Macro Econ 2

unplanned inventory investment

occurs when actual sales are more or less than businesses expected, leading to unplanned changes in inventories

A share of ownership in a company

stock

Which example is not a source of economic growth

Increases in average hours of vacation

There are two aspects to efficiently that the equilibrium of market for loanable funds exhibits

Investment projects that are financed by savers have larger rates of return than projects that do not receive financing. Savers who lend money are willing to accept a lower minimum interest rate the potential savers who do not lend money.

Which of the statements best describes the idea of economic convergence

Lower GDP per capita countries will catch up with higher GDP per capita countries

How does funding from national savings differ from funding obtained from capital inflows

National savings are repaid domestically, whereas capital inflows are repaid to foreigners

The Keynesian cross was developed by

Paul Samuelson

As interest rate decreases, what happens to the quantity of loanable funds demanded?

Quantity demanded will increase

What effect will an increase in interest rates have on the quantity of loanable funds supplied?

Quantity supplied will increase

As a result of a stock market boom, individuals begin to feel richer and spend more while also saving less

Shift in supply

China decides to reduce its capital investment in the United States, as it expects low returns due to a weak U.S. economy.

Shift is supply

What does productivity, or labor productivity measure?

The amount of goods and services that can be produced by one worker in one hour of work.

If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the business considering the project act?

The business will not take out the loan.

An increase in government spending can crowd out private investment

True

Macroeconomic policy has a larger effect when the multiplier is higher

True

The national savings are the combined value of all private savings and the budget balance

True

finding alternatives to natural resources will be very important to long-term economic growth.

True

in the 19th century, countries with the highest per capita GDP were nearly always abundant in minerals and productive farming land

True

Long-run economic growth is unlikely to be sustainable because of finite natural resources

false

National budget deficits are NOT included in the calculation of national savings

false

Research and development funds from the government to private industry never pay off for the country as a whole; they only increase the profits of rich corporations

false

lower interest rates can lead to private investment being crowded out

false

financial markets

financial institutions through which savers can directly provide funds to borrowers

mutual fund

fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets

Outflows of funds can only be generated by countries with a larger GDP per capita than the country receiving the funds

False

pension fund

a type of mutual fund that holds assets in order to provide retirement income to its members

What accurately describes the impact of the Atlantic Investment Tax credit

Firms that find more investments are profitable and increase their demand for loanable funds. As a result, the interest rate rises.

If investment spending increase by $240 billion, the first round of GDP increase attributed to increased investment is equal to MPC x $240 billion

false

Loans vs Bonds

A loan obtains funding from a lender, like a bank or specific organizations. In contrast, bonds obtain money from the public when companies sell them. In either case, the corporation typically has to repay the borrowed money at a prearranged interest rate. To start, bonds usually have a lower interest rate than loans

Rand Capital, a financial industry conglomerate, pools together several hundred home mortgages and sells shares in them to groups of investors. However, many investors decide against this option because of the risk involved and the difficulty of assessing the quality of such a large number of individual mortgages

Floating a loan-backed security

If private savings is equal to private investment, then there is neither a budget surplus nor a budget deficit

false

funds that are kept in a bank that must be relinquished upon the owner's request

Bank deposit

Why do we use the nominal interest rate rather than the real interest rate?

Because in the real world, neither borrowers nor lenders know what the future inflation rate will be when they make a deal.

Why does funding from national savings and funding obtained from capital inflows differ?

Because national savings are repaid domestically, whereas capital inflows are repaid to a foreigner

A promise to pay issued by a borrower with annual interest payments and a principal payment at maturity

Bond

Which of these statements best summarizes the impact of the Fisher effect

Consumers consider future inflation

Natural resources

Differences in natural resources per worker account for some differences in the standards of living between countries

If the MPC is 0.65, the multiplier is 1.54

false

Cobb Douglas Equation

Y = AK^xL^x

Which of the following best defines a financial intermediary

a financial institution that transforms investor funds into financial assets

Bond

a formal contract to repay borrowed money with interest at fixed intervals

loan-backed securities

an asset created by pooling individual loans and selling shares in that pool

consumption function

an equation showing how an individual household's consumer spending varies with the household's current disposable income

Fisher effect

an increase in expected future inflation drives up the nominal interest rate, leaving the expected real interest rate unchanged

autonomous change in aggregate spending

an initial rise or fall in aggregate spending that is the cause, not the result, of a series of income and spending changes

financial intermediary

an institution that transforms the funds it gathers from many individuals into financial assets. From savers to borrowers

loaned back securities

assets created by pooling individual loans and selling shares in that pool

Random Walk Hypothesis

assumption that the unpredictability of factors suggests that the best predictor of tomorrow's prices is today's prices

financial assets

claims on the property and the income of the borrower

In order for fledgling industries in poor nations to thrive, they must receive protection from foreign trade

false

In the modern economy, countries that possess few domestic natural resources essentially have no chance to develop economically

false

In the modern economy, human and physical capital are generally less important in productivity than natural resources

false

A trade balance in surplus increase the supply of financial capital

false

An improvement in the budget balance increases the demand for financial capital

false

Countries with few natural resources will always be poor

false

According to the Solow growth model, which one of these would not increase economic output in a developing nation

increasing government ownership of agricultural land

Which of the terms acts as the "price" in the market for loanable funds?

interest rate

planned investment spending

investment spending that firms intend to undertake during a given period. Planned investments may differ from actual investment spending due to unplanned inventory investment.

The government saves when tax revenue

is more than government spending

An agreement between a lender and a borrower

loan

Caleb has developed a prototype garlic-peeling device that he hopes to sell to the public. He is having his startup issue securities that offer buyers the promise to pay a specified amount of interest each year plus the principal in five years.

selling bonds

Lyle and Shane start a business selling pencil sharpeners to elementary schools. Their company becomes an instant success, and they decide to allow people to start buying small shares of their company. This gives individuals who buy shares the right to vote in company decisions and a small percentage of the profits.

selling stock

Calopolis, a college town in Northern California, has for many years banned the presence of fast-food restaurants in the city limits. As of 2012, however, the city will allow several fast food companies the open franchised locations

shift in demand

Due to an increase in revenues after a tax hike, the United States is able to eliminate the deficit and begins to maintain a balanced budget for the first time in several decades

shift in demand

Audrey wants to buy a new car but does not have enough cash. She gets funding from her local bank with the promise that she will make monthly payments for the next three years to repay the original amount lent to her plus 6% interest.

taking out a loan

Jack decides to build a chateau in the mountains of Colorado and operate it as a ski resort. He secures funding from a local commercial bank after discussing his business plan with the bank. He promises to pay back the principal plus interest over the next 20 years.

taking out a loan

Liquidity

the ease with which an asset can be converted into cash

transaction costs

the expenses of negotiating and executing a deal

Marginal Propensity to Consume (MPC)

the increase in consumer spending when disposable income rises by $1. Calculated by change in consumer spending/ change in disposable income

Marginal Propensity to Save (MPS)

the increase in household savings when disposable income rises by $1. 1-MPC.

accelerator principle

the proposition that a higher rate of growth in real GDP results in a higher level of planned investment spending, and a lower growth rate in real GDP leads to lower planned investment spending.

aggregate consumption function

the relationship for the economy as a whole between aggregate current disposable income and aggregate consumer spending

actual investment spending

the sum of planned investment spending and unplanned inventory investment

the efficient market hypothesis

the theory that asset prices reflect all publicly available information about the value of an asset

planned aggregate spending

the total amount of planned spending in the economy; includes consumer spending and planned investment spending.

Multiplier

the total change in real GDP caused by autonomous change in aggregate spending to the size of that autonomous change

A lower multiplier leads to a more stable economy

true

An increase in private consumption may crowd out private investment

true

MPC + MPS = 1

true

New technological developments can help us adapt to depleting sources of natural resources

true

in general, people consume more than they save

true

the budget balance can be either positive or negative

true