Econ 202 Study Guide

Suppose the Consumer Price Index is 143.6. What does that number mean?

Prices rose 43.6 percent over the reference base period, on average.

When the quantity of capital increases, then the

SAS curve shifts rightward and the LAS curve shifts rightward.

The series of ups and downs the economy tends to move in is called

The Business cycle

Based upon the above table, the MPS is equal to

0.25

If consumption expenditures for a household increase from $1,000 to $1,800 when disposable income rises from $1,000 to $2,000, the marginal propensity to consume is

0.8.

Read the two statements below and indicate if they are true or false. I.Autonomous expenditures change when GDP changes. II.Aggregate planned expenditure is the sum of planned consumption expenditure, investment

1 is false, 2 is true

If the basket of goods and services used to calculate the CPI cost $200 in the reference base period and $450 in a later year, the CPI for the latter year equals

225

Corporate profits $200 Net interest 150 Indirect taxes less subsidies 230 Depreciation 250 Compensation of employees 1,350 Proprietor's income 150 Rental income 70 Personal consumption expenditures 1,400 Government expenditure on goods and services 500 Net exports of goods and services 40 GDP equals

2400

Suppose a nation's population grows by 2 percent and, at the same time, its GDP grows by 5percent. Approximately how fast will real GDP per person increase?

3% per year

During 2017, the country of Economia had a real GDP of $115 billion and the population was 0.9billion. In 2016, real GDP was 105 billion and the population was 0.85 billion. Economia's growthrate of real GDP per person is

3.23 percent

Suppose that the natural unemployment rate is 4.5 percent and the actual unemployment rate is 3.5 percent. The cyclical unemployment is

-1 percent

Using the Rule of 70, if the country of Huttodom's current growth rate of real GDP per person was10 percent a year, how long would it take the country's real GDP per person to double?

7 years

The best definition of economic growth is

A sustained expansion of production possibilities measured as the increase in a given period

Net interest - 239 Government expenditure on goods and services - 136 Compensation of employees - 1,735 Rental income - 37 Proprietors' income - 128 Indirect taxes minus subsidies - 259 Corporate profits- 194 Exports of goods and services - 249 Imports of goods and services - 289 Depreciation - 333 Using the data in the above table, gross domestic product as calculated by the income approach equals A)$2,205. B)$2,592. C)$2,925. D)$2,333.

C - 2925

ComponentAmount(billions ofdollars) Gross investment - 1,300 Personal consumption expenditure - 1475 Depreciation - 25 Government expenditure on goods and services - 1,315 U.S. imports - 260 U.S. exports - 249 Compensation of employees - 65 A)$4,339 billion. B)$4,054 billion. C)$4,079 billion. D)$4,049 billion.Answer:

C - 4079

Of the following, which is CORRECT? A)Real GDP changes only when the prices of goods and services really change. B)Nominal GDP does not change when the production of goods and services increases. C)Nominal GDP increases when the prices of goods and services increase. D)Nominal GDP is not affected by changes in prices of goods and services.

C - Nominal GDP increases when the price of goods and services increase

GDP is A)the sum of consumption expenditure, investment, government expenditure on goods andservices, and net exports. B)the sum of compensation of employees, proprietors' income, net interest, rental income,corporate profits, depreciation, and indirect business taxes minus subsidies .C)the value of all final goods and services produced in a country during a year. D)all of the above.

D

According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Which of the following is TRUE?

India PPF has been shifting rightward since 1997

In the above figure, the short-run aggregate supply curve is SAS1. If the money wage rate increases, there is

a shift to SAS0.

In the macroeconomic short run

actual real GDP may be less than or more than potential GDP.

If Nike, an American corporation, produces sneakers in Thailand this would

add to Thailand's GDP but not to US GDP

Equilibrium expenditure is defined as the level of aggregate expenditure where

aggregate planned expenditure equals real GDP.

If an economy at potential GDP experiences a demand shock that shifts the aggregate demand curve rightward, there will be

all of the above

Which of the following events will increase long-run aggregate supply?

an advance in technology

An increase in real GDP leads to

an increase in aggregate planned expenditure.

Which of the following shifts the aggregate demand curve rightward?

an increase in government expenditure

All of the following shift the LAS curve EXCEPT

an increase in the money wage rate.

Moving along the aggregate demand curve, a decrease in the quantity of real GDP demanded is a result of

an increase in the price level

Which of the following does NOT shift the aggregate demand curve?

an increase in the price level

When real GDP exceeds potential GDP, then the economy has

an inflationary gap.

Nominal GDP is the value of final goods and services

at the prices of that year

Suppose an economy has some inflation. Then after a base year, the value of real GDP will

be greater than nominal GDP

If real GDP is $19 trillion and planned aggregate expenditure is $19.5 trillion, inventories will be

below their target and real GDP will increase.

Suppose the equilibrium level of expenditure is $18 trillion. If real GDP is $17 trillion, then inventories are ________ their target levels and real GDP will ________.

below; increase

According to the intertemporal substitution effect, a fall in the price level will

cause the interest rate to fall so that investment increases and the quantity of real GDP demanded increases.

Which of the following shifts the short-run aggregate supply curve?

changes in the size of the labor force

The positive slope of the consumption function indicates that

consumers increase their total consumption expenditure when disposable income increases.

Consumers divide disposable income into

consumption, saving, and taxes.

Which type of unemployment increases during recession

cyclical unemployment

If the nation's capital stock increases so that workers become more productive, the

demand for labor will increase.

If investment decreases, the AE curve shifts

downward and the AD curve shifts leftward.

If the price level increases, the AE curve shifts

downward and there is movement along the AD curve.

The AD curve slopes

downward due to the wealth and substitution effects.

Substitution effects help explain the slope of the aggregate demand curve. One substitution effect refers to the

effect on investment expenditures that result from a change in interest rates produced by a change in the price level.

What would most likely would decrease frictional unemployment

effective Internet based employment services and job registries

For a household, the marginal propensity to save plus the marginal propensity to consume

equals 1.

The relationship between the unemployment rate and the natural unemployment rate is that the unemployment rate

equals the natural rate

If aggregate demand grows only slightly faster than potential GDP, then the economy will

experience economic growth with low inflation.

Suppose that a bond promises to pay its holder $100 a year forever. If the price of the bond increases from $1,000 to $1,250, then the interest rate on the bond

falls from 10 percent to 8 percent.

The funds used to buy and operate physical capital are

financial capital.

Unemployment caused by the normal labor turnover is called ___ unemployment

frictional

structural unemployment

generally lasts longer than frictional unemployment

The circular flow model shows that consumers goods and services produced by business firms are sold in the

goods market

The short-run aggregate supply curve shifts when

he full-employment quantity of capital changes technology advances.

According to UNESCO reporting, "Governments in North America and Western Europe invested the highest shares of national resources in education: 5.6 percent of GDP." As a result, we would expect ________, all else held constant.

higher economic growth rates in these countries compared to other countries

We are interested in long - term growth primarily because it brings

higher standards of living

National saving equals

household saving + business saving + net taxes - government expenditure. household saving + business saving + government saving.

In the circular flow of income

households demand goods and services that are supplied by​ firms, while supplying resources that are demanded by firms.

Disposable income is

income minus taxes plus transfer payments.

Autonomous consumption is that portion of consumption expenditure that is not influenced by

income.

As disposable income increases, consumption expenditures

increase by a smaller amount.

If real disposable income increases by $1,500, consumption expenditures will

increase by less than $1,500.

n 2016, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. In2017, real GDP was $4.59 billion and population was 2.97 million. From 2016 to 2017, Armenia's standard of living

increased

Suppose there is a rise in the price level, but no change in the money wage rate. As a result, the quantity of labor demanded

increases

The labor force participation rate

increases as the real wage rate increases.

When autonomous expenditure increases, equilibrium aggregate expenditure

increases by a greater amount due to the multiplier.

An increase in education and training

increases in labor productivity

Economic growth is best defined as

increases in potential GDP.

The INITIAL factors that can create a cost-push inflation do NOT include

increases in the quantity of money.

The Federal Reserve lowers interest rates. As a result, in the short run, real GDP ________ and the price level ________.

increases; rises

As the price level falls and other things remain the same, real wealth ________ and ________.

increases; the quantity of real GDP demanded increases

Demand-pull inflation results from continually increasing the quantity of money, which leads to a continually

increasing aggregate demand.

If a bank's net worth is negative, then the bank definitely is

insolvent

Business cycles are the result of

irregular shifts of both the AD and SAS curves.

The part of aggregate planned expenditure that does not vary with real GDP

is autonomous expenditure.

A recessionary gap means that the level of real GDP at the short-run macroeconomic equilibrium

is less than full-employment GDP.

Suppose the economy is at point B. If firms expect profits will be higher in the future, to what point might the economy move in the short run?

it shifts to a point such as C.

The real wage rate will fall if the

labor supply curve shifts rightward and the labor demand curve does not shift.

n the above figure, the economy is at point A. Then the price level falls to 90 while the money wage rate does not change. Firms will be willing to supply output equal to

less than $18.0 trillion.

When there is unplanned inventory investment, aggregate planned expenditure is ________ realGDP and actual investment is ________ planned investment.

less than; greater than

The multiplier effect

magnifies small changes in spending into larger changes in real GDP.

GDP measures the

market value of final goods and services produced in the economy in a given time period

Studying the determination of prices in individual markets is primarily a concern of

microeconomics

in any year, real GDP

might be greater or less than potential GDP

People expect an inflation rate of 5 percent and the real interest rate is positive. Consequently the nominal interest rate will be

more than 5 percent.

In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help

move the economy to point A.

The country of Kemper is on its aggregate production function at point W in the above figure. The government of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will

move to point such as Z

As labor increases, there is a

movement along the aggregate production function and real GDP will increase less with each additional increase in labor.

The figure above shows the U.S. production function. From 1986 to 2008 the United States experienced major advances in technology as well as an increase in the working-age population.

movement from point W to point Z.

An economy recovering from a recession

moves up from its trough to a period of expansion

A recession is commonly defined as a period with

negative growth rate in real GDP that lasts at least two quarters

Frictional employment

normal occurrence in a growing economy

Dissaving

occurs when consumption is greater than disposable income.

One reason that the aggregate demand curve has a negative slope is that when the domestic price level rises

people substitute toward more imported goods and services.

Human capital is

people's knowledge and skills.

The slope of the aggregate expenditure curve equals the change in

planned expenditure divided by the change in real GDP.

All of the following contribute to labor productivity growth EXCEPT

population growth

The maximum amount of production that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring a rising inflation is called

potential GDP

The short-run aggregate supply curve is upward sloping because in the short run the

price level changes but the money wage rate does not.

National saving is defined as the amount of

private saving and government saving.

When the inflation rate is zero, the

real interest rate equals the nominal interest rate.

The long-run aggregate supply curve illustrates the

relationship between the price level and real GDP when the economy is at full employment.

An increase in the working-age population results in a

rightward shift of the supply of labor curve and an increase in potential GDP

When disposable income is 0, consumption is $2,000. Then

saving =-$2,000.

Technological progress will

shift both the LAS and SAS curves rightward.

Economic models

simplify reality

Most ________ is embodied in physical capital.

technological change

When autonomous expenditure decreases,

the AE curve shifts downward.

n the above figure the economy is initially at point A on the aggregate expenditure curve AE0.Suppose firms expect profits to increase and decide to increase investment. As a result

the AE curve shifts upward to a curve such as AE2.

The U.S. aggregate demand curve shifts leftward if

the Federal Reserve increases the interest rate.

Which of the following items are considered physical capital?

the Taco Bell store nearest you the rental cars owned by Hertz Rental-A-Car

The marginal propensity to consume refers to

the additional consumption expenditure that occurs out of an additional dollar of disposable income.

In a change to immigration policy during 2012, "people younger than 30 who came to the UnitedStates before the age of 16, pose no criminal or security threat, and were successful students or served in the military can get a two-year deferral from deportation", then-Homeland SecuritySecretary Janet Napolitano said, according to CNN, 06/16/2012. If many of these immigrants had previously been afraid to work, now as a result of being able to work legally

the long-run aggregate supply curve shifts rightward and potential GDP increases.

If the MPC increases from 0.75 to 0.80 and there are no income taxes or imports

the multiplier becomes larger.

A financial decision should be pursued when

the net present value is positive.

Other things remaining the same, if the interest rate falls,

the net present value of a project always rises.

The term "capital," as used in macroeconomics, refers to

the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.

An aggregate supply curve depicts the relationship between

the price level and the quantity of real GDP supplied.

The long-run aggregate supply curve is the relationship between the quantity of real GDP supplied and ________ when ________.

the price level; real GDP equals potential GDP

For movements along the short-run aggregate supply curve

the real wage rate changes the potential GDP remains constant the money wage is constant

The smaller the slope of the AE curve,

the smaller is the value of the multiplier.

The circular flow diagram shows that

the total amount of income generated by the economy equals the total purchases of final goods and services

When cyclical unemployment is zero

the unemployment rate equals the natural unemployment rate

Real GDP is

the value of production of all the nations farms, factories, shops and offices measured in the prices of a base year

In the above figure, at the real wage rate of $50

there is a surplus of 60 billion hours per year.

full employment means that

there is no cyclical unemployment

In computing GDP, it is essential to

to avoid double counting

The long-run aggregate supply curve is ________ because along it, as prices rise, the money wage rate ________.

vertical; rises

Hyperinflation

very high inflation rates

In the above figure, at a disposable income level of $2 trillion, saving equals (CF representsConsumption Function and B represents the 45 degree line)

zero

In the long run

real GDP is equal to potential GDP.

Labor productivity is

real GDP per hour of labor.

Autonomous expenditure is not influenced by

real GDP.

In January 2017, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2017, Tim spent $200,000 on new machines. During 2017, Tim's net investment totaled

$-100,000.

This year Pizza Hut makes a total investment of $1.3 billion in new stores. Its depreciation in this year is $300 million. Pizza Hut's gross investment is ________ and its net investment is ________.

$1.3 billion; $1.0 billion

During 2017, the country of Economia had a real GDP of $115 billion and the population was 0.9billion. In 2016, real GDP was 105 billion and the population was 0.85 billion. In 2017, real GDP per person was

$128

The present value of $200 two years from now when the interest rate is 7 percent is

$175

In the above figure, the aggregate demand curve is AD2, so the long-run equilibrium level of realGDP is

$18 trillion.

In the figure above, the economy is at point A when the price level rises to 120. Money wage rates and other resource prices remain constant. Firms are willing to supply output equal to

$18.5 trillion.

At the beginning of the year, your wealth is $10,000. During the year, you have an income of$90,000 and you spend $80,000 on consumption. You pay no taxes. Your wealth at the end of the year is

$20,000.00.

Personal consumption expenditure 80 Government expenditure on goods and services 30 Net taxes 35 Gross private domestic investment 20 Imports of goods and services 10 Exports of goods and services 20 calculate national saving

$25 million

If national saving (S) is $100,000, net taxes (T) equal $100,000 and government expenditure (G) is$25,000, how much are households and businesses saving?

$25,000

In the above table, savings are positive when disposable income is greater than

$500

The expenditure multiplier equals

1/(1 - slope of AE curve).

If the present value of $220 one year from now is $200, then the interest rate is

10 percent

Using the Rule of 70, if China's current growth rate of real GDP per person was 7 percent a year,how long would it take the country's real GDP per person to double?

10 years

The table above gives the aggregate demand and aggregate supply schedules in Lotus Land. With no changes in aggregate demand or long-run aggregate supply, in long-run macro economic equilibrium, the price level will be ________ and real GDP will be ________.

100; $600

In the above figure, the short-run macroeconomic equilibrium is at the price level ________ and the real GDP level ________.

110; $18.5 trillion

If the CPI was 121.5 at the end of last year and 138.3 at the end of this year, the inflation rate over these two years was

13.8 percent

Suppose a country is producing $20 million of real GDP. If the economy grows at 10 percent per year, approximately how many years will to take for real GDP to grow to $80 million?

14

The tables above show the labor market and the production function schedule for the country ofPickett. Potential GDP is

14 trillion

f a $75 billion increase in autonomous expenditure increases equilibrium expenditure by $150billion, then the multiplier must be

2

In the above table, C is consumption expenditure, I is investment, G is government expenditure, and X - M is net exports. All entries are in dollars. The equilibrium level of real GDP is

2,400

If there are no taxes or imports and MPC= 0.5, the multiplier equals

2.0

In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's gross investment totaled

200,000

Which of the following statements is FALSE?

An increase in disposable income leads to a decrease in aggregate demand.

GDP equals

C+I+G+(X-M)

n the above figure, which movement illustrates the impact of a rising price level and a constant money wage rate?

E to F

In the above figure, which movement illustrates the impact of a falling price level and a constant money wage rate?

E to I

In the above figure, which movement illustrates the impact of the price level and money wage rate falling at the same rate?

E to J

Investment is financed by which of the following?

National saving .Borrowing from the rest of the world

Aggregate demand increases when

None of the answers are correct

In the above figure, consumption and disposable income are equal at

a disposable income level of $2 trillion.

Suppose that the slope of the AE curve is 0.75. Then a $100 decrease in autonomous spending means equilibrium expenditure will

decrease by $400.

Between 2013 and 2014 the government estimates that disposable income in the United States decreased. Consequently, as a result of this change, consumption expenditure

decreased.

The real wage rate measures the

quantity of goods and services that an hour of work will buy.

The quantity of real GDP supplied depends on the

quantity of labor, the quantity of capital, and the state of technology.

n the short-run macroeconomic equilibrium

real GDP and the price level are determined by short-run aggregate supply and aggregate demand.

The aggregate production function describes the relationship between

real GDP and the quantity of labor employed.

At long-run macroeconomic equilibrium,

real GDP equals potential GDP.