Compilation of Econ 1-13

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The five major factors that shift the demand curve when they change are:

1. Tastes and preferences 2. Income and wealth 3. Availability and prices of related goods 4. Number and scale of buyers 5. Buyers' beliefs about the future

how to do you derive this economy wide labor demand curve?

1. add add together all of the labor demand curve in each industry 2. add all of the industry demand curves together

What does GDP and CPI have in common

1. both formulas use this year prices in the numerator and base year prices in the denominator 2. contain a ratio what compares what it would cost to buy "stuff" in that yr (in the numerator) to what it would have cost to buy "the same stuff" using base-year prices (denim) 3. have the same interpretation: a higher ratio implies a greater price increase from the base year to this year

better technology in Real Business Cycle Theory lead to higher household income for 3 reasons

1. employment increases 2. wage rise 3. rising corporate earnings make the corporations' stockholders' wealthier

2 reason why correlation implies a causal relationship

1. omitted variables 2. reverse causality

what was the unemployment rate during the Great Depression?

10%

how long did the Great depression last?

18 months

identity

2 variables are related by an identity when he 2 variables are defined in a way that makes them mathematically identical.

2/3 of income payments goes to (labor/capital) and 1/3 goes to (labor/capital)

2/3=labor 1/3= capital

The following table shows the market demand schedule and supply schedule for notebooks. 1|20|4 2|16|6 3|14|10 4|12|12 5|10|14 6|7 |17 7|4|20 8|2|22 9|1|25 Refer to the table above. What is the equilibrium price of notebooks?

20/4

REAL GDP fell ______% during 1929?

26.3

unemployment rose ____% in 1929?

real interest rate is what people are getting in return for saving for the long run

example of production in a car manufacture

A car is made in a car factory and ends up in a person's garage

Productivity varies across countries because of differences in ____________. (Check all that apply.) A. technology. B. human capital. C. GDP. D. income. E. physical capital.

A,B,E

The average American is so much richer than the average Indian due to differences in ___________. (Check all that apply.) A. the capital stock. B. religion and culture. C. geography. D. human capital. E. technology.

A,D,E

Household saving decisions impact investment in the economy by having ___________. A. a direct impact on investment, as saving is correlated with investment. B. no impact on investment in the economy. C. a direct impact on investment, as saving is inversely correlated with investment. D. very little impact on investment, as banks are primarily involved with investment.

A. a direct impact on investment, as saving is correlated with investment.

To say that private property rights are well-enforced in an economy means that ____________. A. individuals can securely hold assets. B. businesses are owned by shareholders. C. government assets are public property. D. governments are authorized to tax property.

A. individuals can securely hold assets.

What are the two components of technology? (Check only two.) A. The enablement of globalization and the ability to use low-cost workers. B. The knowledge of how to produce new products. C. The need for more workers to produce more complex goods. D. A more efficient means of production.

B,D

How do economists distinguish between models that work and those that don't? A. They program their models into computers to test via simulation. B. They test their models against real-world data. C. They publish their model results in academic journals. D. They have their models reviewed by other economists.

B. They test their models against real-world data.

What are the consequences of this increase in unemployment for GDP? A. K1 < Y1. B. Y1 > Y2. C. Y1 < Y2. D. H1 > Y2.

B. Y1 > Y2.

As the text explains, it can sometimes be very difficult to sort out the direction of causality. Causation occurs when there is ____________. A. a historical-known relationship. B. a logical cause-and-effect relationship. C. an ancedotal cause-and-effect relationship. D. a mythical-known relationship.

B. a logical cause-and-effect relationship.

total efficiency units of labor

(the total number of workers in the economy) x (the average human capital of each worker)

we can compare income differences across countries using GDP per capita at current exchange rates or adjust for purchasing power parity differences

(yay good to know!) now repeat the card again...

Real GDP uses what prices

base year prices

limited predictibility

because of the variability of lengths of recessions and expansions, we consider economic fluctuations "limited predictability" since it is hard to predict

technology has a hard time telling why there are regressions

because technical regressions are unlikely the cause of recessions

debtors

borrowers

In the market for loanable funds depicted by the figure to the right, the supply of loanable funds is determined by gross saving in the economy. Gross saving in the economy is composed of gross private saving and gross government saving. This latter magnitude reflects the condition of the government's ▼ .

budget

Economists try to uncover ___________ relationships among variables

causal

correlation does not imply ________

causality

experiments help economists measure ________________

cause and effect

3 key economic fluctuations?

co-movement, limited predictability, and persistance

markte Clearing wage

competitive equilibrium wage; every worker that wants a job can find one: the quantity of labor demanded matches the quantity of labor supplied

co-movement focuses on what 2 variables?

consumption and investment both adjusted for inflation (or real investment and real consumption)

problems with some experiments

costly,poorly run experiment, badly designed

If the economy experiences an unexpectedly low rate of inflation, the group that would tend to benefit is ___________. A. creditors left parenthesis people or institutions that are owed money right parenthesiscreditors (people or institutions that are owed money). B. debtors left parenthesis people or businesses who owe money right parenthesisdebtors (people or businesses who owe money). C. both would benefit equally. D. neither benefits

creditors

labor force

employed + unemployed

macro predicts_____ by using the past

future changes

In the context of the firm's supply curve, as the firm produces more of a good, the cost of producing each additional unit ▼ increases decreases stays the same . This implies that the marginal cost of producing a good ▼ does not change decreases increases as it makes more of that good.

increases;increases

Gross Private Domestic Investment $3,009.8 billion Private Nonresidential Fixed Investment $2,273.6 billion Private Residential Fixed Investment $662.7 billion The difference between gross private domestic investment and fixed private investment represents __________________. For the first quarter of 2016 this amount was $___ billion.

inventory investment; $73.5 [3009.8/(2273.6+662.7)]

income per capita

is income per person.

omitted variable

is something that has been lift out of a study that, if included, would explain why 2 variables that are in the study are correlated

first dimension of technology

knowledge

what do people allot int he labor supply curve

limited time, between paid work, leisure, childcare, cooking, or cleaning.

P+E+I must all be equal in what value?

market

what measures value added

production-based accounting

example of a technological change

reduction in the cost of light over 200 years

what is technology

technology helps the economy use its labor and capital more efficiently and achieve higher productivity

Technology is : the ability to use labor and capital more efficiently each person's stock of skills to produce output or economic value any good, including machines and buildings, used for production .

the ability to use labor and capital more efficiently

macroeconomics is the study of __________

the aggregate economic activity

what links a country's GDP to its capital stock, its total efficiency units of labor, and its technology?

the aggregate production function

examples of income in a car manufacture

the car company paying its workers wages, salaries, interests, dividends, etc.

growth rate

the change in a quantity, for example, GDP per capital, between 2 dates, relative to the baseline (beginning of a period) quantity

Laws diminishing Marginal Product

the marginal production of a factor of production to GDP diminishes when we increase the quantity used of that factor of production (holding all else constant)

value of the marginal product of labor

the market value of a worker's marginal product

depression

typically used to describe a prolonged recession with an unemployment rate of 20% or more

examples of labor income

wages, salary, health insurance, pension benefits

The cause, or independent variable, should be plotted on the _-axis and the effect, or dependent variable, should be plotted on the _-axis .

x;y

Suppose that country A has higher real income per capita than country B. Explain why this does not imply that most citizens of country A have higher real income than most citizens of country B. A. Most citizens in country B may be employed, while the majority of those in country B may not work. B. The higher per capita income in country A could be the result of most citizens there having unearned income. C. A high degree of income inequality in country A may result in most of its citizens having incomes below the average income of country B. D. All of the above are plausible.

C. A high degree of income inequality in country A may result in most of its citizens having incomes below the average income of country B.

If increasing the stock of physical capital does not lead to sustained growth for China, what should China do to ensure the sustainability of its growth model? A. Decrease the rate of physical capital depreciation. B. Increase its rate of investment. C. Improve its technology. D. Increase the number of people in the workforce.

C. Improve its technology.

In the context of this chapter, what is meant by an institution? A. Climate. B. Prosperity. C. Regulations. D. Geography.

C. Regulations.

Which of the following is one of the three important elements that define institutions? A. They change very slowly. B. They are outside human control. C. They determine incentives. D. They are independent from prosperity.

C. They determine incentives.

The culture hypothesis states ____________. A. shared experiences are reducing differences in prosperity. B. cultural beliefs are proximate causes of prosperity. C. cultural beliefs are responsible for differences in prosperity. D. prosperity may affect a country's cultural beliefs.

C. cultural beliefs are responsible for differences in prosperity.

Which of the following is not one of the four major factors that shifts the supply curve when it changes? A. The scale of sellers B. Prices of inputs used in production C. The income of consumers D. Sellers' beliefs about the future

C. The Income of Consumers

what shifts the labor supply curve

CHANGE IN: Tastes opportunity costs of time Population

2 key forms of FOP

Capital and Labor

When is the output gap, defined as the percent difference between GDP and potential GDP, negativenegative? A. When the economy experiences a recessiona recession. B. When actual real GDP falls belowfalls below potential GDP. C. When the economy's capacity to produce exceedsexceeds its actual production. D. All of the above. Your answer is correct.E. A and C only.

What are the consequences of this decrease in real GDP for real GDP per capita and real GDP per worker? A. RealGDP per capita will increase. B. Real GDP per worker will decrease. C. Both of these items will increase. D. Both of these items will decrease.

D. Both of these items will decrease.

Which of the following is the best example of causation (versus correlation)? A. The groundhog sees its shadow and winter lasts longer. B. Ice cream sales and the number of drownings. C. Women's skirts get shorter and the stock market goes up. D. Oil prices go up and gasoline prices go up.

D. Oil prices go up and gasoline prices go up.

The firm's supply curve represents ___________. A. the minimum price buyers are willing to pay to buy an extra unit of a good. B. the maximum price buyers are willing to pay to buy an extra unit of a good. C. the maximum price the seller is willing to accept to sell an extra unit of a good. D. the minimum price the seller is willing to accept to sell an extra unit of a good.

D. the minimum price the seller is willing to accept to sell an extra unit of a good.

Does the shape of the market demand curve differ from the shape of an individual demand curve? A. Yes, individual demand curves tend to be upward-sloping, while market demand curves are horizontal. B. No, they both tend to be upward-sloping curves. C. Yes, individual demand curves tend to be downward-sloping, while market demand curves are upward-sloping. D. No, they both tend to be downward-sloping curves.

D. No, they both tend to be downward-sloping curves.

To say that economists use the scientific method means that they are using ____. A. a method to develop recommendations for policy makers to run economies. B. a process to develop models that are intended to exactly represent all the details of a system. C. a method to determine the best course of action for fiscal and monetary policy. D. an ongoing process to develop models of the world and then test and evaluate those models.

D. an ongoing process to develop models of the world and then test and evaluate those models

dell's value added

Dell's value added is only $15 billion, even though US consumers spend $50 billion annually on Dell computers. WHY? because Dell receives $45 from 3rd party retailers (i.e. Walmart, BestBUY) and $35 from direct buyers. Dell pays its suppliers (foreign producers) $30 billion. 45-30 = 15- the direct buyers do no count as value added

Human capital is ▼ the ability to use labor and capital more efficiently each person's stock of skills to produce output or economic value any good, including machines and buildings, used for production

Each person's stock of skills to produce output or economic value.

examples of expenditure consumption

Frisbees to foot massages

What does G represent in the GDP equation

Government expenditures

equation of total efficiency units of labor

H= Lxh L-total number of worker in the economy h- average efficiency of human capital

What does M represent in the GDP equation

Imports

The difference between gross private domestic investment and fixed private investment represents ________________. For the the first quarter 2016 this amount was $ ______billion.

Inventory investment; 73.5 [Gross private domestic investment - all fixed private investments added together)

What does I represent in the GDP equation

Investment

Months assumed int eh first quarter: Q1

January-March

Q3 months

July-September

7. Maimonides, a twelfth century scholar, said, "Twenty-five children may be put in the charge of one teacher. If the number in the class exceeds twenty-five but is not more than forty, he should have an assistant to help with the instruction. If there are more than forty, two teachers must be appointed." Israel follows Maimonides's rule in determining the number of teachers for each school. How could you use Maimonides's rule to study the effect of teacher-student ratios on student achievement?

Maimonides's rule generates a natural experiment to study of the effect of class size. Suppose School A has 40 third-graders and School B has 41. Following Maimonides's rule, School A would have one 40-student class while School B would have one 20-student class and one 21-student class. Everything else equal, if smaller classes improve achievement then we should expect to see higher test scores in School B.

cana firm own themselves?

NO; the owners of a firm are the ultimate beneficiaries

GDP deflator with Nominal, real, and potential real GDP equation

Nominal/real x 100

Q4 Months

October-December

what is the key conceptual point of macro and macro analysis

P=E=I

Production

Quantity X Price = market value of Production

What does it mean to say that economists use the scientific method? How do economists distinguish between models that work and those that don't?

The scientific method is the name for the ongoing process that economists and other scientists use to develop models of the world, test those models with data and evaluate how well they predict or describe behavior. While this process may not reveal the 'true' model of the world, it does help in identifying models that are useful in understanding the world. In order to decide whether models make accurate predictions or not, economists test them against real-world data. Data are facts, measurements, or statistics that describe the world. This process of testing models against data is called empiricism.

what does it mean to say that economists use the scientific method? How do economists distinguish between models that work and those that don't?

The scientific method requires hypothesis testing. Experiments test hypotheses and ultimately prove them right or wrong. Based on this acceptance or rejection of a hypothesis, scientists go back to their original theories and revise them as needed. This is the gist of the scientific method. to distinguish, they make a hypothesis using data and then test it

During expenditure what do we do with all of the unsold items?

They re counted as owned by the firm and those goods are counted as the firm's inventory

In May 2013, the value of the Consumer Price Index (CPI) in a certain country, Polonia, reached an all-time high of 183 index points and per capita nominal GDP was $52,800. In January 1950, the CPI was at its lowest at 76 index points. Per capita nominal GDP in 1950 was $8,500. Calculate real GDP per capita for 1950 by converting that year's nominal GDP per capita into current (2013) dollars. For 1950, real GDP per capita (in 2013 dollars) was $__________ Surveys done by social scientists indicate ▼ negative, weak positive, robust positive, intermediate between life satisfaction and real GDP per capita.

Value in 2013 dollars =[ (Price index in 2013)/(Price index in 1950)] X 100 Substitution the appropriate values gives: 183/76 x $8500 [183 X $8500]/76 $20467.1 life sanction higher in 2013** Robust Positive

How to calculate real GDP

_______

examples of expenditure in a car manufacture

a house hold paying the car company for they car

recession

a period in which GDP falls

employed

a person holding a part/full time job

what is The Big Mac Index?

a ratio that compares one good from different countries

research and development (R&D)

activities directed at improving scientific knowledge, generating new innovation, or implementing existing knowledge in production in order to improve the technology of a firm or an economy

good economic questions can be:

answered

The US in 2010 had GDP of $14.45 trillion. Wth a total population of 310 million, income per capita was approximately $46,613. Mexico's income per capital in 2010 is 116,036 pesos. How does this compare to income of Mexico? Now measure Mexican GDP per capita with PPP.

$1 = 12.9 pesos 1/12.9=0.078 (exchange rate) 116,036 X 0.078 = $9,051 Therefore, the US had a higher GDP per capita than Mexico Mexican PPP: representative bundle for $1 in US = 8.64 pesos 1/8.64= 0.116 116,036 x 0.116 = $13,460 $9,051 is significantly smaller than $13,460

Most products we buy go through a lengthy series of intermediate steps before they are available for us to purchase. For this problem, say we are tracing the stages, and the associated transaction values, involved in the production of a hypothetical loaf of bread: Transaction Price Farmer sells wheat to miller $0.40 Miller grinds wheat into flour, and sells to baker $1.40 Baker bakes the loaf, and sells to a grocery wholesaler $2.30 Wholesaler sells loaf to various chain retail outlets $2.60 Retailer sells loaf to public $3.12 As a result of the production and sale of the loaf of bread, the category of GDP that increased is consumption . The addition to GDP contributed by this loaf using the expenditure-based accounting method is _____ , while the income-based accounting method indicates a contribution to GDP of _____ and the production-based accounting method indicates _____ .

$3.12;$3.12;$3.12

income equation

$X = income $X + ($Rev - $X) = $Rev

unemployed

(1)when he or she does not have a job (DDUUHH) (2) has actively looked for work in the prior four weeks, and (3) is currently available for work

Consider the following illustration in which each country has 10 citizens, labeled #1 through #10. The table gives the dollar real income of each citizen in each country. Country A Country B 1. $165 $550 2. $215 $600 3. $265 $650 4. $315 $700 5. $365 $750 6. $415 $800 7. $465 $850 8. $715 $900 9. $1,865 $950 10. $3,865 $1,000 For country A, the real per capita income is $865, while for country B the real per capita income is $____. _____________________________________ According to the table, 80 percent of the citizens in country A (#1 through #8) have incomes of $715 or less, which means only 20 percent of its citizens have an income greater than $715, compared to country B where _______percent of its citizens have incomes greater than $715.

(550+600+650+700+750+800+850+ 900+950+1000) / 10 = 775 _____________________________________ 60% because 6 of the numbers are greater than 715.

Percentage change in GDP deflator in yr 2 equation

(GDP deflator in yr 2) - (GDP in yr 1) / GDP deflator in 2012

income (or GDP) per worker

(GDP)/(# of people in employment)

income per capital or GDP per capita

(GDP)/(total population)

output gap

(GDP- trend Gap)/trend GAP

The GDP deflator is calculated using ____________. Suppose for the year 2013 the economy of Uplandia has a nominal GDP of $6,800 billion and a real GDP of $4,080 billion. For 2013, this economy's GDP deflator is 166.7. Now suppose the GDP deflator in 2012 was 154.7. Uplandia's year-over-year inflation rate is 7.8 percent.

(Nominal GDP / Real GDP) x 100

GPD deflator equation

(Nominal GDP)/(Real GDP) X 100

inflation rate calculation

(Price index in yr 2) - (PI in yr 1)/PI in yr 1

Real GDP growth equation

(Real GDP in yr 2) - (Real GDP in yr 1) / Real GDP in yr 1

slope

(Rise/Run)

If the current value of GDP is $15.1815.18 trillion and the government is planning to increase spending by $700700 billion (all in one year), the percentage increase in GDP using the multiplier estimate of the first economist is nothing percent.

(Yr2-Yr1)/Yr1 x 100 (700

cyclical unemployment

(actual unemployment) divided from the (natural rate of unemployment)

how to calculate income per capita

(nation's aggregate income)/(# of people in the country)

cross country differences in GDP per capita partly result from differences in physical capital per worker and the human capital of workers, but differences in technology and the the efficiency of production are even more important

(yay good to know!) now repeat the card again...

name a reason that there are many people counted as unemployed?

-they are not willing to work for less than the current market wage - wages are sometimes above the market-clearing level (the quantity of labor supplied is greater than labor demanded) - economists made assumptions that do not hold true to the world

Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan. Suppose the average rate paid by banks on savings accounts is 0.75% at a time when inflation is around 1.75%. For the average saver, the real rate of interest on his or her savings is ____________%

0.75-1.75 = -1.00

how long are the average recessions since 1929?

1 year

If piπ denotes the rate of inflation and ii denotes the nominal rate of interest, then the amount a borrower repays in a year on a one-dollar loan is ▼ 1 plus i1+i 1 plus pi1+π 1 minus i1−i and the inflation-adjusted purchasing power of the originally borrowed dollar is ▼ 1 plus pi1+π 1 minus pi1−π i plus pii+π .

1+i; 1+ (pi)

3 key differences between the 2 baskets

1. GDP basket includes things that households don't purchase (city busses, trains, aircraft)- anything a consumer cannot purchase directly 2. consumer basket only things found in a house that is bought is USA for USA 3.can be part of both with different weights_ house (40% in consumer, 20% in GDP)

The supply curve shifts when these four major factors change:

1. Prices of inputs used to produce a good 2. Technology used to produce a good 3. Number and scale of sellers 4. Sellers' beliefs about the future

what shifts the labor demand curve

1. changing output prices 2. changing demand for the output good or service 3. changing technology 4. changing input prices

Most products we buy go through a lengthy series of intermediate steps before they are available for us to purchase. For this problem, say we are tracing the stages, and the associated transaction values, involved in the production of a hypothetical loaf of bread: Farmer sells wheat to miller $0.60 Miller grinds wheat into flour, and sells to baker $1.60 Baker bakes the loaf, and sells to a grocery wholesaler $2.90 Wholesaler sells loaf to various chain retail outlets $3.30 Retailer sells loaf to public $3.80 1. As a result of the production and sale of the loaf of bread, the category of GDP that increased is ▼ consumption investment labor income 2. The addition to GDP contributed by this loaf using the expenditure-based accounting method is ▼ $3.20 $3.80 , while the income-based accounting method indicates a contribution to GDP of ▼ $8.40 $3.80 and the production-based accounting method indicates ▼ $3.80 $12.20 .

1. consumption 2. $3.80, $3.80, $3.80

The following table shows the market demand schedule and supply schedule for notebooks. $ |D| S 1|20|4 2|16|6 3|14|10 4|12|12 5|10|14 6|7 |17 7|4|20 8|2|22 9|1|25 Refer to the table above. What is the shortage in the market when the price of a notebook is $1?

Suppose that there are only two small countries in the world: Ascot, with a population of 36,400 people, and Delwich, with a population of 28,000 people. Ascot's GDP is equal to $150 million while Delwich's GDP is $240 million. Delwich's GNP has been estimated to be equal to $260 million. The revenue earned by firms that operate in Delwich but are headquartered in Ascot is equal to $40 million. Given the data above, Ascot's GNP is $_______million.

260-240+40=60 150+40-60=130

In 1950, GDP per capita in Germany was only $4,281. GDP per capita in Argentina that same year was $4,987. So, in 1950 Argentina was actually "richer" in per capita terms than Germany. By 1992, however, GDP per capita in Germany was $19,351, whereas GDP per capita in Argentina was only $7,616. (Note: All figures in this problem are given in constant, 1990 dollars.) Between 1950 and 1992, per capita GDP in Germany increased by nothing percent while over the same period in Argentina it increased by nothing percent. (Round both answers to one decimal place.)

352; 52.7 [(Y2-Y1)/Y1] x 100

what percentage of unemployment is healthy to an economy

4-5%

The following table shows the supply schedule of bread for three sellers in the economy. Assume that these three sellers constitute the entire market. Price|Seller 1| S. 2| S.3 $3 | 12 | 15 |____ Refer to the table above. If at a price of $3 per loaf, the market supply of bread is 45 loaves, Seller 3's supply is:

45-12-15=18

The following table shows the supply schedule of bread for three sellers in the economy. Assume that these three sellers constitute the entire market. $2|6|9|24 Refer to the table above. Assuming that the market consists of only these three sellers, what is the market supply when the price is $2?

6+9+24=39

percentage of unemployment during a recession

6-9

the US stock market crashed _____% below its peak

technological change is exponential

Suppose the country of Burondo is one of the poorest countries in the world. Its economy is heavily reliant on income from the export of oil. There are only two oil-extracting companies in Burondo. Both are owned by the government. A large part of the earnings from oil exports goes toward financing the president's lifestyle and entourage. Burondo has not had a single democratic election ever since it gained independence 50 years ago. Although Burondo is said to have abundant oil resources, only a small proportion is extracted every year because the extraction process is so inefficient. Transporting goods in and out of the country is costly, as Burondo is surrounded by lofty mountain ranges. School enrollment in this country is very low and as a result, most of the adult population is illiterate. Life expectancy is also quite low. Agriculture is collectivized in Burondo and so food shortages are common in the country. Using the information given, distinguish between the fundamental and proximate causes of prosperity (or its absence) in Burondo. Proximate causes of Burondo's lack of prosperity are ___________. (Check all that apply.) A. school enrollment is lowschool enrollment is low. B. food shortages affect healthfood shortages affect health. C. the government is an extractive political institutionthe government is an extractive political institution. D. the ecologyecology is unfavorable. E. the farmers have limited incentives to increase outputthe farmers have limited incentives to increase output.

A,B

Which factors explain economic growth in the United States over the past few decades? (Check all that apply.) A. Technology (A). B. Human capital (H). C. Physical capital (K). D. An increase in the saving rate (S).

A,B,C

A country that has a lower GDP per capita than another country in some year can end up with a larger GDP per capita in later years because it has (Select all that apply.) A. initiated and used more rapid advances in technology. B. generated faster improvements in the efficiency of its labor. C. attained a more equal distribution of income for its residents. D. accumulated physical capital at a more rapid pace.

A,B,D

What policies can be used to raise real GDP in a country? (Check all that apply.) A. Improve efficiency in the allocation of resources. B. Raise physical and human capital. C. Lower income per worker. D. Reduce the amount of investment spending in R&D. E. Increase technology.

A,B,E

Which of the following characteristics of economic fluctuations does the Great Depression illustrate? (Check all that apply.) A. Co-movement in economic aggregates. B. Limited predictability. C. Stock market volatility. D. Bank volatility. E. Persistence.

A,B,E

Why was there no sustained economic growth before modern times, that is, before 1800? (Check all that apply.) A. The pace of technological change was much slower than in modern times. B. There were no national income or product accounts and so there was no way to accurately measure the economy. C. People could not easily survive in the subsistence level. D. Increases in aggregate income were offset by increases in population, keeping per capita income low.

A,D

Your client becomes critical of your "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this criticism? A. Economic models are meant to be approximations that predict what happens in most circumstances. B. Even a simplified economic model can provide 99 percent accuracy. C. Even a simplified economic model can provide two standard deviations accuracy. D. Economic models are meant to exactly predict each and every outcome by using all variables.

A. Economic models are meant to be approximations that predict what happens in most circumstances.

How does the sample size affect the validity of an empirical argument? A. The larger the sample size the better. B. The sample size is not relevant if it is greater than 50. C. The smaller the sample size the better. D. The sample size is not relevant if it is greater than 30.

A. The larger the sample size the better.

Which of the following is not one of the five major factors that shifts the demand curve when it changes? A. The price of the good itself B. Income and wealth C. The price of substitute goods. D. The number of buyers

A. The price of the good itself

Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. In the second approach, you also convert both values to U.S. dollars using the purchasing power parity-adjusted exchange rate. Which approach is likely to give you a more accurate picture of the living standards in both countries? A. The second approach, because it takes into account the relative costs for each country. B. The first approach, because the United States is the world's leader and the dollar is the global reserve currency. C. The second approach, because it's the total dollars that matter. D. The first approach, because it's the total dollars that matter.

A. The second approach, because it takes into account the relative costs for each country.

Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice price increases. You suggest that the team _____________. A. design and execute an experiment. B. utilize artificial intelligence to model human behavior. C. collect competitor data. D. develop a model that allows for scenario analysis.

A. design and execute an experiment.

Free riding occurs because _________. A. people sometimes pursue their own private interests and don't contribute voluntarily to the public interest. B. people usually think about what is in the public interest before pursuing what is in the private interest. C. in a democratic society you cannot force anyone to do something that they are against doing. D. there is perfect information in the market so everyone knows how much value each person puts on an item or activity.

A. people sometimes pursue their own private interests and don't contribute voluntarily to the public interest.

Sustained growth is the ____________. A. process where GDP per capita grows at a positive and relatively steady rate for long periods of time. B. pattern of growth that occurs when workers in relatively poorer nations work extra hours so that their GDP per capita catches up with more advanced nations. C. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations. D. type of growth that occurs when growth is compounded on the rate of growth in the prior period of measurement.

A. process where GDP per capita grows at a positive and relatively steady rate for long periods of time.

Productivity is ____________. A. the value of output that a worker generates for each hour of work. B. an indicator of how hard workers apply themselves to their tasks. C. a measure of the speed with which inputs can be transformed into products. D. the value of profit divided by the number of production workers.

A. the value of output that a worker generates for each hour of work.

The opportunity cost of entrepreneurship is the ____________. A. value to a potential entrepreneur of her best alternate activity. B. start-up cost of business for a new entrepreneur. C. additional cost to the entrepreneur of increasing her activity by one unit. D. cost borne by society from the entrepreneur's activities.

A. value to a potential entrepreneur of her best alternate activity.

The Malthusian cycle ___________. A. was common prior to the Industrial Revolution. B. primarily impacted economies during the Great Depression. C. has its roots in the demographic transition post-1800. D. was common between the time of the Industrial Revolution and the Great Depression.

A. was common prior to the Industrial Revolution

There was no sustained growth in living standards prior to the Industrial Revolution because __________. A. with output increasing at a decreasing rate, it is not possible to increase living standards, especially as the population continues to grow. B. with income below the subsistence level, as was common prior to the Industrial Revolution, people starved, which prohibited growth. C. the transition from agriculture and rural areas toward industry and city areas did not occur until after the Industrial Revolution, and it was only this urbanization that allowed increases in living standards. D. with output increasing at a decreasing rate, the level of per capita output will start to decrease, leading to a decrease in living standards

A. with output increasing at a decreasing rate, it is not possible to increase living standards, especially as the population continues to grow

China's economy is one of the fastest-growing economies in the world. Growth in China is primarily driven by investment and exports. You are discussing the sustainability of China's growth model with your friend. He says that according to the aggregate production function, China needs to continue to increase its physical capital stock to ensure sustainable growth. Do you agree? A. No, because diminishing marginal product of capital means that growth will not be sustained. B. No, because you also need to increase the amount of human capital along with physical capital. C. Yes, because increasing the physical capital in an economy allows increased production. D. Maybe, but only if the saving rate and therefore the rate of investment also increase.

A. No, because diminishing marginal product of capital means that growth will not be sustained.

Following the Fed's successful open market salesale, the process that ensues is given by ____________. A. Short-term interest rates riseriseright arrow→Long-term interest rates riseriseright arrow→Demand for goods and services decreasesdecreasesright arrow→Labor demand shifts leftleft. B. Long-term interest rates riseriseright arrow→Short-term interest rates riseriseright arrow→Demand for goods and services decreasesdecreasesright arrow→Labor demand shifts leftleft. C. Short-term interest rates fallfallright arrow→Long-term interest rates fallfallright arrow→Demand for goods and services increasesincreasesright arrow→Labor demand shifts rightright. D. Short-term interest rates riseriseright arrow→Long-term interest rates fallfallright arrow→Demand for goods and services increasesincreasesright arrow→Labor demand shifts leftleft.

A. Short-term interest rates riseriseright arrow→Long-term interest rates riseriseright arrow→Demand for goods and services decreasesdecreasesright arrow→Labor demand shifts leftleft.

Suppose the return and cost of entrepreneurship curves are described by the following equations (with numbers measured in the thousands): Requals=1 comma 0001,000minus−5050N Cequals=100100plus+150150N, where Requals=returns to entrepreneurship, Cequals=cost of entrepreneurship, and Nequals=number of entrepreneurs. Based on the equations given, the cost-of-entrepreneurship curve differs from the one drawn in the chapter because it is ____________. A. upward-sloping, indicating the opportunity cost of entrepreneurship increases with the number of entrepreneurs. B. upward-sloping, indicating specialization as the number of entrepreneurs increases. C. downward-sloping, indicating economies of scale as the number of entrepreneurs increases. D. horizontal, indicating a constant marginal cost of entrepreneurship as the number of entrepreneurs increases. The equilibrium number of entrepreneurs is Nequals= 4.5 thousand. The equilibrium returns to entrepreneurship is Requals=$ 775 thousand.

A. upward-sloping, indicating the opportunity cost of entrepreneurship increases with the number of entrepreneurs.

how to calculate nominal GDP

Add up all of the total market value: (10 Fords)X($30,000/Ford) + (5 Chevys)X($20,000/Chevy) = $400,000

Since government spending increases employment by shifting the labor demand curve to the right, is it always a good idea for the government to increase expenditure? Explain your answer. A. No, continual increases in labor demand may be inflationary if they outpace labor supply growth. B. No, continual increases in government expenditures will crowd out expenditures by households and firms, very likely leaving labor demand little changed.likely leaving labor demand little changed. C. No, government efforts aimed at shifting the labor demand curve to the right should only be used during recessions.recessions. D. All of the above. E. A and C only.

All of the above

The inflation-adjusted purchasing power of the originally borrowed dollar is subtracted from the amount a borrower repays in a year on a one-dollar loan. The result is the ____________. A. inflation-adjusted cost of the loan. B. real price of the loan. C. real interest rate. D. all of the above. E. A and B only.

All of the above

Q2 months

April-June

Suppose that there are only two small countries in the world: Ascot, with a population of 36,400 people, and Delwich, with a population of 28,000 people. Ascot's GDP is equal to $180 million while Delwich's GDP is $270 million. Delwich's GNP has been estimated to be equal to $290 million. The revenue earned by firms that operate in Delwich but are headquartered in Ascot is equal to $40 million. Given the data above, Ascot's GNP is $_______million.

Ascot's GNP is computed from its GDP ($180 million) by adding in the revenue earned by Ascot-owned firms that operate in Delwich ($40 million) and subtracting the revenue earned by Delwich-owned firms that operate in Ascot. The revenue of those Delwich-owned firms operating in Ascot is found as a residual from the given facts about the Delwich economy: Delwich GNP = Delwich GDP + Revenue of Delwich-owned firms in Ascot− Revenue of Ascot-owned firms in Dulwich $290 = $270 + Revenue of Delwich-owned firms in Ascotminus−$40 (in millions) $290−$270 + $40 = Revenue of Delwich-owned firms in Ascot $60 = Revenue of Delwich-owned firms in Ascot With this variable, the GNP for Ascot can be computed: Ascot GNP = Ascot GDP + Revenue of Ascot-owned firms in Delwich− Revenue of Delwich-owned firms in Ascot Ascot GNP = $180 + $40−$60 Ascot GNP = $160 million The per capita GDP in Ascot is simply its GDP of $180million divided by its population of 28,600. This value, rounded to the nearest dollar, is $6,294.

What are the disadvantages of using Big Macs to measure purchasing power parity? (Check all that apply.) A. Rather than accounting for cost-of-living differences, the Big Mac index reflects income inequality. B. The Big Mac index simply compares a bundle consisting of only one good. C. Big Macs represent only a very small fraction of people's D. Big Macs are popular, so they distort the true cost-of-living differences across countries.

B,C

Which of the following are not included in GDP but probably should be? (Check all that apply.) A. The value of intermediate goods used in the assembly of final products B. The value of leisure C. Transactions in the underground economy D. Financial asset transactions.

B,C

Factors that help households decide whether to consume or save their income are ___________. (Check all that apply.) A. expectations of the nation's investment needs. B. expectations about taxes. C. expectations of future income growth. D. the interest rate.

B,C,D

What factors explain the dramatic increases in life expectancy that we saw in most countries in the twentieth century? (Select all that apply.) A. Greater government control of the production and delivery of health care. B. Scientific breakthroughs leading to the development of antibiotics and vaccines. C. The establishment of simple but effective medical and public health practices. D. Innovations in disease control, including the use of DDT against malaria.

B,C,D

Which of the following news stories (all published in early 2014) would typically be studied in macroeconomics? (Select all that apply.) A. "Which College —and Which Major —Will Make You Richest." B. "What If Economic Growth Is No Longer Possible?" C. "We Believe Inflation Should Rule Monetary Policy." D. "Expectations High for March Employment." E. "5 Reasons Why Apple is Looking Like the Next Sony"

B,C,D

Fundamental causes of Burondo's lack of prosperity are ____________. (Check all that apply.) A. the workforce is not skilledthe workforce is not skilled. B. the farmers have limited incentives to increase outputthe farmers have limited incentives to increase output. C. there are few constraints to the exercise of power nbspthere are few constraints to the exercise of power . D. most of the adult population is illiteratemost of the adult population is illiterate. E. the geographygeography is not favorable.

B,C,E

Which of the following are not included in GDP but probably should be? (Check all that apply.) A. The value of intermediate goods used in the assembly of final products. B. The value of externalities. C. Financial asset transactions. D. Home production.

B,D

Which of the following will be considered a final good in the calculation of U.S. GDP? (Check all that apply.) A. Transmissions manufactured inAlabama for Ford's range of F−series pickup trucks. B. Defense equipment purchased by the federal government. C. Canned foods purchased by a grocery store. D. Foot massages at spas in California. Items are classified as final goods only if they are the _______ in a chain of production.

B,D; end product

To achieve its target for the federal funds rate, the Fed may ____________. (Check all that apply.) A. IncreaseIncrease corporate taxes. B. DecreaseDecrease lending from the discount window. C. IncreaseIncrease the reserve requirement. D. IncreaseIncrease the interest rate paid on reserves deposited at the Fed. E. SellSell Treasury bonds in the open market.

B. DecreaseDecrease lending from the discount window. C. IncreaseIncrease the reserve requirement. D. IncreaseIncrease the interest rate paid on reserves deposited at the Fed. E. SellSell Treasury bonds in the open market.

According to the Taylor rule, should the Fed raise or lower the federal funds rate when the output gap is negativenegative? A. It should raiseraise the federal funds rate. B. It should lowerlower the federal funds rate. C. Gaps are self-correcting, so it should do neither. D. It should do neither and instead let fiscal policy close the gap.

B. It should lowerlower the federal funds rate.

Suppose that there is technological advance from period 1 to period 2 but, at the same time, a decrease in the physical capital stock? Can you say whether real GDP will increase or decrease? A. No, since real GDP will decrease when the capital stock decreases. B. Not really, since the two items have offsetting effects. C. Yes, since real GDP will increase when technology increases.

B. Not really, since the two items have offsetting effects.

What are the automatic and discretionary components of fiscal policy? A. The automatic components are those fiscal actions that require accommodation from monetary policy, while the discretionary components do not. B. The automatic components do not require deliberate action on the part of the government, while the discretionary components do. C. The automatic components are limited to government expenditures, while the discretionary components entail changes in both taxes and expenditures. D. The automatic components stimulate the economy, while the discretionary components serve purposes unrelated to the health of the overall economy.

B. The automatic components do not require deliberate action on the part of the government, while the discretionary components do.

The Industrial Revolution had a positive impact on living standards __________. A. because as capital depreciated, it needed to be replaced, which created an increase in production, shifting the production curve upward. B. because of the introduction of new capital and technology that shifted the production curve upward. C. with the transition from agriculture to industry, which allowed people to rely less on child labor, it created incentives for smaller families and thus increased per capita income and living standards. D. by eliminating the impact of diminishing marginal returns at most levels of production, shifting the production curve upward.

B. because of the introduction of new capital and technology that shifted the production curve upward.

The recession of 2007-2009 affected the components of the national income identity by primarily affecting ____________. A. all components of the national income identity equally in terms of percentage changes. B. the C and I components through a reduction in consumer wealth and a drop in housing construction. C. the G component as the government attempted to offset the fall in demand through increased spending. D. the NX component due to an appreciation of the U.S. dollar and secondarily affecting the C and I components as consumers purchased fewer imports and businesses produced fewer goods for export.

B. the C and I components through a reduction in consumer wealth and a drop in housing construction.

An example of sustained growth is ____________. A. the steady increase in the saving rate in countries such as China and the United Kingdom. B. the United States, which demonstrated sustained growth between 1820 and 2007. C. Kenya, which has managed to maintain a steady growth rate over the last 50 years. D. the Democratic Republic of Congo, which despite a negative growth rate at times, has shown mainly steady growth.

B. the United States, which demonstrated sustained growth between 1820 and 2007.

The institutions hypothesis explains the difference in prosperity among nations is due to ____________. A. differences in a society's values. B. the way societies organize themselves. C. proximate factors, such as physical capital. D. geographic variation in ecology.

B. the way societies organize themselves.

According to the geography hypothesis, incomes in poor countries are ____________. A. likely to be increased by government policies to improve their climate. B. unlikely to be changed, because geography is largely out of their control. C. unlikely to be changed, because poor countries will not invest to improve technology. D. likely to decrease with the spread of disease related to climate change.

B. unlikely to be changed, because geography is largely out of their control.

The Troubled Asset Relief Program (TARP) is considered to be an example of a countercyclical policy that represents a mix of fiscal and monetary effects because it ____________. A. provided public monies to private, nonfinancial business enterprises. B. was a congressionally authorized expenditure by the U.S. Treasury that sought, in part, to provide financial resources to elements of the banking system. C. was formulated and undertaken jointly by Fed and Treasury officials. D. gave the government ownership rights in selected private banks.

B. was a congressionally authorized expenditure by the U.S. Treasury that sought, in part, to provide financial resources to elements of the banking system.

How can expansionary expenditure-based fiscal policy lead to crowding out in the economy? A. Expenditure-based fiscal policy increases the national debt, inducing forward-looking households and firms to reduce expenditures in anticipation of having to pay higher future taxes. B. Expenditure-based fiscal policy leads to more government borrowing, absorbing funds that would have otherwise been borrowed and expended by the private sector. C. Expenditure-based fiscal policy requires the collection of additional taxes, which reduce household incomes and expenditures. D. Expenditure-based fiscal policy raises inflation expectations and interest rates, causing private sector expenditures to fall.

B. Expenditure-based fiscal policy leads to more government borrowing, absorbing funds that would have otherwise been borrowed and expended by the private sector.

A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell. Is the model incorrect? A. No, because it is based on an incorrect assumption. B. No, because it predicts the outcome of increased bus ridership on average. C. Yes, because it does not predict the outcome with 100 percent accuracy. D. Yes, it's possible that certain factors, such as the price of gas, were not included in the model. How would you test this model? A. You should run a natural experiment by analyzing bus ridership and price changes. B. You should randomly question people to see if they prefer taking the bus to other forms of transportation. C. You should determine whether increased bus ridership implies causation or correlation. D. All of the above are appropriate ways to test your model.

B. No, because it predicts the outcome of increased bus ridership on average. A. You should run a natural experiment by analyzing bus ridership and price changes.

In his book The Elusive Quest for Growth, development economist William Easterly discusses the relationship between foreign aid and investment in poor countries. He posits that to establish the effectiveness of aid in promoting investment, two tests should be passed: First, there should be a positive statistical association between aid and investment; second, aid should pass into investment 1 for 1, that is, a 1 percent (of GDP) increase in aid should result in a 1 percent (of GDP) increase in investment. Using a data set of 88 countries from 1965 to 1995, he finds that only 17 of 88 countries pass the first test, and of them, only 6 pass the second. Based on the information in the chapter, and perhaps your own reading, explain why foreign aid designed to spur investment usually does not work. A. It spurs the expanse of inclusive economic institutions. B. It is sufficient to remove the need to increase physical capital. C. It may strengthen extractive political institutions. D. It promotes political creative destruction.

C. It may strengthen extractive political institutionsmay strengthen extractive political institutions.

Why is the rise in housing prices between the late 1990s and 2006 characterized as a bubble by some economists? A. Speculators had purchased houses strictly to sell later at a higher price. B. The rate of home foreclosures increased over its long-run average. C. The large increase in the price of housing assets did not reflect the true long-run value of the assets. D. Houses became too expensive for ordinary people to buy.

C. The large increase in the price of housing assets did not reflect the true long-run value of the assets.

The saving rate in an economy is defined as the ____________. A. rate of private saving minus the rate of government spending, G. B. fraction of total income that households invest. C. fraction of total income that households save. D. level of total income that households save.

C. fraction of total income that households save.

The return-to-entrepreneurship curve shows the ____________. A. return to entrepreneurship ranked across countries. B. net benefit to entrepreneurship for different enforcement levels of property rights. C. number of entrepreneurs with at least a particular level of returns. D. opportunity cost of engaging in entrepreneurial activities.

C. number of entrepreneurs with at least a particular level of returns.

Private property rights foster economic development by ____________. A. removing the need for costly contracts. B. redistributing income to those less fortunate. C. providing incentives to borrow money. D. replacing the law.

C. providing incentives to borrow money.

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question? A. Yes, the model includes all factors. B. Yes, the model includes every result from related academic papers and all industry expertise. C. No, the model is a simplified representation of reality. D. No, since the economic convention is to limit inclusion to the top three variables.

C. No, the model is a simplified representation of reality.

What does C represent in the GDP equation

Consumption

Suppose a country has well-enforced private property rights for entrepreneurs, but a large fraction of the population does not have access to education and thus cannot become entrepreneurs and would have low productivity as workers. Would you say this country has inclusive or extractive economic institutions? A. Inclusive institutions, because talents and skills are used efficiently. B. Extractive institutions, because enforcing property rights creates inequality. C. Inclusive institutions, because investment in human capital is inefficient. D. Extractive institutions, because barriers block access to education.

D. Extractive institutions, because barriers block access to education.

Zimbabwe, formerly known as Rhodesia, was a British colony for around ninety years. It became independent in 1980. The prime minister of newly formed Zimbabwe, Robert Mugabe, implemented a forced land redistribution policy, where commercial farms were confiscated from white farmers. Mugabe also proceeded to confiscate shares in companies owned by whites. In the following years, agricultural production in the country fell sharply. Zimbabwe, the country that used to be called the breadbasket of Africa, is now seeing food shortages in certain parts of the country. Would Zimbabwe be considered to have extractive or inclusive institutions? Explain your answer. A. Inclusive institutions, because income inequality has increased. B. Extractive institutions, because it upholds contractsupholds contracts. C. ExtractiveExtractive institutions, because there are food shortages. D. Extractive institutions, because it doesn't protect property rights. Why would a government undertake policies that would adversely affect the lives of its citizens? A. To invest in future prosperity. B. To change political institutions. C. To maintain its power. D. To promote economic growth.

D. Extractive institutions, because it doesn't protect property rights. c. maintain its power

Your answer is correct. Which of the following do you provide as a positive question? A. Who is the most to blame for the national debt? B. Will our high national debt lead to a breakdown of family values? C. Is passing on a high national debt to our children an immoral act? D. How much is the national debt?

D. How much is the national debt?

Before 1800, a pattern developed showing that increases in aggregate income led to an expanding population, which in turn reduced income per capita and put downward pressure on the population. This pattern is known as the ___________. A. poverty cycle. B. fertility cycle. C. demographic transition. D. Malthusian cycle.

D. Malthusian cycle.

Which of the following examples do you provide as a normative question? A. How many people are on food stamps? B. How much does welfare drive up the deficit? C. What is the rate of change of disability enrollment? D. Should welfare be repealed?

D. Should welfare be repealed?

An example of catch-up growth is ____________. A. when you move your money from a bank account earning 2 percent simple interest to one that earns 2 percent compounded interest. B. Kenya, which has managed to maintain a steady growth rate over the last 50 years. C. the change France made in 2008 by eliminating the 35-hour work week, which allowed workers to put in more hours and therefore earn more. D. South Korea, which by 1970 had become poorer relative to the United States, but over the last 40 years grew faster than the United States, closing the gap that had opened up previously.

D. South Korea, which by 1970 had become poorer relative to the United States, but over the last 40 years grew faster than the United States, closing the gap that had opened up previously.

What is meant by randomization in the context of an economic experiment? A. Eonomic experiments are not arranged in a logical sequence. B. Group numbers are arranged in a nonsequential order. C. Subjects are assigned to control and test groups by noneconomic factors such as race. D. Subjects are assigned by chance, rather than by choice, to a group.

D. Subjects are assigned by chance, rather than by choice, to a group.

Which factor is the most important contributor to growth in the United States? A. Human capital (H). B. Number of hours worked per capita. C. Physical capital (K). D. Technology (A).

D. Technology (A).

Productivity varies across countries because ___________. A. the level of technology differs across countries. B. human capital per worker varies substantially from country to country. C. the quantity of physical capital that workers can access varies greatly across countries. D. all of the above. E. A and B only.

D. all of the above

When government statisticians gather and analyze data on the purchases of goods and services produced in the domestic economy, they are measuring GDP using the ____________. A. production-based accounting method. B. circular flow-based accounting method. C. income-based accounting method. D. expenditure-based accounting method.

D. expenditure-based accounting method.

Market demand is derived by __________. A. adding up both the prices each buyer pays and the quantities that each buyer demands. B. dividing each buyer's demand by the total number of consumers in the market. C. fixing the quantity and adding up the prices that each buyer pays. D. fixing the price and adding up the quantities that each buyer demands.

D. fixing the price and adding up the quantities that each buyer demands.

In 2005, $320 million of the federal government's budget was allocated toward building a "bridge to nowhere" in Alaska that connected two small towns. In 2006, $500,000 was allocated toward a teapot museum in North Carolina, $1 million toward a water-free urinal initiative in Michigan, and $4.5 million toward a museum and park at an abandoned mine in Maine. These projects were requested by specific legislators in order to boost their popularity in their constituencies. These types of expenditures are known as ___________. A. pork belly spending. B. over-the-barrel spending. C. sunk costs. D. pork barrel spending.

D. pork barrel spending.

Catch-up growth is the ____________. A. process where GDP per capita grows at a positive and relatively steady rate for long periods of time. B. type of growth that occurs when growth is compounded on the rate of growth in the prior period of measurement. C. pattern of growth that occurs when workers in relatively poorer nations work extra hours so that their GDP per capita catches up with more advanced nations. D. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations.

D. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations.

A country's gross national product would exceed its gross domestic product when the ____________. A. amount of the national debt owed to foreigners is less than the amount of foreign debt owed to residents of the domestic economy. B. production of foreign-owned factors operating in the United States exceeds the production of domestically-owned factors operating abroad. C. country's residents own more assets abroad than foreigners own in the domestic economy. D. production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States.

D. production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States.

What could explain why a decrease in taxes could lead to a less-than-proportionate increase in output? A. As a result of diminishing returns to current consumption, consumers may choose to spread the extra spending over the long term rather than consuming the proceeds of a tax cut all at once. B. Consumers may choose to save much of the tax cut in anticipation of having to pay higher taxes in the future. C. A decrease in taxes will necessitate lower government outlays, thus largely offsetting the higher consumption expenditures of households. D. All of the above. E. A and B only.

E. A and B only.

Parts of the world that were relatively more prosperous 500 years ago have experienced a reversal of fortune and are relatively poorer today. What factors could explain this? A. The establishment of inclusive institutions by European colonialists in areas previously not well developed. B. Changing geographic and climatic conditions that have evolved to work against previously prosperous areas. C. The establishment in those previously prosperous places of extractive institutions by European colonialists. D. All of the above can explain the reversal of fortune. E. A and C only.

E. A and C only.

Production-based accounting is used to estimate GDP by ____________. A. computing for each firm the difference between sales revenue and the purchase of intermediate products, then summing this difference across all firms. B. adding up the incomes received by all the resources that contributed to production. C. summing each firm's value added to the production process. D. all of the above. E. A and C only.

E. A and C only

What is meant by empiricism? How do empiricists use hypotheses?

Empirical evidence is a set of facts established by observation and measurement, which are used to evaluate a model. Empiricism refers to the practice of using data to test economic models. When conducting empirical analysis, economists refer to a model's predictions as hypotheses. Hypotheses are predictions (typically generated by a model) that can be tested with data.

what is it meant by empiricism? How does empiricists use hypothesis?

Empiricism is using data to study the world around us. it begins with the hypothesis that there is an objective reality independent of humanity and we may use inductive logic to learn about this reality through our senses. We can experiment and test the validity of our ideas. The scientific method is a method of empirical testing to prevent common fallacies and errors. Empiricism does not assume a prior knowledge.

6. The chapter shows that as a general rule people with more education earn higher salaries. Economists have offered two explanations of this relationship. The human capital argument says that high schools and colleges teach people valuable skills and employers are willing to pay higher salaries to attract people with those skills. The signaling argument says that college graduates earn more because a college degree is a signal to employers that a job applicant is diligent, intelligent, and persevering. How might you use data on people with two, three, and four years of college education to shed light on this controversy?

If the human capital explanation is correct, then we might expect to find that people who attend college but do not graduate earn salaries that are close to what college graduates earn. Consider the extreme case of people who drop out of college the week before graduation. It is very unlikely that they would have improved their job skills much in that last week. The human capital school of thought would suggest that they should therefore earn roughly the same salaries as college graduates. On the other hand, the signaling school of thought would argue that these people should earn significantly less than college graduates. Employers would interpret their failure to graduate as a signal they are not as diligent or persevering as people who see their college educations through to the end. There is substantial literature on what is often called the "sheepskin effect" (college diplomas used to be written on sheepskin; Notre Dame continued to use sheepskin until 2012). That literature suggests that human capital and signaling both contribute to the returns to education that we observe in the data.

Consider a $100 increase in GDP per capita. In 2012, Niger had a GDP per capita of approximately $800, and the United States had a GDP per capita of $50,700. Calculate the corresponding growth rates for these two countries. Niger's growth rate is _____percent, and the U.S. growth rate is ________ percent. (Round your responses to two decimal places.) Thus, ________ started out with a lower base and had a _________ growth rate.

In 2012, Niger had a GDP of only $13.4 billion, and a population of 16.9 million, resulting in a per capita GDP of approximately $800800. An increase in per capita GDP of just $100100 (which hardly makes Niger a rich country) would result in a GDP growth rate of: StartFraction $ 900 minus $ 800 Over $ 800 EndFraction equals 12.50 % $900−$800 $800=12.50% By contrast, a $100100 increase in U.S. GDP per capita (from $50 comma 70050,700 to $50 comma 80050,800) reflects a GDP growth rate of only 0.200.20 percent. niger, higher

Some studies have found that people who owned guns were more likely to be killed with a gun. Do you think this study is strong evidence in favor of stricter gun control laws? Explain.

Not necessarily. It is quite possible that people who thought they were at risk (perhaps because they live in dangerous neighborhoods) were more likely to buy a gun for self-protection. This is an example of a case where correlation may not imply causation. There has been a good deal of research on this question. See, for example, a Harvard School of Public Health 2011 interview with David Hemenway

What is not included in GDP?

Physical Capital depreciation, home production, the underground economy, negative externalities, GNP, Leisure,

equation GDP should always yield

Production=Expenditure=Income

what does PPP stand for

Purchasing power parity

Assume a society consists of two economic groups: one group is rich and the other group is poor. Suppose that 50% of the population is rich while the other 50% of the population is poor. Consider two scenarios. Scenario A: The rich have $60,000 each, while the poor have $2,000 each. Scenario B: The rich have $7,500 each, while the poor have $750 each. If you only care about average income and not about equity, you would prefer ▼ Scenario A Scenario B , which has an average income of $_______.

Since 5050 percent of the population is rich and 5050 percent of the population is poor, we calculate the average income as: left parenthesis 50 % times Rich income right parenthesis plus left parenthesis 50 % times Poor income right parenthesis(50%×Rich income)+(50%×Poor income) Scenario A has an average income of $31 comma 00031,000, and Scenario B has an average income of $4 comma 1254,125. Since Scenario Upper AScenario A has a higher average income, it is the preferred option if we are only considering averages.

what is one of the most important factor while searching for a job

TIME

what does each letter of the aggregate production function stand for?

Y=AxF(K,H) Y- real GDP K -physical capital stock of the nation H -efficiency units of labor used in production F- is best described as a relationship between the variables A- an index of technology. The higher A implies the economy produces more GDP with the same amount of physical capital as other countries

GDP equation

Y=C+I+G+X+M

The national income accounting identity associated with the expenditure-based accounting method is represented by ___________.

Y=C+I+G+X-M

What is the formula for the aggregate production function.

Y=F(K,H)

find the growth rate between 2005 and 2006. GDP per capita in 2005 was $42,482 and $43,215 in 2006.

[($43,215-$42,482)/$42,482] = 0.017 0.017 x 100 = 1.7%

growth rate equation

[(GDP per capital in yr 2)-(GDP per capita in yr 1)/GDP per capita in year 1]

unemployment rate equation

[(unemployed)/(employed+unemployed)] x 100

labor force participation rate equation

[labor force/potential workers] x 100

saving rate equation

[total saving / GDP] X 100

According to his theory of animal spirits and sentiment, changes in sentiment cause economic fluctuations through ____________. A. changes in household consumption and firm investment. Your answer is correct.B. changes in productivity. C. changes in government expenditure. D. decreases in offsetting movements in exports and imports.

The Internet boom of the 1990's has changed all of our lives and transformed the way business is conducted. During the late 1990's, the economy was described as the "best of all possible worlds" with quite high employment (and low unemployment). Which of the business cycle theories explained in the chapter would best explain how the Internet boom had such a positive effect? The business cycle theory that would best explain how the Internet boom had such a positive effect is A. real business cycle theory. B. Okun's theory. C. Keynesian theory. D. monetary theory.

The duration of an economic fluctuation ____________. A. has limited predictability. B. is completely unpredictable. C. is predictable but only in developed economies with good data. D. is completely predictable.

example of human capital?

a college degree

market

a group of economic agents who are trading a good or service, and the rules and arrangements for trading

returns-to-education model

a representation of how much income a person would make if adding a year on to their education (this is a made up model, and all others can be made up as well)

empirical evidence

a set of facts established by observation and measurement

definition of a model

a simplified description, or representation, of the world. Sometimes, economists will refer to a model as a *theory*. These terms are often used interchangably.

Consider the following data that shows the quantity of coffee produced in Brazil from 2004-2012. Year Production (in tons) 2004 2,465,710 2005 2,140,169 2006 2,573,368 2007 2,249,011 2008 2,796,927 2009 2,440,056 2010 2,907,265 2011 2,700,440 2012 3,037,534 a. Plot the data in a time series graph. b. What is the mean quantity of coffee that Brazil produced from 2009 to 2011? c. In percentage terms, how much has the 2012 crop increased over the 2009-2011 mean?

a. A time-series graph can be used to represent the quantity of coffee produced from 2004 to 2012. b. The average quantity of coffee that Brazil produced during the 2009-11 period is 2,682,587 tons. This is the sum of the total quantity produced divided by the number of years. c. The coffee crop in 2012 is 14.6% larger than the average coffee crop in 2009-2011. The increase in production is 3,073,534 - 2,682,587 = 390,945. In percentage terms, the change is 390,947 / 2,682,587 = 14.6%.

A1. How would you represent the following graphically? a. Income inequality in the U.S. has increased over the past 10 years. b. All the workers in the manufacturing sector in a particular country fit into one (and only one) of the following categories: 31.5 percent are high school dropouts, 63.5 percent have a high school diploma, and the rest have vocational training certificates. c. The median income of a household in Alabama was $43,464 in 2012, and the median income of a household in Connecticut was $64,247 in 2012.

a. Since the graph needs to show how income inequality increases over a period of time, a time-series graph needs to be used here. b. A pie chart is a circular chart split into segments to show the percentages of parts to the whole. Since the given data is in percentages, a pie-chart can be used to represent each category of workers. c. A bar chart would be a good way to compare income in Alabama and Connecticut. The height of each bar would represent the income in each one of the states.

This chapter stressed the importance of using appropriate samples for empirical studies. Consider the following two problems in that light. a. You are given a class assignment to find out if people's political leanings affect the newspaper or magazine that they read. You survey two students taking a political science class and five people at a coffee shop. Almost all the people you have spoken to tell you that their political affiliations do not affect what they read. Based on the results of your study, you conclude that there is no relationship between political inclinations and the choice of a newspaper. Is this a valid conclusion? Why or why not? b. Your uncle tells you that the newspaper or magazine that people buy will depend on their age. He says that he believes this because, at home, his wife and his teenage kids read different papers. Do you think his conclusion is justified?

a. The conclusion is not likely to be valid as the sample used in the study is too small. Convincing data analysis will depend on a much larger sample of people. The subjects of the study should also be randomly chosen to minimize the possibility of the results being biased. b. This is an example of argument by anecdote. Using a small sample of people to judge a statistical relationship is likely to lead to flawed conclusions. The fact that your uncle's wife and kids do not base their reading on their political affiliations does not mean that others do not. In order to arrive at a conclusion, you need to survey more people and also make sure that they are chosen randomly.

A3. Suppose the following table shows the relationship between revenue that the Girl Scouts earn and the number of cookie boxes that they sell. Number of cookie boxes Revenue ($) 50 200 150 600 250 1,000 350 1,400 450 1,800 550 2,200 a. Present the data in a scatter plot. b. Do the two variables have a positive relationship or do they have a negative relationship? Explain. c. What is the slope of the line that you get in the scatter plot? What does the slope imply about the price of a box of Girl Scout cookies?

a. The following line chart shows the relationship between the Girl Scouts' revenue and the number of cookie boxes that they sell: b. Since the values of both variables increase together in the same direction, they have a positive relationship. This means that as more cookie boxes are sold, the revenue earned increases. c. The slope is constant in this problem and so we can choose any two points to calculate the slope. Suppose we use the first and last data points. The slope is calculated as . The slope implies that one extra box of cookies sold is associated with $4 more in revenue.

9. A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell. a. Is the model incorrect? b. How would you test this model?

a. The model is not incorrect. Models are only approximations of real-life behavior. Even very good models make predictions that are often correct. So, on average, more people will take the bus. The model is also likely to have made some assumptions, such as no change in costs of other types of transport, or that people have no specific preferences and cost is the only determinant of the mode of transport used. In reality, some of these assumptions may be violated which could explain why a fall in the price of bus tickets does not induce everyone to take the bus. That does not imply that the model's conclusion is incorrect. In situations where the assumptions it makes are satisfied, its prediction will often be correct. b. The hypothesis here states that as bus prices fall, the number of passengers who take the bus will increase. A natural experiment can be used to test this model. You can use data on price changes and changes in revenues earned from tickets to see whether the model is accurate.

As the text explains, it can sometimes be very difficult to sort out the direction of causality. a. Why might you think more police officers would lead to lower crime rates? Why might you think that higher crime rates would lead to more police officers? b. In 2012, the New England Journal of Medicine published research that showed a strong correlation between the consumption of chocolate in a country and the number of Nobel Prize winners in that country. Do you think countries that want to encourage their citizens to win Nobel Prizes should increase their consumption of chocolate?

a. There is a great deal of evidence that increasing the number of police officers in a neighborhood can drive down crime. The police, for example, will deter criminals who realize the chances they will be caught have gone up and the police may be able to head off conflicts between gangs. Therefore more police could lead to less crime. Cities strategically assign more police to high crime areas (since by definition, those are the areas where crimes are more likely to occur). Therefore, more crime can lead to more police. b. Correlation does not necessarily imply causation. A strong positive correlation between chocolate consumption and Nobel Prize winners does not, by itself, suggest causation. It is possible that this is a chance correlation. It may also be case that certain variables that could explain this relationship have been omitted from the study.

efficiency wages

about the wage that workers would accept, where the extra pay increases worker productivity and improves the profitability of the firm

job search

activities that a worker undertakes to find the appropriate job

how to calculate total gross savings

add gross private savings and gross government savings

Expenditure

adding up all of the purchases

example of physical capital stock

adding up the dollar values of machines and buildings

interest rate (NOMINAL interest rate)

additional money you pay for borrowing the money you loaned

what is the total activity in the economy known as

aggregate economic activity

national income accounting is a framework for calculating GDP- what does it measure

aggregate economic output

recession

an economic fall out/ the bottom of the economic cycle

labor income

any form of payment that compensates people for their work

what is physical capital?

any good including machines and building, used for production

Physical capital is ▼ the ability to use labor and capital more efficiently each person's stock of skills to produce output or economic value any good, including machines and buildings, used for production .

any good, including machines and buildings, used for production

A model is an ________________

approximation

factors of production (FOP)

are the inputs to the production process

structural unemployment

arises when he quantity of labor supplied persistently exceeds the quantity of labor demanded

downward wage rigidity

arises when workers resist a cut in their wage

How does real business cycle theory best explain the economic boom? A. The internet allowed the creation of new businesses, which increased labour demand. B. Technological innovation leads to increases in productivity, which in turn increases the marginal product of labor and therefore labour demand. C. Technological innovation leads to decreases in productivity (because of distractions such as Facebook), which means that firms must hire more workers to produce their output, which in turn increases labour demand. D. Consumer and business demand for new technology products drove businesses to increase their output, which in turn increased labour demand

In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _________. A. see no change in its number of customers. B. lose all or almost all of its customers. C. see a small decrease in its number of customers. D. All of the above are equally likely.

the demand curve plots the relationship between the market price and the quantity of goods demanded by _________?

buyers

____________ used the concepts of animal spirits and sentiment to explain economic fluctuations. A. Arthur Cecil Pigou. B. Irving Fisher. C. John Maynard Keynes. D. Milton Friedman.

there are very large differences across countries in income or GDP per ___

capita

production based accounting is used to estimate GDP by _______.

computing for each firm the difference between sales revenue and the purchase of intermediate products and then sums this difference across all firms. More formally, we say that PBA sums each firm's added value.

What is Purchasing power parity?

constructs the cost of a representative bundle of commodities in each country and uses these relative costs for comparing income across countries.

collective bargaining

contract negotiations that take place between firms and labor unions

Recessions are periods in which the economy ▼ is stagnant expands contracts , while economic expansions are defined as the periods ▼ of peak GDP growth between booms of negative GDP growth between recessions . An economic expansion begins ____________. A. at the midpoint between the trough and peak of GDP growth. B. after the peak of GDP growth. C. in the middle of a recession. D. at the end of a recession.

contracts; between recessions; D. at the end of a recession ;

Debbie, a member of your team, advocates finding random people and then breaking them up into two groups. Group A would be shown an increase in the price of gas before taking the survey. Group B would be told there was no increase in the price of gas before taking the survey. Troy, another member of your team, recommends finding two groups of people already sorted by whether or not they have recently noticed an increase in the price of gas. Debbie's method is a ▼ surveyed experiment laboratory experiment natural experiment controlled experiment and Troy's method is a ▼ controlled experiment natural experiment laboratory experiment surveyed experiment .

controlled; natural group a is the treatment;group b is the controlled group

How do expansionary policies differ from contractionary policies? A. Expansionary policies seek to increase economic growth and increase employment, while contractionary policies seek to reduce the risk of excessive price inflation. B. Expansionary policies seek to shift the labor demand curve to the right, while contractionary policies seek to shift it to the left. C. Expansionary policies seek to reduce the severity of recessions, while contractionary policies seek to slow down the economy when it grows too fast. D. All of the above. E. Only A and C are correct.

In a perfectly competitive market, sellers _________ and buyers _________. A. are able to charge more than the market price; are able to pay less than the market price. B. are able to charge more than the market price; cannot pay less than the market price. C. cannot charge more than the market price; are able to pay less than the market price. D. cannot charge more than the market price; cannot pay less than the market price.

economists use ________ to evaluate the accuracy of models and understand how the world works

data

If the economy experiences an unexpectedly highhigh rate of inflation, the group that would tend to benefit is ___________. A. creditors left parenthesis people or institutions that are owed money right parenthesiscreditors (people or institutions that are owed money). B. debtors left parenthesis people or businesses who owe money right parenthesisdebtors (people or businesses who owe money). C. both would benefit equally. D. neither benefits

debtors

In this question, we will use what you learned in the second part of the chapter to compare the performance of an economy in two different time periods, as its physical capital stock and efficiency units of labor change. Suppose that from period 1 to period 2, the unemployment rate in the economy increases. Everything else remains unchanged. The total efficiency units of labor will ▼ increase decrease because ▼ less workers are employed more workers are employed

decrease; less workers are employed reason: The total efficiency units of labor, denoted by H, is the product of the total number of workers in the economy, L, and the average efficiency or human capital of workers, h. The total efficiency units of labor in period 1 is H1 = L1 × h1 and in period 2 is H2 = L2 × h2. Here L refers to the total number of employed workers in the economy (the workforce). If the level of unemployment increases, L is likely to fall. This will reduce the total efficiency units of labor, which means that (H1 = L1 × h1) > (H2 = L2 × h2).

at minium wage, how is the quantity of labor supplied in relation to the quantity demanded

demanded is less than supplied

Currently, some of the fastest-growing countries in the world remain desperately poor. For example, of the top five fastest-growing economies, three—Sierra Leone, Mongolia, and Niger—have real per capita GDPs that are 203rd, 154th, and 221st in the world, respectively. This seems like something of a contradiction. Using the equation for growth LOADING... given in the chapter, explain why a country that has a very low per capita GDP can also have a very high growth rate. A country with a very low per capita GDP can have a very high growth rate because mathematically, when the ▼ denominator ratio numerator is ▼ lower the same higher , even a small difference in the ▼ numerator ratio denominator will result in a large growth rate.

denim, lower, number

aggregate production function

describes the relationship between the aggregate GDP of a nation and its factors of production

saving rate

designates the fraction of income that is saved

time series graph

displays data at different points in time; recognize how variables change over time

scatter plots

displays the relationship between between 2 variable as plotted points of data

examples of capital income

dividends to shareholders, interest paid to lenders, retained earnings to corporations, rent payments, etc.

Economic shocks are amplified by what 2 things?

downward wage rigidity and multipliers

The former chairman of the Federal Reserve, Alan Greenspan, used the term "irrational exuberance" in 1996 to describe the high levels of optimism among stock market investors at the time. Stock market indexes such as the S&P Composite Price Index were at an all-time high. Some commentators believed that the Fed should intervene to slow the expansion of the economy. Why would central banks want to clamp down when the economy is growing? A. To block the formation of unsustainable speculative asset bubbles. B. To curtail excessive profits in the banking system. C. To prevent inflationary forces from gathering momentum. D. All of the above. E. A and C only.

e. a and c

diminishing marginal product for labor

each person creates less marginal output than the workers who were hired before

example of - correlation

education and unemployment are unrelated

3 possible categories workers fall into

employed, unemployed, and not in the labor force

Items are classified as final goods if they are the ( end product/ primary component) in a chain of production.

end product

The United States is currently a relatively rich country. How do the following items support U.S. economic strength? Sam Walton, the founder of Walmart, is an example of the power of ____________________ , which creates economic growth. Your university or college is an example of ____________________ , which contributes to economic growth. The nation's ports are examples of ___________________ , which contributes to economic growth. New developments that enable natural gas and oil fracking are examples of ___________________ , which contribute to economic growth.

entrepreneurship ____________________________________ human capital ___________________________________ Physical capital ___________________________________ technology

do you want the amount of labor value of marginal product (more/equal/less) to the market wage

equal

collective bargaining leads to __________ wages and benefits __________ than what workers would have received under market-clearing wages.

equilibrium; greater

example of physical capital?

equipment, buildings, tractors, etc.

what is persistence of growth rate?

even though recession's beginning and ending may be unpredictable, economic growth is not random

potential workers

everyone in the general population with 3 exceptions: children under 16 years of age, people on active duty in the military, and institutionalized people, like those in nursing homes and jail

What does X represent in the GDP equation

exports

Empirical evidence is a set of _________ established by observation and measurement, which are used to evaluate a model.

facts

data

facts, measurements, or statistics that describe the world

unemployment rises when GDP ______?

falls

True or false: income and standard of living are the same thing?

false

what isa frictionless market?

firms can intently hire and fire workers, both workers and firms have complete info about each other, and the wage adjusts instantly to clear the market

According to your completed figure, a recession impacts employment lessless severely when wages exhibit downward __________ .

flexibility

key difference between GDP and CPI(consumer basket)

formulas differ in the basket of goods being bought: GDP deflator- total production of the domestic economy CPI- the eyes and quantities of goods that are purchased by a typical US household

when market wages are higher in the labor supply curve, more people do what?

go to work so they can be paid more

Which of the following will be considered a final good in the calculation of U.S. GDP? (Check all that apply.) A. Canned foods purchased by a grocery store B. Processors manufactured in California for Apple's new range of laptops C. Defense equipment purchased by the federal government D. Golf outings at courses in North Carolina

golf outings and defense equipment (since canned foods aren't purchased by the final owner and processors are not the final product)

what does production represent in the flow diagram

goods and services produced by firms that are sold to households

treatment group

groups that are given incentives

sustained growth

growth process where GDP per capita grows at a positive and relatively steady rate for long periods of time

catch up growth

growth process whereby relatively poorer national increase their incomes by taking advantage of knowledge and technologies already invented in other countries

what is the equation for growth

growth(t,t+1)= [(Y(t+1)-Y(t)/Y(t)]

example of 0 correlation

having lots of friends is not related to whether your address is on the odd or even side of the street

who owns PC and labor

households

3 thinks that help determine how productive workers in an economy are:

human capital, physical capital, and technology

4 productivity differences

human capital, physical capital, physical capital stock, and technology

negative correlation

implies that 2 variables tend to move in opposite directions

positive correlation

implies that 2 variables tend to move int eh same direction

How did the fall in housing prices cause the entire financial system in the United States to freeze up? The fall in housing prices resulted in ▼ increased unemployment increased defaults a decrease in the money supply , leading to enormous ▼ government unemployment costs bank losses bank account closures , disrupting the banks' ability and willingness to make loans to ▼ the government the central bank consumers and firms .

increased defaults; bank losses; consumers and firms

good economic questions address topics that are important to _________________________

individual economic agents and/or society

Suppose the Fed conducts an open market salesale. Such an action would be called for if the economy faced the possibility of (recession/inflation_ .

inflation

GDP deflator

is 100 times the ratio of nominal GDP to real GDP in the same year. It is a measure of how prices of goods and services produced in a country have risen since the base year

Consumer Price index

is 100 times the ratio of the cost of buying a basket of consumer goods using this yrs's prices divided y the cost of buying the same basket of consumer prices using base-yr prices

some examples of good economic questions

is Facebook free? is college with it? How often do banks fail? How does location affect the rental cost of housing? ch 1- Do investors chase historical returns? ch 2- What is the value of a human life? ch 3- Do governments and politicians follow their citizens' and constituencies' wishes?

experiment

is a controlled method of investing causal relationships among variables

variable

is a factor that is likely to change or vary

one dollar a day per person poverty line

is a measure of absolute poverty used by economists and other social scientists to compare the extent of poverty across countries

dependent variable

is a variable whose value depends on another variable

independent variable

is a variable whose value does not depend on another variable; in an experiment it is manipulated by the experimenter

natural experiment

is an empirical study in which some process- out of the control of the experimenter- has assigned subjects to control and treatment groups in a random or nearly random way

what is human capital

is each person's stock of skills to produce output or economic value

randomization

is the assignment of subjects by chance, rather than by choice, to a treatment group or control group

value added

is the firm's sales revenue - the firm's purchases of intermediate products from other firms

unemployment rate

is the fraction of the labor force that is unemployed

Real GDP growth

is the growth rate of real GDP

consumption

is the market value of consumtion goods and consumption services that are bought by domestic households

investment (Private Investment)

is the market value of new physical capital that is bought by domestic households and firms

Gross Domestic Product (GDP)

is the market value of the *final* goods and services produced within the borders of a country during a particular period of time

scientific method

is the name for the ongoing process that economists, other social scientists, and natural scientists use to (1) develop models of the world and (2) test those models with data

national income and product accounts (NIPA)

is the system of national income accounts that is used by the US govt.

nominal GDP

is the toal value of production, using *current* market prices to determine the value of each unit that is produced

Real GDP

is the total value of production, using *market* prices form a specific base year to determine the value of each unit that is produced

what is physical capital stock?

is the value of equipment, structures, and other non-labor inputs used in production

labor demand curve

labor demand VS wages; the value of the marginal product of labor is also the labor demand curve, because they both show how the quantity of labor demanded varies with the wage

int he labor market, households supply ______________ and firms demand _________________.

labor;labor

examples of Physical Capital (PC)

land, factories, and machines

ow do wage flexibility and downward wage rigidity affect the extent of unemployment in the economy when the demand for labor falls? When the demand for labor falls, the fall in employment is ▼ contractual limited amplified when real wages are flexible and ▼ amplified limited aggregated when wages are downwardly rigid.

limited; amplified

creditors

loaners

techonoligcal progress occurs in the ______run

long

modern market economics are able to sustain long-run or short run growth?

long-run

a higher real interest rate may _______ the saving rate?

lower

bar charts

make easy to compare single variables across many groups

limited predictability is important to acknowledge why?

many early theories of business cycles assumed that economic fluctuations had a pendulum-like structure with systematic swings in economic growth- which is far from the truth

correlation

means that there is a mutual relationship between 2 things

national income accounts

measure the level of aggregate economic activity in a country (the entire economy)

the Great Depression featured the limited predictability aspect how?

most people thought the strength of the economy would go far beyond 1929, and the the stock market crashed...it was so sudden

Oregon expanded its Medicaid coverage in 2008. Roughly 90,000 people applied but the state had funds to cover only an additional 30,000 people. The state used a lottery to determine who would receive this free health care insurance from Medicaid. How could you use the Oregon experience to estimate the impact of increased access to health care on health outcomes? The Oregon experience is a ▼ natural experiment statistical experiment laboratory experiment . One might analyze the data as follows: gather and analyze the data on the health care outcomes for the two groups to determine if ▼ free health care results in better health outcomes free health care results in a larger public debt more doctor vists result in more emergency room visits .

natural experiment;free health care results in better health outcomes

The relationship that exists between these two variables can be described as ▼

negatively related

do economists expect these models to reveal the "true" model of the world?

do you want to use a small amount of data when using an empirical argument?

is the unemployment rate ever close to zero?

in a perfectly competitive market do sellers all sell different things?

no all sellers all sell an identical good or service

unemployed

no job, has looked for a job for 4 week, & currently available for work

is the goal to be fluctuation free?

no, it is not feasable

do foreign factories get counted as part of the US GDP?

no- it is not in the US

real interest rate

nominal interest rate - inflation rate

control group

nothing is done

data can also be called

observations

examples of technolgy

obvious technology, but also new techniques not available to other countries

causation

occurs when one thing directly affects another through a cause-effect relationship

reverse causality

occurs when we mix up the direction of cause and effect

the scientific method is the name of the :

ongoing process t hat economists and other scientists use to (A) develop mathematical models of the world and (B) test those models with data

If I am finding the GDP and am evaluating a car, should I count all of the parts, or just count the car? explain

only count the car. I am looking for the final good. If I counted the car engine, the A/c unit, etc. I would be double counting because all of the parts are taken int o consideration when the car is complete

mean

or average; this is the sum of all the different values divided by the number of values

Exponential growth results because new growth builds on _________ growth and its effects compound.

past

think of the causation as the:

path from cause to effect

capital income

payment that derives from owning physical or financial capital

what does expenditure represent in the flow diagram

payments for the goods and services

what does income represent in the flow diagram

payments that are made from firms to households to compensate the households for th use of their physical capital and labor

what is excluded in government expenditure

payments that go to other agencies in the economy who will use those payments to buy goods and servies

example of + correlation

people who have a relatively high income are more likely to be married than people who have a relatively low income

underemployed workers

people who would like to have better jobs or work more hours; they are considered employed

unemployment rate

percentage of the labor force that is unemployed

economic expansions

periods between recessions. Accordingly, an economic expansion begins at the end of a recession and continues until the state of the next recession

Demonstrate causation or correlation with the following examples: More ▼ firefighers police officers and ▼ lower higher crime rates is likely to be ▼ causation correlation . More ▼ government regulation unemployment economic growth and ▼ higher lower employment levels is likely to be ▼ correlation causation . The length of women's skirts and stock market performance is likely to be ▼ causation correlation .

police officers,lower,causation economic growth,higher,causation correlation

poverty often brings about:

poor health

is there a (positive, negative, or neutral) relationship between human development index and income per capita?

positive

discouraged workers

potential workers who would like to have a job but have given up looking for one. They are not actively looking for a job, so they are not unemployed; they are not in the labor force

All scientific models make ___________ that can be checked with data.

predictions

hypotheses

predictions (typically generated by a model) that can be tested with data.

a model make _______ that can be tested with ________

predictions; data

what do economists use to measure the rate of inflation and to distinguish nominal GDP from real GDP

price index

nominal GDP uses what prices

prices for the year

what do we look at to under the huge difference in income per capita across countries?

production

causation ex:

putting a snowball in a hot oven causes it to melt

The Law of Demand states that as the price of a good increases, ceteris paribus, the __________________________ decreases. This can be shown graphically with a downward-sloping demand curve or numerically in a table using a demand schedule .

quantity demanded

labor supply curve

quantity of labor supplied VS wages

what can minimum wage person prevent

quantity of labor supplied from equaling the quantity of labor demanded

The Law of Supply states that as the price of a good increases, ceteris paribus, the ▼ of that good increases. This can be shown graphically with ▼ supply curve or numerically in a table using a ▼ The relationship that exists between these two variables can be described as ▼ .

quantity supplied; an upward-sloping-supply schedule positively

formula for real interest rate?

r= i - (pi)

3 sources of labor demand fluctuations

real business cycle theory: emphasizes changing productivity and technology 2. keynesian theory: emphasizes changing expectation about the future 3. financial and monetary theories: emphasizes changes in prices and interest rates

percent that real GDP is below real potential GDP equation

real-potential / potential x 100

a model is a simplified description of ________

reality

exponential growth

refers to a situation in which the growth process can be described by an approximately constant growth rate of a variable such as GDP or GDP per capita

great depression

refers to the severe contraction that started in 1929, reaching a low point for real GDP in 1933. The period of below-trend real GDP did not end until the buildup of WW2 in the late 1930s

examples of expenditure investment

residential houses, business inventory (car waiting to be bought), offices, business equipment (computers), ect. Basically anything someone can put their money into

examples of those not in the labor force

retired, stay at home parents, students, or those not looking for a job

When one of the five major factors changes, causing an increase in demand, the demand curve shifts ▼ upward rightward up and to the right .

rightward

When one of the four major factors changes, causing an increase in supply, the supply curve shifts ▼ up and to the right rightward upward .

rightward

1 method to determine causality is to :

run an experiment

empiricism is the heart of all _____________________

scientific analysis

nominal interest rate - expected inflation rate

see if it is zero lower bound

prices act as a ___________ between buyers and sellers

selection device

the supply curve plots the relationship between the market price and the quantity of goods demanded by _________?

sellers

government policies can only reduce __________, and not the existence, of fluctuations?

severity

economic fluctuations or business cycles

short-run changes in the growth of GDP

pie chart

shows percentages or describe how a single variable is broken up into different categories

In general people with more education earn higher salaries. Economists have offered two explanations of this relationship. The human capital argument says that high schools and colleges teach people valuable skills, and employers are willing to pay higher salaries to attract people with those skills. The signaling argument says that college graduates earn more because a college degree is a signal to employers that a job applicant is diligent, intelligent, and persevering. The ▼ correlation argument human capital argument signaling argument causation argument implies that a college student who drops out of school one month before graduation should earn much less than a student who graduates. The ▼ human capital argument signaling argument correlation argument causation argument implies that a college student who drops out of school one month before graduation should earn almost the same as a student who graduates.

signaling;human capital

it is more important for a model to be ________&________ than to be precisely ___________.

simple and useful; accurate

economic research focuses on questions that are important to ___________ and can be answered with models and data

society

what is the natural trade-off for saving?

spend it today or save it for the future

correlation ex:

students who take music courses in high school score better on SATs than students who did not take music in high school

Coffee and tea are likely ▼ because an increase in the price of coffee ▼ decreases does not change increases the demand for tea.

substitutes; increases

The Fed's open market salesale impacts the federal funds market shown on the right by shifting the ▼ supply of demand for reserves.

supply

He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by (building duplicate models/ peer review/ testing its predictions) with (simulated data empirical data hypothetical data) .

testing its predictions;empirical data

what is a simple example of the PPP?

the Big Mac Index

effiencicy of production

the ability of an economy to produce the maximal amount o output forma given amount of factors of production and knowledge

wide rigidity

the condition in which the market wage is held above the competitive equilibrium level that would clear the labor market

market wage

the cost of employing a worker

The geography hypothesis states that differences in geography, climate, and ecology are fundamental causes of prosperity and are ultimately responsible for

the differences in prosperity observed across the world.

what do exchange rates fail to account for?

the fact that the prices of many goods and services will differ across countries. EX: phones are cheaper in the US than Mexico because we have better technology, but guac and haircuts are cheaper in Mexico because labor costs are cheaper.

when the economy is growing, what will it probably keep growing like?

the following quarter

economic growth

the increase in GDP per capita of an economy

exports

the market value of all domestically produced goods and services that are purchased by households, firms, and governmerns in foreign countries

imports

the market value of all foreign-produced goods and services that are sold domestically

government expenditure

the market value of government purchases of goods and services

substance level

the minimum level of income per person that is generally necessary for the individual to obtain enough calories, shelter, and clothing to survive

fertility

the number of children per adult or per woman of childbearing age

labor force participation rate

the percentage of potential workers in the labor force

malthusian cycle

the preindustrial pattern in which increases in aggregate income lead to

technological change

the process of new technology and new goods and services being invented, introduced, and used in the economy, enabling the economy to achieve a higher level of GDP for given levels of physical capital stock and total efficiency units of labor

what does FOP represent in the flow diagram

the productive resources that are owned by the households and used by firms in the production process

natural rate of unemployment

the rate around which the actual rate of unemployment fluctuates

co movement shows that GDP, consumption, and investment following ________ pattern?

the same

garbage in, garbage out

the saying economists use when research is designed poorly

productivity

the value of goods and services that a worker generates for each hour of work

what are models really used for?

to test and explain the past to predict the future with some confidence.

downward rigid wages cause

unemployment

frictional employment

unemployment at arises because worker have imperfect information about available jobs and need to engage in a tier-consuming process of job search

Empiricism is a principle in economics that _________.

uses data to test models

natural experiments can be very useful in providing a more definitive answer to which question:

what are you getting from your education?

Suppose that you are on a date with an economics major, and you want to impress them by talking about economics. Your date challenges you to state your knowledge of positive and normative questions. You say that positive questions ask ▼ what is or what will be what ought to be and normative questions ask ▼ what is or what will be what ought to be .

what is to what will be; what ought to be

when is someone is absolute poverty?

when a person is living on less than $1.08 per day (1993), Today (2005) it si $1.25

market price

when all sellers and buyers face the same price

minimum wage creates:

winners and losers

oakun's law

year to yea change in the rate of unemployment is equal to -1/2 x (g-3%), where g represents the annual growth rate of real GDP, in percentage points

example of exponential growth rate

year| value|Growth Rate | product 2000| 1 | .05 | 1 2001| 1 | .05 | 1.05 2002| 1.05 | 1.05 | 1.1025 2003|1.1025| 1.05 | 1.1578 2015| | 2.0789

does the value added after importing into the US counted toward US GDP?

yes!

in exponential growth, do small changes matter?

yes, even the smallest changes can translate into large differences in the level of a quantity after many years of growth

argument by example is appropriate when....

you are contradicting a *blanket statement*.

When the variables have movements that are not related, we say that the variables have _______________________

zero correlation

3 categories of correlation

zero, positive , and negative

Could the country achieve a high level of economic development? A. No, the country's inclusive institutions generate creative destruction. B. Yes, the country's extractive institutions promote growth. C. Yes, because the country's extractive institutions do not affect inequality. D. No, the country's extractive institutions limit prosperity.

No, the country's extractive institutions limit prosperity.

reasons to cause the credit demand curve

1. changes in perceived business opportunities for firms 2. changes in household preferences or expectations 3. Changes in government policy

reason for shifts in the credit supply curve

1. changes in the saving motives of households (left) 2. changes in the saving motives of firms (retained earnings are more=right)

since 1929, a recession has occurred once ever ____ years?

If banks expect that the rate of inflation in the coming year will be 4.75% and they want a real return of 6% on a certain category of loans, then the nominal rate they should charge borrowers on those loans is ______%.

6+4.75=10.75

Economic variables are sometimes divided into "leading indicators" and "lagging indicators." Leading indicators are variables that start to change before an economic expansion or contraction. Lagging indicators change only when an expansion or contraction is well underway, or even about to reverse. Based on the graph, is unemployment a leading or lagging indicator of recessions? A. Lagging indicator. B. Leading indicator. C. Both a leading and lagging indicator.

correct, Review Question 1 Question Help Economic fluctuations are ____________. A. short-run changes in the growth of GDP. B. long-run changes in the growth of GDP. C. changes to the trend line of GDP growth. D. economic shocks characterized by downward wage rigidity and multipliers.

According to the Taylor rule, the Federal Reserve should lower the federal funds rate when the ____________. (Check all that apply.) A. inflation rate falls. B. output gap fallsfalls. C. Fed's long-run target for the federal funds rate fallsfalls. D. Fed's inflation rate target risesrises. E. exchange rate risesrises.

A,B,C,D

Which of the following key factors can help explain the Great Recession of 2007dash-2009? (Check all that apply.) A. An increase in mortgage defaults, negatively impacting banks. B. A fall in the value of the stock market. C. A fall in housing prices. D. A reduction in consumer wealth, curtailing spending. E. An increase in inflation. F. Increased trade protectionism, decreasing net exports. G. A reduction in new home construction, leading to a decrease in labor demand.

A,C,D,G

A shift in the credit supply curve can be caused by ____________. (Check all that apply.) A. a heightened desire on the part of firms to internally fund their future activities. B. an increase in the nominal rate of interest adjusted for inflation. C. an aging population that is ill-prepared for retirement. D. a decrease in the government's budget deficit. E. an elevated perception on the part of households that the future may hold many "rainy days."

A,C,E

Go to FRED, which shows the U.S. unemployment rate since 1948. Every recession during this period is shown by the gray bars on the graph. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. Does the behavior of the unemployment rate illustrate the principle of co-movement discussed in the chapter? A. No, because the unemployment rate does not respond when there are booms. B. Yes, because when real GDP declines, unemployment increases. C. Yes, because when real GDP declines, unemployment decreases. D. No, because when real GDP declines, unemployment may increase or decrease.

he Evidence-Based Economics in the chapter identifies three key factors that caused the recession of 2007dash-2009. How would Keynes's concept of animal spirits explain the creation of a housing bubble? A. Home builders reduced their level of construction and investment, which led to higher prices and profits due to decreased supply, and as inventory declined, prices continued to climb. B. People believed that a house was a worthwhile investment, which led to an increased demand for housing and thus pushed prices up. This confirmed to people that housing was a worthwhile investment, which led to more demand, resulting in an upward spiral driven by optimism. C. With an expanding economy, real wages were driven up, leading to higher demand for housing, which expanded the economy further and drove up wages again, resulting in an upward spiral driven by optimism. D. The increase in mortgage defaults led to reduced lending by banks, which in turn reduced demand for housing, leading to more defaults and higher prices for those who could buy as banks attempted to recoup losses.

B. People believed that a house was a worthwhile investment, which led to an increased demand for housing and thus pushed prices up. This confirmed to people that housing was a worthwhile investment, which led to more demand, resulting in an upward spiral driven by optimism.

Assuming flexible wages, in which case would the change in total employment be greater during a recession: Scenario 1: If workers do not increase their quantity of labor supplied very much in response to an increase in the wage. Scenario 2: Workers substantially increase their quantity of labor supplied in response to an increase in the wage. A. Scenario 1, because the labor supply curve in this case will be steeper. B. Scenario 2, because the labor supply curve in this case will be flatter. C. Scenario 2, because the labor supply curve in this case will be steeper. D. Scenario 1, because the labor supply curve in this case will be flatter.

B. Scenario 2, because the labor supply curve in this case will be flatter.

Some economists stress the role of monetary policy in the period leading up to the recession of 2007dash-2009. Between 2001 and 2003, the Federal Reserve lowered the target federal funds rate from 6.5% to 1%, and kept it there through much of 2004. This resulted in a substantial decline in real interest rates throughout the economy, including mortgage rates. Based on the chapter's discussion of monetary and financial factors, how could the Federal Reserve's policies have contributed to the economic "bubble" of the pre-recession years of 2000dash-2006? A. The rapid decrease in the federal funds rate led to increased consumption because of the low return on savings, which increased demand in the economy above the sustainable level. B. The low federal funds rate also lowered the rate at which businesses could borrow, driving an increase in demand for investment, which in turn drove up real wages. C. The low federal funds rate also lowered mortgage rates, driving an increase in demand for housing, which in turn drove up real estate prices. D. The Federal Reserve's policies increased the multipliers in the economy, increasing the impact of the boom and therefore the subsequent crash.

C. The low federal funds rate also lowered mortgage rates, driving an increase in demand for housing, which in turn drove up real estate prices.

Firms, households, and governments use the credit market for borrowing. The credit demand curve shows the relationship between the quantity of credit demanded and the real interest rate. The credit demand curve slopes downward because ____________. A. government borrowing increases when budget deficits increase, and vice versa. B. a lender's ability to make loans falls as the real interest rate rises. C. a higherhigher real interest rate reducesreduces a borrowing firm's profit and hence its willingness to borrow. D. households seek to borrow more when their outlook for the future improves.

C. a higherhigher real interest rate reducesreduces a borrowing firm's profit and hence its willingness to borrow.

Real business cycle theory ____________. A. explains how monetary factors drive business cycles. B. explains how initial economic shocks are amplified through the multiplier process. C. emphasizes the role of sentiments that create the self-fulfilling prophecies that drive economic fluctuations. D. emphasizes the role of changing productivity and technology in causing economic fluctuations.

What policies could the government and the central bank use to achieve the goal of slowing down the economic expansion? A. The government could impose wage and price controls, while the central bank could raise interest rates. B. The government could reduce the value of the dollar and the central bank could retire currency from circulation. C. The government could lower taxes and/or raise expenditures, while the central bank could lower interest rates. D. The government could raise taxes and/or reduce expenditures, while the central bank could raise interest rates.

The national income identity shows that ___________. A. economic fluctuations are directly related to the movement of real variables. B. nominal variables are linked to real variables through inflation. C. the growth rate of real GDP is inversely related to the unemployment rate. D. output is a function of consumption, investment, government spending, and net exports.

D. output is a function of consumption, investment, government spending, and net exports.

In the United States, recessions are usually defined as ____________. A. any period of negative growth in real GDP. B. two consecutive months of negative growth in real GDP. C. two consecutive quarters of negative growth in nominal GDP. D. two consecutive quarters of negative growth in real GDP.

D. two consecutive quarters of negative growth in real GDP.

A shift in the credit demand curve can be caused by ___________. A. changes in government policy. B. changes in perceived business opportunities for firms. C. changes in household preferences or expectations. D. all of the above. E. A and B only.

D. All of the above

Central banks undertake quantitative easing programs to ____________. A. work around the problems when short-term nominal interest rates approach zero. B. give a boost to the prices of publicly traded equities. C. more forcefully and directly impact the interest rates relevant for investment decisions. D. all of the above. E. A and C only.

Households and firms with savings lend money to banks and other financial institutions. The credit supply curve shows the relationship between the quantity of credit supplied and the real interest rate. The credit supply curve slopes upward because a ____________. A. higher real interest rate induces more investment. B. higher real interest rate discourages current consumption. C. higher real interest rate encourages more saving. D. all of the above. E. B and C only.

E. B and C only

what happens to GDP, employment, and unemployment during economic booms?

GDP rises, employment rises, and unemployment declines

financial markets reflected the same co-movement pattern as ______,_______, and _________.

GDP, investment, and consumption

what happens to GDP during recessions?

Gap falls

Federal funds rate

Long-run target + 1.5(Inflation rateminus−Inflation target) + 0.5(Output gap)

3 key factors that contributed to the 2008 recession?

a collapsing housing bubble, a fall in household wealth, and a financial crisis

What are the important mechanisms that reverse the effects of a recession in a modern economy? (Check all that apply.) A. Labor demand increases due to expansionary government policies. B. Labor demand increases due to market forces. C. The multipliers on wages and employment return to normal. D. Labor supply increases due to an increase in real wages.

a,b

What market forces might cause the labor demand curve to shift back to the right? (Check all that apply.) A. The banking system recuperates and businesses are again able to use credit to finance their activities. B. Technological advances encourage firms to expand their activities. C. Wage rigidity decreases. D. Excess inventory has been sold off.

a,b,d

An example of a multiplier is when ____________. (Check all that apply.) A. a drop in consumer confidence reduces household spending, causing firms to cut production and lay off employees, leading to a greater reduction in household spending. B. a reduction in business investment is offset by increases in consumption and net exports. C. an increase in business confidence causes firms to increase production and hire employees, leading to an increase in household spending, causing firms to further increase production and employment. D. a decrease in labor demand with rigid wages causes a larger increase in unemployment than the same decrease with flexible wages.

a,c

Contractionary monetary policy can lead to an economy-wide recession through ____________. (Check all that apply.) A. a reduction in the real interest rate, leading to a decrease in production costs and therefore lower demand for labor. B. a reduction in the price level, leading to a reduction in employment because of downward wage rigidity. C. an increase in the price level, leading to a reduction in employment because of downward wage rigidity. D. an increase in the real interest rate, leading to an increase in production costs and therefore lower demand for labor.

b,d

An old saying goes: "Nothing succeeds like success." How could this saying relate to Keynes's animal spirits view of economic fluctuations? A. Success leads to additional success because successful people are more productive, which leads to increases in the marginal product of labor, allowing businesses to raise their level of investment in the economy. B. When people succeed, they become overconfident and overly optimistic, which can lead to actions that stimulate reckless behavior and ultimately lead to a downward spiral. C. When people succeed, they become confident and optimistic, which can lead to actions that stimulate further success. D. The saying doesn't relate to Keynes's view because individual success does not drive economic fluctuations.

The concept of multipliers was one of the key elements of John Maynard Keynes's theory of fluctuations. A multiplier is ____________. A. a factor that causes a change in the money supply to generate activity larger than the change in the money supply. B. a change in productivity that leads to increases in aggregate economic activity. C. an economic mechanism that causes an initial shock to be amplified by follow-on effects. D. a change in expectations about future economic activity.

What does it mean to say that an economic fluctuation involves the co-movement of many aggregate macroeconomic variables? A. Real variables move in the same direction as the economic fluctuation, whereas nominal variables move opposite. B. Economic fluctuations in one period lead to movement of these variables in the next period. C. These variables grow or contract together during booms and recessions. D. These variables grow during booms and contract during recessions.

In 1973, the major oil-producing nations of the world declared an oil embargo. The price of oil, a key source of energy, increased. This led to widespread inflation as costs of production increased steeply. The resulting fall in GDP and employment led the United States into a recession. Which of the business cycle theories explained in the chapter would best fit this explanation of the 1970s recession? A. Keynesian theory. B. Monetary theory. C. Okun's theory. D. Real business cycle theory.

Quantitative easing is ____________. A. an attempt by the central bank to more directly impact long-term interest rates. B. a variation on the central bank's traditional manner of conducting open market operations. C. the central bank's purchase of long-term bonds in the open market. D. all of the above. E. B and C only.

Using sophisticated statistical techniques, economists can usually predict ____________. A. the co-movement of macroeconomic variables. B. the end of an expansion. C. the beginning of a recession. D. the end of a recession.

Suppose that the mythical country Moricana has a very high minimum wage. Labor market laws are trade union-friendly and allow unions a high degree of bargaining power. Moricana is in a recessionlong dash—capacity utilization in the economy is at an all-time low, surveys show that firms do not expect economic conditions to improve in the coming year. Firms in the country are cutting back on capital spending and investment. In Moricana, wages are likely to be ____________. A. flexible. B. high. C. low. D. rigid.

d. rigid

proponents of real business cycle theory tent to also emphasize the important of changing _______ and increasing technology

input prices

is growth ever steady?

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