it takes into account _____.

total spending to deal with the adverse health effects of some products

The "rule of 72" is a formula for determining the approximate number of

years that it would take for a value (like real GDP) to double.