macro final

Strong property rights are important for modern economic growth because

people are more likely to invest if they don't fear that others can take their returns on investment without compensation.

The unemployment rate is the

percentage of the labor force that is unemployed.

In a private closed economy, when aggregate expenditures equal GDP,

planned investment equals saving.

In a mixed open economy, the equilibrium GDP exists where

Ca + Ig + Xn + G = GDP.

Dissaving means

that households are spending more than their current incomes.

The cyclically adjusted budget tells us

what the size of the federal budget deficit or surplus would be if the economy was at full employment.

Which of the following statements is most accurate about modern economic growth?

Modern economic growth is characterized by sustained and ongoing increases in living standards.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

Demand-pull inflation

occurs when total spending exceeds the economy's ability to provide output at the existing price level.

If consumers expect prices to rise and shortages to occur in the future, then there will be a shift

of the consumption schedule upward and of the saving schedule downward.

With a marginal propensity to save of 0.4, the marginal propensity to consume will be

1.0 minus 0.4.

In 1998, living standards in the United States were nearly ______ times higher than those in Africa.

20

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was

20 percent higher than the average price in the base period 1982-84.

Which of the following statements is correct?

Built-in stability only partially offsets fluctuations in economic activity.

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of

Okun's law.

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

Increases in household and business spending are a demand factor in economic growth. Tf

True

Recurring upswings and downswings in an economy's real GDP over time are called

business cycles.

The investment demand curve will shift to the right as the result of

businesses becoming more optimistic about future business conditions.

An appropriate fiscal policy for severe demand-pull inflation is

a tax rate increase.

The GDP gap measures the difference between

actual GDP and potential GDP.

In a private closed economy, _____ investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where _____ investment is equal to saving.

actual; planned

If the dollar appreciates in value relative to foreign currencies,

aggregate demand decreases because net exports decrease.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward

an excess of government expenditures over tax receipts.

Which one of the following will cause a movement up along an economy's saving schedule?

an increase in disposable income

The interest-rate effect suggests that

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

Given the expected rate of return on all possible investment opportunities in the economy,

an increase in the real rate of interest will reduce the level of investment.

Other things equal, which of the following would increase the rate of economic growth, as measured by changes in real GDP?

an increase in the size of the working-age population

As disposable income goes up, the

average propensity to consume falls.

In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output?

capital goods

Economic growth is best defined as an increase in

either real GDP or real GDP per capita.

Discretionary fiscal policy will stabilize the economy most when

deficits are incurred during recessions and surpluses during inflations.

Fiscal policy refers to the

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

The size of the multiplier associated with an initial increase in spending will be

diminished if inflation occurs.

In the aggregate expenditures model, it is assumed that investment

does not change when real GDP changes.

The aggregate demand curve is

downsloping because of the interest-rate, real-balances, and foreign purchases effects.

A competitive market system

encourages growth by allowing producers to make profitable investment decisions based on market signals.

Free trade

encourages growth by promoting the rapid spread of new inventions and innovations.

Other things equal, a decrease in the real interest rate will

expand investment and shift the AD curve to the right.

The determinants of aggregate demand

explain shifts in the aggregate demand curve.

A decline in the real interest rate will shift the investment demand curve to the right. tf

false

A decrease in per-unit production costs will shift the aggregate supply curve leftward. tf

false

An increase in business taxes will tend to shift the investment-demand curve rightward. tf

false

Because of the recent rise in the average rate of productivity growth, the business cycle is dead. tf

false

Built-in stability is synonymous with discretionary fiscal policy. tf

false

Equal increases in government expenditures and tax collections will leave the equilibrium GDP unchanged. tf

false

The crowding-out effect refers to the possibility that deficit spending may motivate people to increase their saving in anticipation of higher future taxes. tf

false

The production of durable goods is more stable than the production of nondurables over the business cycle. tf

false

Prices and wages tend to be

flexible upward but inflexible downward.

The natural rate of unemployment is the

full-employment unemployment rate.

10-3

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11-14

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9-4

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Which of the following best measures improvements in the standard of living of a nation?

growth of real GDP per capita

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to

increase aggregate demand.

Which combination of fiscal policy actions would most likely offset each other?

increase both taxes and government spending

Rising real wages for women in the U.S. workforce since the 1960s have

increased the opportunity cost of staying at home.

Exports have the same effect on the current size of GDP as

investment

All else equal, a large decline in the real interest rate will shift the

investment schedule upward.

If the expected rate of return on investment decreases, then most likely the

investment schedule will shift downward.

An exchange rate

is the price that the currencies of any two nations exchange for one another.

If an unintended increase in business inventories occurs at some level of GDP, then GDP

is too high for equilibrium.

A contractionary fiscal policy is shown as a

leftward shift in the economy's aggregate demand curve.

The most important determinant of consumption and saving is the

level of income.

Most economists agree that the immediate determinant of the volume of output and employment is the

level of total spending.

The presence of discouraged workers

may cause the official unemployment rate to understate the true amount of unemployment.

Structural unemployment

may involve a locational mismatch between unemployed workers and job openings.

Other things equal, a decrease in the real interest rate will

move the economy downward along its existing investment demand curve.

Cost-push inflation

moves the economy inward from its production possibilities curve.

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the

multiplier effect.

Graphically, demand-pull inflation is shown as a

rightward shift of the AD curve along an upsloping AS curve.

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system

serves as an automatic stabilizer for the economy.

Other things equal, an improvement in productivity will

shift the aggregate supply curve to the right.

The aggregate demand curve

shows the amount of real output that will be purchased at each possible price level.

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because

some of the tax increase will be paid out of income that would otherwise have been saved.

The factor accounting for the largest increase in the productivity of labor in the United States has been

technological advance.

The consumption schedule shows

the amounts households intend to consume at various possible levels of aggregate income.

The Industrial Revolution and modern economic growth resulted in

the average human lifespan more than doubling.

The public debt is the amount of money that

the federal government owes to holders of U.S. securities.

Human capital refers to

the skills and knowledge that enable a worker to be productive.

A recessionary expenditure gap is the amount by which aggregate expenditures must increase in order to reach the full-employment level of GDP. tf

true

A specific investment will be undertaken if the expected rate of return, r, exceeds the interest rate, i. tf

true

Economists who are willing to accept mild inflation consider it to be a necessary by-product of high and growing spending that produces high levels of output, full employment, and economic growth. tf

true

Exports are added to, and imports are subtracted from, aggregate expenditures in moving from a closed to an open economy. tf

true

Positive net exports increase aggregate expenditures beyond what they would be in a closed economy and thus have an expansionary effect on domestic GDP. tf

true

The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output. tf

true

There tends to be a positive correlation between real wages of workers and the productivity of labor in the economy. tf

true

Total output for an economy is basically equal to total work-hours multiplied by labor productivity. tf

true

Unanticipated inflation benefits debtors at the expense of creditors. tf

true

Core inflation measures

underlying increases in the CPI after removing volatile food and energy prices.

When aggregate expenditure is greater than GDP, then there will be an

unplanned decrease in inventories and GDP will increase.

If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy would tend to be

weaker.