Economics Midterm

The unemployment rate equals

(number of people unemployed/labor force) × 100

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

If this year the price level is 135 and last year it was 125, the inflation rate is

8 percent

Economic Expansion vs Economic Recession

A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades

What is the expected profit of a firm and how is it determined?

Expected profit is the probability of receiving a profit multiplied by the profit, by the payoff, and the expected cost is the probability that certain costs will be incurred multiplied by that cost.

Gross Investment vs Net Investment

Gross investment is the total amount that the economy spends on new capital. Net investment = gross investment - capital depreciation.

What are the shifts of loanable fund curves?

If people want to save more, they will save more at every possible interest rate, which is a shift to the right of the supply curve. If people want to save less (MPS goes down), then the supply of loanable funds shifts to the left

What, according to neoclassical growth theory, is the fundamental cause of economic growth?

In neoclassical growth theory, growth results from technological advances, which are determined by chance.

Which economic topics are considered in the field of microeconomics?

Most people are introduced to microeconomics through the study of scarce resources, money prices, and the supply and demand of goods and services.

Physical Capital vs Financial Capital

Physical capital is a tangible asset that can be touched in a real sense, while financial capital refers to the legal ownership of assets such as physical capital.

Convergence of the income gap has been most dramatic between

Taiwan and the United States

CPI vs GDP

The CPI measures price changes in goods and services purchased out of pocket by urban consumers, whereas the GDP price index and implicit price deflator measure price changes in goods and services purchased by consumers, businesses, government, and foreigners, but not importers

What is the Fisher Equation used in?

The Fisher equation is often used in situations where investors or lenders ask for an additional reward to compensate for losses in purchasing power due to high inflation.

Potential GDP vs Real GDP

The GDP gap is defined as the difference between potential GDP and real GDP. When the economy falls into recession, the GDP gap is positive, meaning the economy is operating at less than potential (and less than full employment). When the economy experiences an inflationary boom

Expenditure Approach vs Income Approach (of calculating GDP)

The major distinction between each approach is its starting point. The expenditure approach begins with the money spent on goods and services. Conversely, the income approach starts with the income earned (wages, rents, interest, profits) from the production of goods and services.

What is Peak vs Trough?

The peak is the second phase. It is the month when the expansion transitions into the contraction phase. The trough is the fourth phase.

Economists are interested in long-term economic growth because growth increases real GDP per person and improves our standard of living.

True

How does specialization lead to international trade?

When countries become better at making the product they specialize in. Consumer benefits: Specialization means that the opportunity cost of production is lower, which means that globally more goods are produced and prices are lower, which leads to international trade. Consumers benefit from these lower prices and greater quantity of goods.

An increase in labor hours will lead to

a movement along the aggregate production function but no shift in it

The Fed in the U.S.

allows a flexible exchange rate, though their actions can impact the exchange rate

Economic growth is measured by

changes in the employment rate/changes in nominal GDP/changes in real GDP

Cyclical unemployment ________ during expansions and ________ during recessions.

decreases; increases

The gaps between the United States and the Asian countries of Hong Kong, Singapore, Korea and China have been

decreasing

The relationship between the labor employed by a firm and the real wage rate is shown by the

demand for labor curve

The Rule of 70 is used to

estimate how long it will take the level of any variable to double

The times during which real GDP increases are referred to as

expansions

In general, a higher real wage rate decreases the quantity of labor supplied because fewer people enter the labor force.

false

The classical growth theory's view of the economy and its ability to achieve growth can be compared to a perpetual motion machine.

false

To achieve faster growth, economies can increase income tax rates in order to increase saving rates.

false

Macroeconomics differs from microeconomics in that

focuses on the national economy and the global economy

Define structural unemployment.

focuses on the structural problems within an economy and inefficiencies in labor markets

When a student finishes college and begins looking for work

frictional unemployment increases

According to the Ricardo-Barro effect

households increase their personal saving when governments run budget deficits

Two reasons why valuing goods at their market prices is different than valuing them at their factor costs include

indirect taxes and subsidies

Define cyclical unemployment

is a type of unemployment that occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work

Define frictional unemployment

is the time period between jobs when a worker is searching for or transitioning from one job to another.

The natural unemployment rate

is the unemployment rate when there is no cyclical unemployment

A recession is commonly defined as a period with

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

What is the Fisher Equation?

nominal interest rate is equal to the sum of the real interest rate plus inflation.

The working-age population is defined as the number of

people over the age of 16 who are not in jail, hospital, or other institution

If the CPI is 120, this means that

prices are 20 percent higher than in the reference base period

The term "crowding out" relates to the decrease in

private investment from a government budget deficit

If the price level rises by 4 percent and workers' money wage rates increase by 2 percent, then the

quantity of labor supplied decreases

An aggregate production function shows the relationship between

real GDP and the quantity of labor employed

Suppose the country of Tiny Town decided to open its borders to free trade. As a result, a number of its workers lost their jobs to international competition and can't find new jobs because their skills don't match what is required for job openings. The workers who lost their jobs and searched for new ones are best be considered part of

structural unemployment

Which economic topics are considered in the field of macroeconomics?

studies economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.

If net taxes exceed government expenditures, the government sector has a budget ________ and government saving is ________.

surplus; positive

If a rich country grows at a faster rate than a poor one, then

the gap in their standard of living will widen over time

Potential GDP is

the maximum amount of GDP that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation

A business cycle is

the pattern of short-run upward and downward movements in total output

Which labor market statistic tends rise during recessions and fall during expansions?

the unemployment rate

Full employment exists when

there is only frictional and structural unemployment/the economy is at the natural unemployment rate/there is no cyclical unemployment

A time series graph can show both the level of a variable and the speed with which the variable changes over time

true

In neoclassical growth theory, technological progress is the key to continuous growth in labor productivity.

true

New growth theory claims that economic growth occurs because firms reap profits from research and add to the stock of capital.

true

Over the last 100 years, real GDP per person in the United States has grown at an average rate of approximately 2 percent per year.

true

An indirect tax is a tax paid by consumers

when they purchase goods and services