macro test 2 for losers
extreme poverty is
$1.25 per day
sources that increase productivity
1) capital investment 2) research & development 3) improvements in labor quality
The gov't can influence economic growth by
1) contributing to physical capital, human capital & technology 2) enforcing contracts, protecting property rights & maintaining stable financial system (most important) 3) promoting free & competitive markets
determinants of investment in the Keynesian model
1) expectations about future revenues & return on investment 2) technology change 3) operating costs 4) capital goods on hand
3 ways economy can increase productivity
1) new discoveries or innovations 2) changes in gov't institutions 3) increase labor productivity
if the growth rate in the economy was 2%. the GPD will double in about
35 years
what share of US GDP is consumption?
70%
if gov't raises taxes, what will this do to the AD curve?
AD shifts left
4 factors of growth in the production function
Capital land ideas labor
what explains a poor country is able to achieve a high growth rate while a rich country struggles with low growth?
Catch-up effect developing countries can use existing technologies to make inputs more productive while developed countries must innovate to increase growth
T/F Free societies have more economic growth than totalitarian societies
False
in AD/AS model: if economy is below its long-run output, what will happen in the long run if the markets are left alone?
SRAS will shift right
simultaneous recession and deflation can be explained by
a decrease in aggregate demand
what is long run?
a period long enough that participants in the economy will have enough time to gain all relevant info & enough time to act correctly on that info
A 45-degree line in the aggregate expedientures model represents?
all consumption & no saving
export price effect of AD
as prices rise, exports become more expensive & exports drop
intrest rates effect of AD
as prices rise, people hold more money, pushing interest rates higher, reducing business behavior
wealth effect of AD
asa prices rise, purchasing power of wealth falls, reducing consumption
between 1990 and 2010, the number of people living in poverty has
been cut in half
frictionally unemployed
being unemployed for short amounts of time because switching jobs (students)
who is Thomas Malthus?
believe that society was doomed to poverty. population increased geometrically while food supply grew but he didn't account for innovation
investment is defined by spending by
businesses that adds to the productive capacity of the economy
determinants of short-run aggregate supply
changes in input prices taxes business & inflationary expectations
determinants of short run aggregate supply
changes in input prices technology & productivity taxes & regulation market power of firms inflationary expectations
leftward shift of long run aggregate supply curve depends on:
collapse of gov't labor quality goes down (war, sickness, ect) stop trading
what does NOT cause inflation
consumer confidence falls due to global economic concerns
determinants that shift AD curve
consumption gov't spending investment net exports
reducing gov't spending, reducing transfer payments, or raising taxes describes which policy?
contractionary fiscal policy
position of the long run aggregate supply curve depends on:
economy's capacity amount of available resources quality of labor force available technology
labor force includes
employed unemployed seeking work family members working for no money above the age of 16
the ability to use physical resources in creative ways to produce goods and services is
entrepreneurial ability, technology & ideas
determinants of investment demand
expectations about future revenues & return on investment technology change operating costs capital goods on hand
structurally unemployed
extended periods of unemployment
T/R from year to year, consumption fluctuates more than gross private domestic investment (GPDI)
false
gov't spending is determined by
federal state local
net exports are determined by
foreign income exchange rates
whats NOT a determinant of aggregate demand?
gov't saving
Determinants of AD
gov't spending consumption investment net exports
what group benefits from an unanticipated rise in the inflation rate?
homeowners with fixed rate mortgages
paradox of thrift
households save more, multiplier effect leads to reduced income, leading to less saving taxes have less direct impact on income than spending
determinants of consumption
income (principle) wealth expectation about future prices and income household debt taxes
for purchasing power to stay the same your wages must
increase at the same rate as inflation
recessionary gap
increase in aggregate spending necessary to to bring a depressed economy back to full employment
What will NOT shift AD curve?
increase in market power occurs in airline industry
what causes a decrease in aggregated demand?
increase in taxes
what brought the US out of the great depression
increase on spending in world war II
to have long term economic growth, the production function suggests:
increasing the availability of technology, capital & labor
The GDP divided by the multiplier yields the
inflationary or recessionary gap
investment is determined by
interest rates expected rate of return on investment business expectations
in the absence of copyright & patent laws
its difficult for innovators to profit from there efforts
increase in taxes will shift the AD curve to the
left and decrease output demanded
suppose energy prices spike, in the short run, output will------ in the long run output will------ from its starting point
long run output will decrease short run output will remain unchanged
physical capital includes
manufactured products that are used to produce other goods and services
capital-to-labor ratio
measures amount of physical capital available per worker a higher ratio equals greater labor productivity
how does economic freedom impact growth?
more freedom, more growth
when the economy is operating at the natural rate of unemployment
natural rate is zero
multiplier effect
occurs when an initial amount of spending causes income to grow by a larger amount the greater the marginal propensity to consume (MPC) the higher the spending multiplier
what was the classical model
pre 1930s laissez-fair (leave it alone) approach was better for the economy
cyclically unemployed
result of the business cycle the difference between the current unemployment rate & what it would be at full employment
human capital refers to
skills knowledge quality of workers
the classical form of the production function states that output is determined by
some function of available labor and capital
rightward shift of long run aggregate supply curve depends on:
technology improves (automation, digitalization) labor quality enhanced (more people pursue higher education) trade & globalization increase
investment spending...
tends to be volatile
long-run aggregate supply curve is vertical because
the economy will gravitate towards a position of full employment when all variables are flexible
nations with the least economic freedom have...
the lowest per capita GDP
aggregate demand
the output of all goods and services demanded in an economy at various price levels
In the US, our principle measure of inflation is
the producer price index
the index of economic freedom measures
the quality of a country's intangible infrastructure
T/F one reason real output declines when the aggregate price level rises is the reduction in the purchasing power of money
true
T/F the consumer price index is a cost-of-goods measure, not a cost-of-living measure
true
short run aggregate supply curve
upward sloping some input prices are slow to change, they get sticky when prices rise but input prices are sticky, profits increase & firms produce more, resulting in a short run increase in aggregate output
land and natural resources included:
water & minerals that come from the earth
in the Keynesian model, what helps determine consumption and saving
wealth
major factors of consumption
wealth debt taxes consumer confidence
macroeconomic equilibrium
when injections of spending (investment) equals withdrawls (saving)
price stickiness refers to
when prices are slow to adjust to economic shocks
substitution effect
when the price of the product falls, causing consumers to purchase more of that product and less of other products
which people save less money
younger people and low-income people