EC 202 terms (EXAM 2)

the slope of consumption function is

(1-MPS); change in consumption divided by the change in disposable income

If Brazil's real GDP per capita is $10,000, and its annual growth rate is 7 percent, real GDP per capita will double in about _____ years.

10

As of 2015, the base period for the U.S. Consumer Price Index was the years:

1982-1984

A survey reveals that on a small island 100 people have jobs, 25 people are not working but are looking for jobs, and 45 people are neither working nor looking for work. The unemployment rate on the island is:

20%

In a closed economy with no taxes, if the marginal propensity to save is 0.2, then the multiplier is:

5

The U.S. consumer price index contains data from approximately _____ different cities.

87

In the base year for the GDP deflator, the value of nominal GDP is equal to the value of real GDP.

!!

unemployment rate equation

# of unemployed people / labor force

In an economy, the demand for labor is given by the equation W = 15 - (1/200)L and the supply of labor is given by the equation W = 5 + (1/200)L, where "W" is the wage rate and "L" is the quantity of labor. In this economy, the equilibrium wage rate is _____ and the equilibrium quantity of labor is _____ workers.

$10; 1,000

The _____ for a given year is 100 times the ratio of nominal GDP to real GDP in that year.

GDP deflator

_____ refers to GDP divided by the size of the population.

GDP per capita

Suppose that a bank wishes to make a 5% rate of return on a one-year loan but expects inflation over the course of the loan to be roughly 3%. Which of the following is TRUE?

If the bank charges 8% and the inflation rate is less than 3%, then the bank will have earned a higher rate of return than expected.

Economists mostly agree that the problem of climate change necessitates government action in the form of market-based incentives such as:

a carbon cap tax or cap and a trade system

market basket

a hypothetical consumption bundle of consumer purchases of goods and services, used to measure changes in overall price level.

Chained dollars refers to a method of measuring the change in real GDP using the average between the GDP growth rate using an early base year and the GDP growth rate using:

a late base year.

price index

a measure of the cost of purchasing a given market basket in a given year, where that cost is normalized so that it is equal to 100 in the selected base year; a measure of overall price level.

Diminishing returns to physical capital means that when the amount of human capital per worker and the state of technology are held fixed, each increase in the amount of physical capital per worker leads to:

a smaller increase in the marginal product of labor

An example of physical capital is:

a truck a company purchases for deliveries

A price index:

always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.

inflation rate

annual % change in a price index - typically consumer price index.

Which of the following is a government policy to promote economic growth?

building infrastructure and providing public goods

The marginal propensity to consume (MPC):

can be written as the change in consumer spending divided by the change in disposable income.

An increase in capital stock would:

cause movement to the right along a stationary production function

Suppose aggregate wealth decreases in the economy because of the bursting of a housing price bubble. Holding everything else constant, this will MOST likely:

cause the aggregate expenditure function to shift down

Real GDP is nominal GDP adjusted for:

changes in price

From the standpoint of economic growth, banks are important to:

channel savings into investments

In a closed economy with no government, planned aggregate spending is the sum of:

consumption and planned investment

Growth accounting estimates the:

contribution of each major factor in the aggregate production function to economic growth.

According to the text, a reduction in union membership tends to _____ the natural rate of unemployment.

decrease

If interest rates increase because the credit rating of the U.S. government is downgraded, then investment spending will:

decrease

If real GDP is constant and the population increases, real GDP per capita will:

decrease

As the average age of the labor force increased from the end of the 1970s to the end of the 1990s, the natural rate of unemployment:

decreased

Dunwich is a small village; in 2014, its GDP was $10,000 and its population was 10 people. In 2015, GDP in Dunwich decreased to $8,000, while the population decreased by 10 percent. As a result, GDP in Dunwich in 2015:

decreased, because the percentage decrease in GDP was smaller than the percentage decrease in population

As the marginal propensity to save (MPS) becomes larger, the marginal propensity to consume (MPC):

decreases

When the unemployment rate increases, the growth rate of real GDP (gross domestic product):

decreases

If the real interest rate is 6 percent and the nominal interest rate is 5 percent, then this economy is experiencing:

deflation

net exports are...

difference between value of exports and value of imports. A positive value for net exports indicates that a country is a net exporter of goods and services; a negative value indicates that a country is a net importer of goods and services.

When unemployment rates are low, it is _____ to find a job compared to when unemployment rates are high.

easier

aggregate output is...

economy's total output of final goods and services. real GDP is numerical measure of aggregate output.

Structural unemployment may be caused by firms paying:

efficiency wages

The national accounts keep track of everything EXCEPT:

exchange rates

If the price index in year 1 is 110 and the price index in year 2 is 115, then the inflation rate is exactly 5% from year 1 to year 2.

false

Unemployment rates are usually highest for

female workers aged 25-54

Natural unemployment equals _____ unemployment plus _____ unemployment

frictional; structural

intermediate goods and services

goods and services—bought from one firm by another firm—that are inputs for production of final goods and services.

_____ may be calculated by adding the value added by firms at each stage of production of the final good.

gross domestic product

Long-run economic growth is:

higher in countries with a strong rule and political stability.

The marginal propensity to save (MPS) is the increase in _____ when disposable income rises by $1.

household savings

consumer spending

household spending on goods and services from domestic and foreign firms.

Rising high school graduation rates are an example of an increase in:

human capital

The dollar value of final goods and services only is counted in GDP because:

if we counted the value of all goods, we would count inputs, like the value of steel in a new automobile, more than once.

If the Federal Reserve uses monetary policy to decrease interest rates, then investment spending should:

increase

Because of diminishing returns to capital, doubling the amount of physical capital available for one worker to use will _____ output by _____ a factor of two.

increase; less than

Bensalem is a small country; it had only 10 people and the GDP of its economy was $10,000 in 2014. Amazingly, the GDP in Bensalem in 2015 increased to $20,000 while the population increased by 50 percent. As a result, GDP per capita in Bensalem in 2015:

increased, because the % change in GDP was greater than the % change in population.

During the late 1970s and early 1980s, _____ was a problem for the U.S. economy.

inflation

The _____ is the percentage increase per year in a price index.

inflation rate

Planned investment spending depends primarily on:

interest rates, the expected future level of real GDP, and the current level of production capacity.

_____ refers to stocks of goods held to satisfy future sales.

inventory

Which of the following contributes to economic development?

investment in infrastructure

A country's GNP:

is the total factor income earned by residents of a country.

Which pair of policies is likely to reduce the natural rate of unemployment?

job training and employment subsidies

Holding everything else constant in an economy, the larger the marginal propensity to consume (MPC), the:

larger value of the multiplier

According to the text, when unemployment is low, the duration of unemployment for a majority of workers lasts:

less than 4 months

According to the convergence hypothesis, differences in GDP per capita among countries tends to narrow over time because countries that start with a _____ real GDP per capita tend to have _____ growth rates.

lower; higher

consumer price index (CPI)

measure of prices; calculated by surveying mkt prices for a market basket intended to represent the consumption of a typical urban American family.

producer price index (PPI)

measure of the cost of a typical basket of goods and services purchased by producers. leading indicator of changes in the inflation rate.

national income and product accounts

method of calculating and keeping track of consumer spending

Disposable income is equal to total income...

minus taxes, plus gov't transfers

The convergence hypothesis says that international differences in GDP per capita tend to _____ over time.

narrow

closed economy, savings = ...

national savings

open economy, savings = ...

national savings + capital inflow (imports and exports)

real interest rate

nominal interest rate - rate of inflation

The convergence hypothesis is:

not wrong, but education, infrastructure, and the rule of law are not equal among nations.

aggregate price level is

overall level of prices in the economy

If Chin loans Pedro $2,000 at 6 percent interest, and there is an unexpected inflation of 7 percent, then:

pedro benefits

Long-run economic growth requires:

politcal stability and some respect for property rights

productivity is declining when

population exceeds real GDP growth

According to the text, disinflation in an economy which has grown to expect inflation is:

possible only if policymakers are willing to accept higher rates of unemployment and a lower level of aggregate output.

The price index that serves as an "early warning signal" for inflation in the United States is the:

producer price index

Investment spending is spending on:

productive physical capital

According to the text, which is the most important cause of productivity growth in the United States?

progress in the technical means of the production of goods and services.

Which of the following would NOT be included in this year's GDP?

purchase of your neighbors 2001 toyota

The _____ wage is the wage rate divided by the price level.

real

According to the text, the most important measure used to determine economic growth is:

real GDP per capita

In economics, the Rule of 70 states that the number of years it takes for _____ to double is equal to 70 divided by the annual growth rate of real GDP per capita.

real GDP per capita

If real GDP falls while nominal GDP rises, then prices on average have:

risen

Since 1968, the price level in the United States has _____, and the inflation rate has _____.

risen; risen and fallen

Economists say that long-run economic growth is almost entirely due to:

rising productivity

All else equal, a nation that has a high rate of _____ will have a high rate of _____ and therefore a high growth rate of _____ capital.

savings; investment; physical

Efficiency wages are:

set above the equilibrium wages to act as an incentive for better performance.

The introduction of ATMs reduced the:

shoe-leather costs of inflation

aggregate price level

single # that represents the overall price level for final goods and services in the economy

Holding everything else constant in an economy, the larger the marginal propensity to save (MPS), the:

smaller the value of the multiplier

Inventory is counted as investment because:

source of future sales

investment spending

spending on productive physical capital—such as machinery and construction of buildings—and on changes to inventories.

When the demand for labor is falling and employers have committed to high wages, _____ unemployment will result.

structural

The national income and product accounts are calculated by:

the Bureau of Economic Analysis.

The "new growth theory" recognizes:

the importance of innovators' ability to establish monopolies if there is to be an incentive for engaging in research and development.

aggregate spending

the total flow of funds into markets for domestically produced final goods and services

aggregate output

the total quantity of final goods and services the economy produces for a given time period, usually a year.

real GDP

the total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year.

nominal GDP

the value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced.

Workers today are more productive than workers in the past because:

they now have more physical capital embodying better technology.

gross domestic product (GDP)

total value of all final goods and services produced in the economy during a given time period.

A person who has no job but is looking for one is:

unemployed and part of the labor force

the unemployment measure called U-6 includes

unemployed workers, discouraged workers, marginally attached workers, and underemployed workers.

The consumer price index, the producer price index, and the GDP deflator:

usually move close together

Diminishing returns to physical capital suggests that:

when the amount of human capital per worker and the state of technology are fixed, successive increases in the amount of physical capital per worker lead to smaller increases in productivity.