Chapter 6 Macroeconomics University of Iowa
Over the past 100 years, growth was most rapid during the ______ and slowest during the ______.
1960s; Great Depression
Over the past 100 years, the average growth rate of U.S. real GDP per person is ____ percent.
2
Suppose that in 2014 China's real GDP is growing at 10 percent a year and its population is growing at 2.0. If these growth rates continue, then China's real GDP per person in ______ will be twice what it is in 2014.
2023
If real GDP per person doubles in 20 years, then the annual growth rate of real GDP per person is ______ percent a year.
3.5
D.The quantity of real GDP demanded depends on the quantity of real GDP supplied.
B.
Choose the statement that is incorrect.
Each additional hour of labor increases real GDP by successively larger amounts
Choose the statement that is incorrect.
Malthusian growth theory holds that real GDP per person growth slows as the opportunity cost of women in the labor force increases.
D. The LAS curve shifts rightward when the money wage rate falls.
The LAS curve is vertical because potential GDP is independent of the price level.
Choose the statement about growth in labor productivity that is incorrect.
The demand for labor increases, the production function does not change, but a movement occurs along the production function.
D. Along the SAS curve, the real wage rate and the price level change by the same percentage.
The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its full-employment equilibrium level.
D. Aggregate supply is the relationship between the quantity of real GDP supplied and potential GDP.
The relationship between the quantity of real GDP supplied and the price level is different in the long run than in the short run.
Examples of monetary policy that decrease aggregate demand include ______.
a decrease in the quantity of money and an increase in interest rates
Economic growth results from ______.
a growing supply of labor and increasing labor productivity, which increase long-run aggregate supply
If the money wage rate rises and potential GDP remains the same, does the LAS curve or the SAS curve shift or is there a movement along the LAS curve or the SAS curve?
a leftward shift of the SAS curve and no change in the LAS curve
The effect of the United States returning millions of workers to their home countries is ______ Mexico's production function and ______ in potential GDP.
a movement up along; an increase
Inflation results from ______.
a persistent increase in aggregate demand at a faster pace than that of the increase in long-run aggregate supply
And one in which real GDP is less than potential GDP is _____ equilibrium.
an above full-employment; a below full-employment
Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
When labor productivity increases, there is ______ the production function and ______ in potential GDP.
an upward shift of; an increase
Economic growth is measured by
changes in real GDP
Growth rates are calculated in a similar manner for all variables. Real GDP growth rate = [(Real GDP in ______ year - Real GDP in ______ year) / Real GDP in ______ year] x100
current; previous; previous
Event 3 ______.
decreases aggregate demand;
Aggregate demand _______ when an increase in expected inflation occurs.
decreases; increases
An increase in the population _______ the real wage rate and _______ the equilibrium quantity of labor.
decreases; increases
A rise in wages in China _______ .
decreases China's short-run aggregate supply and the quantity of real GDP supplied does not change
The "average overall increase across the board" wage increase _______.
decreases short-run aggregate supply because it increases firms' costs
This event ______ short-run aggregate supply and ______ long-run aggregate supply.
decreases; does not change
Potential GDP is _______.
determined by the full-employment quantity of labor
A rise in the money wage rate ______.
does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
does not change; long-run
The Rule of 70 states that the number of years it takes for the level of any variable to ______ is approximately ______.
double; 70 divided by the annual percentage growth rate of the variable
Choose the statement that is incorrect.
growth in average hours per worker increase labor productivity
We are interested in long-term growth primarily because it brings
higher standards of living
The quantity of labor demanded in the number of labor hours _________ during a given period.
hired by all the firms in the economy
The aggregate production function is the relationship that tells us ______, when all other influences on production remain the same.
how real GDP changes as the quantity of labor changes
The fundamental source of labor productivity growth is _______.
human capital
An increase in expected future profits _______.
increases aggregate demand today;
In the short run, aggregate demand _______.
increases because interest rates fall and it is it easier to get a loan to buy homes and large consumer goods
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply ______ the price level and ______ potential GDP.
increases real GDP above potential GDP;
This event _______.
increases the quantity of real GDP demanded
This event ______.
increases the quantity of real GDP supplied
An increase in the population ______ potential GDP and ________ potential GDP per hour of labor.
increases; decreases
Potential GDP ______ and potential GDP per hour of labor _______.
increases; decreases
Potential GDP _______ and potential GDP per hour of labor ______.
increases; decreases
An increase in labor productivity ______ the real wage rate and ______ the equilibrium quantity of labor.
increases; increases
An increase in the population ________ the equilibrium quantity of labor, ______ and potential GDP.
increases; increases
This event ______ short-run aggregate supply and ______ long-run aggregate supply.
increases; increases
The key proposition of new growth theory that makes growth persist is that _______ is not subject to diminishing returns.
knowledge capital
Choose the statement that is incorrect.
labor hours are all equally productive
When potential GDP increases, ______.
long-run aggregate supply and short-run aggregate supply increase. The LAS and the SAS curve shift rightward
An increase in the population ________ the real wage rate.
lowers
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _____ changes in step with the price level to maintain full employment.
money wage rate
Short-run aggregate supply is the relationship between the quantity of _____ supplied and the _____ when the money wage rate, the prices of other resources, and potential GDP remain constant.
money wage rate
The aggregate demand curve slopes downward because _______.
of the wealth effect and the substitution effect
China was the world's largest economy until 1890 because _______.
people in all countries had approximately the same subsistence level of income
In the long-run macroeconomic equilibrium, ______.
potential GDP and aggregate demand determine the price level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the long-run equilibrium price level
The _______ wage rate adjusts to bring the labor market to equilibrium.
real
Real GDP per person grows when _______.
real GDP grows at a faster rate than the population grows
Choose the statement that is incorrect.
real GDP per person grows whenever real GDP grows
The sources of labor productivity growth include all of the following except ______.
real wage rate growth
The demand for labor is the relationship between the quantity of labor demanded and the ______. The supply of labor is the relationship between the quantity of labor supplied and the _______.
real wage rate; real wage rate
Over the last several decades, the gap between real GDP per person in the United States and Canada ______. The gap between real GDP per person in the United States and Africa ______.
remained nearly constant or widened a small amount; widened
According to classical growth theory, when real GDP per person ________, the population grows.
rises above the subsistence level
An increase in labor productivity _______.
shifts the demand for labor curve rightward and the production function upward
According to neoclassical growth theory, the fundamental cause of economic growth is _______.
technological change, which induces saving and investment that make capital per hour of labor grow
The quantity of labor supplied is the number of labor hours _________ during a given period.
that all the households in the economy plan to work
along ______. The quantity of real GDP supplied ______
the LAS curve; does not change
In 1890, the United States surpassed China to become the world's largest economy because ________.
the benefits of the Industrial Revolution were greater in the United States than in China
Choose the statement that is incorrect.
the demand for labor is the relationship between the quantity of labor demanded and the money wage rate
Economic growth is _______.
the expansion of production possibilities
All of the following statements are included in new growth theory except _______.
the forces of competition destroy incentives to make new discoveries
As we move up along the short-run aggregate supply curve, ______.
the money wage rate, the prices of other resources, and potential GDP remain constant
A movement along the aggregate demand curve occurs if _______.
the price level
Choose the statement about an increase in the population that is incorrect.
the production function shifts upward
Potential GDP increases when _______.
the quantity of capital increases
An increase in the price level when the money wage rate remains unchanged increases ______.
the quantity of real GDP supplied
With a rise in the money wage rate, ______.
the quantity that firms are willing to supply at each price level decreases
As we move up along the long-run aggregate supply curve, ______.
the real wage rate remains constant
Choose the statement that is incorrect.
the return of full employment in an expansion phase of business cycle is economic growth
The two broad sources of potential GDP growth are growth of ______ and growth of ______.
the supply of labor; labor productivity
When the price level in Mexico rises, _______.
Mexico's exports to the United States increase, Mexico's aggregate demand increases, and Mexico's AD curve shifts rightward
The increase in investment ______ aggregate demand. The decrease in government spending _______ aggregate demand.
increases; increases
there is a movement up along the ______ aggregate supply curve.
increases; short-run
