econ exam 3 ch 7-9

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if a country's population is 5 million and its output is 196 billion, its per capital output is about

$39,000

Given the following information, we can infer that aggregate income equals: Profits $100 Rent $150 Compensation to employees $500 Interest $150 Taxes $100 Transfer payments $50

$900

how to find inflation between year A and year B

(B price - A price) then divided by A price. multiply by 100 for rate of inflation

the rule of 72 implies that a country with a growth rate of 6 percent will double its income in about

12 years

if the real interest rate is 2 percent and inflation rate is 1 percent, what is the nominal interest rate

3 percent

the rule of 72 implies that a country with a growth rate of 8 percent with double its income in about

9 years

how to see only long run equilibrium in graph

AD and AS curve intersect with straight potential output line

the total market value of all finals goods and services produced in a country in a year is

GDP

how to calculate GDP

GDP = C + I + G + (X-M)

how to calculate GDP per capita

GDP divided by the total population

what does aggregate mean

a whole formed by combining several elements, a total

GDP measures output in how long?

a year and is a flow concept. GDP excludes intermediate products so it is the value of final output.

how to calculate per capita income

aggregate income of group /divided/ by total population in that group

potential income is that level of income that

an economy is capable of producing without generating higher inflation

in 2008, us aggregate income increased roughly $460 billion. which of the following could possibly account for this increase in aggregate income

an increase in profits of $460 billion

the paradox of thrift occurs when

an increase in saving reduces output

which of the following is an example of a contractionary fiscal policy

an increase in taxes

an increase in the aggregate demand curve will, in the short run, change

both output and the price level

an economy's resources

can be overutilitzed, but only temporarily

the growth model in which capital accumulation plays the key role is called the

classical growth model

small differences in growth rates can create large differences in income levels because of

compounding

according to keynes why might deflation create problems for an economy

consumers might expect prices to fall further and cut back consumption now

the largest expenditure component of GDP is

consumption

in 2009, the personal savings rate rose. if additional savings were not translated into investment, keynes would predict that aggregate income would

decline and remain there

according to keynes, the economy could become stuck at a low income level if

declines in aggregate demand and aggregate supply reinforce one another

In the early 2000s, analysts feared that low academic achievement in math in the United States may reduce U.S. economic growth by as much as half a percentage point a year. In terms of factors leading to growth, the low math scores indicate that the U.S. may be at a disadvantage in terms of:

human capital

A depreciation of the dollar should increase and decrease what

increase US exports and decrease US imports

what does real GDP control

inflation

a change in business inventories is counted in GDP as

investment

Haiti has a literacy rate (the percentage of those over 15 who can read and write) of about 66 percent. In terms of the various factors that explain the wealth of nations, where does this low literacy rate fit?

it indicates that haiti is short on human capital

how is the AS/AD model related to the supply and demand model of microeconomics

it looks similar to the supply and demand model but it is not based on it

one of the limitations of aggregate accounting is that

it measures market activity, not social welfare

suppose that consumers decide to save less and spend more. what effect would this have in the market for loanable funds

it will increase interest rates and the quantity of funds lent will fall

suppose that a business discovers an opportunity that requires funds to exploit. what effect would this have in the market for loanable funds

it will increase interest rates and the quantity of funds lent will rise

How would the AD curve shift if consumers expect to earn lower incomes in the future

left shift

How would the AD curve shift if the distribution of income shifts towards wealthier families that purchase more imported goods

left shift

How would the AD curve shift if the dollar appreciates in value

left shift

when a decline in aggregate demand causes firms to cut output and lay off workers, households have

less income to spend, which reinforces the decline in aggregate demand, triggering an additional reduction in aggregate supply and so on

GDP is a good measure of

market activities at market prices

the US produces and sells millions types of products. to add them up to a single aggregate, each good is weighted by its

market price

according to keynes, market economies

may recover slowly after they experience a significant decline in aggregate demand.

the difference between gross domestic product (GDP) and gross national product (GNP) is that GDP:

measures the economic activity that occurs within a country while GNP measures the economic activity of all the people and businesses of a country

the substitution effect pertains to

microeconomic supply and demand curves and is not relevant for the discussion of the aggregate economy

How would the AD curve shift if consumers substitute from a good rising in price to an alternative

no shift

How would the AD curve shift if the us price level rises as expected

no shift

the total annual market value of a nation's final output of goods and services computed at existing prices is called

nominal GDP

real interest rate equals

nominal interest rate -minus- inflation

if the market prices of publicly traded stocks and bonds rise, while the productive capacity of those assets has not increased, which of the following has occurred

nominal wealth has increased

for keynes, the short run was more important because

output seldom reached its potential, even over long periods of time

what are the four components of aggregate income

profits, rent, employee compensation, interest

suppose that both nominal GDP and prices double. we can conclude that real output:

remained constant

payments for the use of land and buildings are included in aggregate accouting as

rents

How would the AD curve shift if foreign income increases

right shift

if you decide not to spend $1,000 you earned at your summer job but instead intent to buy shares in a mutual fund, in terms of aggregate economic accounting you would be:

saving

In 2009 Iran was experiencing inflation of about 20 percent per year. Other things equal, the expectations by the people of Iran of worsening inflation in the future would probably:

shift the AD curve to the right

From the mid-1980s to 2009, the value of the Japanese yen fell from over 300 yen per dollar to about 100 yen per dollar. Considering the impact of this alone, this would likely:

shift the US AD curve to the right.

if total income remains the same but profits fall and real wages rise, the aggregate demand curve will most likely

shift to the right

to combat inflation in 1955 and 1956, the fed reduced the money supply. in terms of the AS/AD model, this change should have

shifted the AD curve to the left

we can show economic growth in terms of the production possibility curve by:

shifting the production possibility curve outward

an increase in US exports and decrease in US imports shifts the US AD curve where

shifts curve to the right

the legal system is an example of

social capital

Which of the following is not a reason why the AD curve slopes downward

substution effect

value added is calculated by

subtracting the cost of materials used in production from the value of sales

according to estimates in the text, which of the following factors made the most important contribution to the growth of the us from 1928 to today

technology

new growth theory emphasizes the importance of increases in what factor in explaining growth

technology

according to estimates in the text, which of the following factors made the most important contribution to the growth of the US from 1928 to today

techonolgy

an economy is in short and long-run equilibrium where

the AD, SAS, LAS curves intersect

the reason why the AS/AD model does not depend upon the concepts of substitution and opportunity cost is that

the AS/AD model considers total output. There are not goods to substitute

a short run equilibrium exists at the point at which

the aggregate demand curve intersects the short run aggregate supply curve.

keynes argued that

the short run is a more important policy concern than the long run

according to the income approach, aggregate income equals...

the sum of profits, rent, interest, and employee compensation

which of the following is not part of the US GDP

the value of a BMW imported from Germany

which of the following is part of GDP

the value of a haircut... only market transactions are included in GDP

equilibrium income is that level of income

toward which the economy gravitates in the short-run

while the us government has a budget of roughly $2 trillion, less than half of this budget counts as part of GDP. This is because

transfer payments are not counted as part of GDP

if potential output is less than actual output, eventually the short-run aggregate supply curve will shift

up and eliminate the inflationary gap

which of the following is a stock concept

wealth

what is a recessionary gap

when aggregate output is below potential output (intersection of AD curve and AS curve below straight potential line)

the rule of 72 implies that a country with a growth rate of 2 percent

will double its income in about 36 years

the reason economists include only the value of final goods and services when they calculate GDP is that intermediate goods:

would be double counted otherwise

GNP equals

C + I + G + (X - M) plus foreign net factor income

GDP is concerned with the location of production while

GNP is concerned with the ownership of the factors of production

How to calculate GDP deflator

Nominal GDP/Real GDP x 100

the study of growth assumes that an economy is operating

ON its production possibility curve and focuses on how increases in output can be obtained by moving a given PPC outward

in 2008, us GNP exceeded US GDP by approximately $133 billion. This implies that

US Factor income earned abroad exceeded foreign factor income by $133 billion

which of the following factors will shift the long-run aggregate supply curve

a change in available resources

what does the rule of 72 say

a country's income will double in the number of years equal to 72 divided by the country's growth rate.

what is social capital

a habitual way of doing things that guides people in how they approach production

What is the multiplier effect?

a phenomenon whereby a given change in a particular input, such as government spending, causes a larger change in an output, such as gross domestic product.

an increase in the price level

decreases the purchasing power of money, leading to higher interest rates and decreases investment

saving is done by persons who

do not spend income

an increase in aggregate demand

does not change potential output

which of the following is not included in GDP but is included in GNP

economic activity of US citizens working abroad

the study of economic growth focuses on the factors that causes an

economy's production possibility curve to shift out

the multiplier effect makes the aggregate demand curve

flatter

GDP is a:

flow concept and refers to the market value of final output

what are intermediate goods

goods used to produce other goods

In the early 2000s, analysts feared that low academic achievement in math in the United States may reduce U.S. economic growth by as much as half a percentage point a year. "That drag will become increasingly apparent...as other countries dismantle regulatory obstacles and alter tax laws that put them at a disadvantage." In terms of sources of growth, the quotation suggests that some other countries are currently at a disadvantage because of:

growth-compatible institutions

by the 1950s, the views of the classical economists among american economists

had been largely eclipsed by keynesian views

aggregate income is a measure of

household and business earnings from the sale of productive resources


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