Macroecon 2

Compounding is the

ability to grow on previous growth

MPS and MPC will always equal

1

Consumer Price Index is a measure of

A measure of the average change in prices paid by urban consumers for a typical market basket of consumer goods and services

A payment made by you to your doctor is an example of

CPI

Price of gasoline is included in

CPI

__________ occurs when the periodic emergence of innovation boosts the econ

Creative destruction

GDP per capita is a country's

GDP divided by its population

Which component of GDP includes inventory change?

Investment

Price of feed corn is included in

PPI

What are the four phases of a business cycle?

Peak, Recession, Trough/Bottom, Recovery

Real GDP per capita is the

Real GDP divided by population. Provides a rough estimate of a country's standard of living, what economic growth is usually measured by

What of the following is NOT a criticism of the dating of business cycles by the NBER?

The NBER is sometimes manipulated by the federal government

define GDP

a measure of the economy's total output; it is most widely valued by the NIPA and is equal to the total market value of all final goods and services produced by resources in given year

Aggregate spending is equal to

aggregate income

National income is

all income, wages salaries, and benefits, profits, rental income, interest

The catch up effect says countries with smaller starting levels of capital experience larger benefits from increased capital

allowing these countries to grow faster than countries with abundant capital

Hyperinflation is

an extremely high rate of inflation

Producer Price Index is a measure of the

average changes in the prices received by domestic producers for their output

Leading Economic Index reflects how the econ will

behave in the future

Determinants of investment include

business expectation tech change operating cost and amount of capital goods on hand

Define Recession of a business cycle

business investments decline

Structural unemployment-

caused by changes in the structure of consumer demands or tech.

Balanced budget multiplier equals

changes in gov spending and taxation lead to an equal chance in income

Leading Economic Index is produced by the

conference board

Aggregate expenditures consist of

consumer spending business investment spending gov spending and net foreign spending

The expenditures approach to calculating the GDP sums

consumer spending, gross private domestic investment, government- spending, and exports minus imports

Wealth, expectation, household debt, and taxes are determinants of

consumption and spending

The large component of GDP is

consumption expenditure

The largest component of GDP is

consumption expenditure

According to the classical model, higher interest rates does not

contribute to econ growth

Consumer price index is also known as

cost of goods index

Schumpeters term _______ refers to innovated dynamism of capitalism

creative destruction

Deflation is a

decline in overall prices in econ, this is the opposite of inflation

Personal Consumption Expenditures include

durable goods, nondurable goods, and services

Define Trough of a business cycle

econ activity begins to pick up as a business and consumers become more enthusiastic about the econ

The capital to labor ratio measures the amount of

economic capital per worker

Discouraged workers are not classified as

employed, stop seeking for work, and are not in the labor force

Injections are

increment of spending

According to the Keynesian model, if households intend to save more, they will ultimately cause

job losses

Economic growth leads to

low poverty rates and longer life span

Inflation is a

measure of changes in the cost of living, a general rise in prices throughout the econ

Infrastructure is the __________________, including transportation, power generating plans, schools

public capital of a nation

Short run growth is common when countrys are

recovering from an econ downturn, or when resources are not being fully used

The Rule of 70 favors

small growth rates, so the higher the percentage means the less accurate

Multiplier is the

spending changes alter equilibrium income by the spending change times the multiplier

Unanticipated high inflation is not a characteristic of a

stable financial system

Investment levels depend primarily on

the rate of return on capital

Inflationary gap is

the spending reduction necessary to bring an overheated economy back to full employment

Tax increases withdraw money from the spending stream but do not affect the con as much as spending reductions, because

these tax increase are partly offset by decrease in saving

Labor force is the total number of

those employed and unemployed

Equilibrium wages can't cause

unemployment

Investment spending tends to be

volatile

Government Spending are

wages and salaries of gov. employees, the purchase of products and services from private businesses and the rest of the world

Injections must equal

withdrawals

Rule of 70 provides an estimate of the number of

years for a value to double

Business Cycles

Alternating increases and decreases in economic activity that are typically punctuated by periods of recession and recovery, dated by the NBER

Net domestic product can be found by

GDP minus capital consumption allowance

If a country's population increases at a slower rate than the growth in its real GDP

GDP per capita has increased

Short-run econ growth involves

a fixed capacity

What is a double dip recession?

a recession that begins after only a short period of economy recovery from the previous recession

Personal Consumption Expenditures is defined as

goods and services purchased by residents of the US, whether individuals or businesses

Keynesian model ignores the

gov and the foreign sector

Inflation has a significant long-run effects on the economy because

it distorts the price signal and produces incentive for speculation

A criticism for GDP per capita is that

it might not fully reflect the standard of living of the typical citizen

Main causes of inflation are

strong consumer demand, supply shocks on key inputs, gov. printing money

Gross Private Domestic Investment are investments in things such as

structures, equipment, software, and changes in private business inventories

Long run growth involves

expanding capacity

What is not be included in the GDP accounts?

The value of time spent learning how to prepare your person income tax return

Average propensity to consume is

the percentage that income is consumed

Investments are spending by

business that adds to the productive capacity of the economy

The 45 degree line in the Keynesian model represents a set of points where disposable income

equals consumption

A legal system includes

enforcement of contracts protection of property rights promote free and competitive markets and stable financial system

The household survey is a great source of discovering

entrepreneurial activity

GDP does not include most of the benefits and costs from

environmental and natural resources, nonmarket activities or the informal econ

Short run growth occurs when an econ makes use of

existing but underutilized reources

Net exports are

exports minus import for current time

One way a stable financial system supports econ growth is that it

facilitates the movement of capital from saving to investment

Overstating inflation leads to _________ on benefits are higher , and also makes real earnings appear _____ than what they actually are

federal expenditures, smaller

Real GDP is the total value of

final goods and services produced in a country in a year measured using prices in a base year

Long run growth occurs when an econ

finds new resources or finds ways to use existing resources better

Productivity is

how effectively inputs are converted into outputs

Economic growth plays a role in

how people live and their standards of living change over time

The principal determinant of saving is

income

Saving is the difference between

income and consumption; the amount of disposable income not spent

Ways in increase productivity are

increase access to natural resources improve quality of labor increase capital to labor ratio and promote innovation and tech

Consumption is spending by

individuals and households on both durable goods and non durable goods

Escalator clauses adjust payments(wages, rents, and social security) to account for

inflation

In the Keynesian framework, increments of spending are known as

injection

Equilibrium income is reached when

injections equal withdrawals

According to Schumpeter, the most important activity that drives business cycle is

innovation

Circular Flow Diagram illustrates how households and firms

interact through product and recourse markets and shows households are buyers of products and sellers of production factors

Classical economist say ______ is the primary determinant of saving, and keyenes claimed it is ______

interest rate, income

When economy is in equilibrium in the simple Keynesian model savings is equal to

investment

A criticism of GDP per capita is it

might not fully reflect living of typical citizen

When the gov enforces contracts between two parties, it is acting in its role to promote econ growth by ensuring a

stable legal system

The higher the productivity of a nation, the higher its

standard of living

The idea of the multiplier is

one person spending becomes another persons income, which generates more spending

Define Peak of a business cycle

operating at capacity

The NIPA tracks

our nation's economic performance compared to other nations

Imporovements in production capacity will shift the PPF

outward

Despite the shortcomings of the GDP measure, GDP provides a simple and consistent way of measuring the

overall economic activity in an economy

Most economist believe that the consumer price index____the rate of inflation

overstates

The expenditure category that accounts for the largest share of GDP is

person consumption expenditures

Disinflation is a

reduction in the rate of inflation, an economy going through disinflation, is still facing inflation, but at a declining rate

Withdrawals are activities that

remove spending from the economy

Cyclical unemployment

result from change in business cycles and where public policymakers can have their greatest impact by keeping the economy on a steady low inflationary, solid growth path

In the US unemployment rates differ because

tax differences in states, geographical area, and clustering of industries

A stable financial system is not needed for

tax rate stability

Tax decreases inject money into the econ but do not effect the economy as much as spending increases, because

tax reductions are partly offset by increases in saving

GDP Deflator measures

the average prices for all goods and services in the economy, including consumer goods, investment goods, gov. goods, and exports. It is the broadest measure of inflation NIPA

Recessionary gap is

the increase in aggregate spending needed to bring a depressed econ back to full employment

Yield Curve shows the relationship between?

the interest rate earned on bond and the length of time until the bond's maturity date

Natural rate of employment is

the level of unemployment at which price and wage decisions are consistent, a level at which the actual inflation rate is equal to people's inflationary expectations and where cyclical unemployment is zero

Joseph Schumpeter idea that _________ lead to business cycles is called creative destruction

waves of innovations

Paradox of thrift is

when investment is positively related to income and households intend to save more, they reduce consumption, income, and output, reducing investment so that the result is that consumers actually end up saving less

According to the production function, improvements in the productivity of labor

will not result in econ growth

Frictional unemployment-

workers who quit their job to search for better position

Policymakers look at __________ to compare growth rates over an entire year without seasonal ups and down

year over year GDP growth rates