CHapter 26 & 27 Economics Exam Study Guide

(Consider This) What is the difference between financial investment and economic investment?

Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.

Savings are generated whenever

current income exceeds current spending.

A graph plots current consumption versus future consumption. The graph is a concave downward curve.The horizontal axis is labeled future consumption. The vertical axis is labeled current consumption. A curve begins at a point on the top of the vertical axis, and goes slightly down and to the right till it reaches a point and then goes down and to the right with increasing steepness until it reaches point on the right end of the horizontal axis. Point b is on the curve near the vertical axis an

devote some portion of its current output to increasing its future output.

Government purchases include

federal, state, and local government expenditures.

Prices for oil and other commodities tend to be

flexible

There are several ways to measure aggregate output. The one favored by the Bureau of Economic Analysis is

gross domestic product.

Government purchases

include direct purchases of resources.

For an economy to increase investment, it must

increase saving.

An increase in the overall level of prices in an economy is called

inflation

A price war

is possible when a firm has just one or two major rivals.

National income accountants define consumer nondurable goods as products that have an expected life of

less than 3 years.

A higher rate of investment now will generate

more future production

The system that measures the economy's overall performance is formally known as

national income accounting.

Consider This) Suppose that Toyota buys a factory previously owned by Chrysler Motors. Economists would

not consider this to be an economic investment, because no new capital is created through the purchase.

The largest expenditure component of GDP is

personal consumption expenditures.

Retailers that attempt to keep prices stable and predictable cause

price inflexibility.

The three statistics that are the main focus for those measuring macroeconomic health are

real GDP, inflation, and unemployment.

When economists refer to "investment," they are describing a situation where

resources are devoted to increasing future output.

The business cycle depicts

short-run fluctuations in output and employment.

Human-made resources that are referred to as "recipes" includes

spending on new writing that increases the flow of entertainment and education.

The National Income and Product Accounts (NIPA) for the United States are compiled by the

Bureau of Economic Analysis.

The agency responsible for compiling the National Income and Product Accounts for the U.S. economy is the

Bureau of Economic Analysis.

Buying a new pair of jeans for yourself would increase

consumer nondurable goods and consequently personal consumption expenditures.

Buying new furniture for your home would increase

consumer durable goods and therefore personal consumption expenditures.

To signify government purchases, national income accountants use

the symbol G.

Which of the following will be included in U.S. GDP?

the value of the cars produced at a Japanese-owned Toyota factory in Ohio

The average amount of time between price changes for gasoline is

two to three weeks.

U.S. GDP in 2021 was about

$23 trillion.

Answer this question based on the given information for an economy in some year. Dollar value of resource extraction activity = $20 billion Dollar value of production activity = $50 billion Dollar value of distribution activity = $60 billion Dollar value of final output = $100 billion Gross output for this economy equals

$230 billion.

National income accountants define consumer durable goods as products that have an expected life of

3 years or more.

Compensation of employees

All of the answers are correct.

Interest consists of the money households receive on

All of the answers are correct.

The U.S. government agency responsible for compiling the national income accounts is the

Commerce Department's Bureau of Economic Analysis (BEA).

What are demand shocks? Describe a positive demand shock and a negative demand shock. (Short answer question)

Demand shocks are events or changes in economic conditions that suddenly and significantly alter the level of demand for goods and services within an economy. A positive demand shock refers to an unexpected increase in the demand for goods and services in an economy. A negative demand shock, on the other hand, refers to an unexpected decrease in the demand for goods and services in an economy.

The Industrial Revolution began in

England in the late 1700s.

The Bureau of Economic Analysis compiles the NIPA accounts. The letters NIPA represent

National Income and Product Accounts.

(Consider This) Which of the following is an example of economic investment?

New Balance buys a new machine that increases shoe production.

What social problems have been linked to higher rates of unemployment? (Short answer question)

Poverty, financial stress, mental health issues, homelessness, and crime.

Which of the following goods have prices that are least flexible?

Soda

What are the three primary measures used in macroeconomics to assess the performance of an economy? (Short answer question)

The three primary measures are, GDP, unemployment, and inflation.

Inflation is defined as

a general increase in the price level.

The period when output and living standards decline is referred to as

a recession

To manage the problem of adding dissimilar items when calculating GDP, the BEA

adds the monetary values of each final good or service produced.

For which of the following goods and services are prices least sticky?

airline tickets

Sticky output prices are caused by

all of the above are reasons for sticky output prices.

The two broad categories of the nation's stock of capitala

are informally referred to as "tools" and "recipes."

Most retailers try to maintain stable prices as much as they can

because consumers would be annoyed if the price of a product cost one price one day and another price another day.

Transfer payments are not included in government purchases because

such payments generate no production.

Spending that pays for new or improved software is in

the "recipe" category of investment.

In 2020, the three largest economies in the world were (listed in order, from largest)

the United States, China, Japan.