Chapter 3-6 multiple choice Flashcards
what are the names of the factors of production
labour, capital, land, and enterprise
if 120 workers can produce 600 widgets in a day, what is the daily productivity per worker
5
what falls under the category of enterprise
adopting high-risk innovations,
the org and coordination of a business, and the investigation and establishment of new markets
what is necessary for national income to be in equilibrium
S+IM+T=I+X+G
what are examples of the factor land
minerals, natural harbours, supplies of fresh water, fertile soil
which is a valid description of economic growth
it is an economy’s real GDP per capita, it is an increase in an economy’s total output of goods and services, it usually implies an increase in labour productivity
what does the sum of national income, indirect taxes, and depreciation equal
gross national product
what is included by statistics Canada in investment
an increase in business inventions from one year to the next
what is regarded as real capita
a dump truck
what leads to an understatement of total production
the exclusion of work done by homemakers
what will result in an increase in the stock of capital goods
net investment is positive
what is the level of savings in an economy with no government and no international trade, if total factor income is $600 and consumption spending is $480
$120
what does the simple circular flow show
households are buyers of products and sellers of resources
what could cause an increase in nominal GDP
an increase in the output of goods and services but no change in prices, an increase in the prices of goods and services but no change in their output, an increase in both the output and the prices of goods and services
what is true about aggregate expenditures
at equilibrium it is equal to national income
a high economic growth rate may not mean a better life for the population. what statement supports that contention
work such as housecleaning, which used to be entirely a nonmarket activity, is becoming more and more a market activity, higher production has negative side effects, such as more pollution, in the measurement of GDP, no distinction is made as to the type of goods produced
what would be a side effect if one half of the population did the housework for the other half of the population, and vice versa, and each group paid the other for these services
GDP would rise
what is included in consumption and investment spending, respectively
spending on domestically produced and foreign produced goods and services, and on real capital
how does govern spending on goods and services differ from transfer payments
the former represents payments for services performed, but the latter does not
what is true about equilibrium
total leakages equal total injections, the value of production equals aggregate expenditures, Y=AE
in equilibrium, the value of production is equal to what (3)
the total receipts of all businesses, total income, aggregate expenditures
what is the real rate of interest if the nominal rate of interest is 10 precent and the rate of inflation is 4 percent
6 percent
what is a variation os cost-push inflation
import-push inflation
what can be said about Canadian’s inflation rate since 2001?
it has always been below 3 percent
what type of unemployment is associated with resessions
cyclical
what does inflation affect
both the level and the distribution of income
suppose that there are 1.2 million unemployed workers, .6 million discouraged workers, and 12 million employed workers. what is the unemployment rate
9.1 percent
according to the official statistic Canada definition, what is the minimum amount of time a person must have worked in the previous week in order to be counted as employed
60 minutes
if we apply the “rule of 70” what is correct to a known rate of inflation
we could calculate the number of years it will take for the price level to double
what statement is correct regarding the GDP deflator
it is a price index that can be used to calculate the inflation rate
how is real in come calculated
by dividing nominal income by a price index and multiplying the result by 100
what is the cause of cyclical unemployment
a downward fluctuation in the business cycle
what would be the effect on the unemployment rate if all the part time workers were to become full time workers
it would remain unchanged
what are the reasons why CPI and GDP deflator differ
the CPI in an explict index using a constructed bundled of goods; the GDP deflator is an implict, the bundle of goods remains constant with the CPI; the bundle of goods in the GDP deflator changes each year, the CPI does not include capital or government goods and services; the GDP deflator includes both
when is the canadian economy considered to be full emoloyment
when approx 5 to 7 percent of the labour force is unemployed
statement of the natural rate of unemplyment
made up of both frictional and structural unemployment, it is the rate of unemployment at full employment, it is when the total number of job vacancies equals the number of people unemployed and is probably about 5-7 percent in cananda today
what does okun’s law refer to
the relationship between the level of cyclical unemployment and the difference between potential and actual GDP
unanticipated increase in inflation
it redistributes wealth and income in unpredictable ways, it decreases the purchasing power of money, it benefits debtors at the expense of creditors, it affects some individuals much more than others
if the nominal GDP of a country is equal to $560 billion and its real GDP is $470 billion, what is the value of its GDP deflator?
119.15
which two pieces of info would allow us to calc a GDP deflator
nominal gdp and real gdp figures
a 35 year old, healthy male who does not work because he has inherited a large fortune would fall into
the working age population
under what condition could the number of people employed and the number of people unemployed both increase
if the number of people in the labour force increased more than the number of people employed
how is real GDP calculated
dividing nominal GDP by the GDP deflator and multiplying by 100
what would be the effect of 100000 unemployed people becoming discouraged workers
both unemployment rate and the size of the labour force would decline
how does statistic canada define a recession
a decline in real GDP over two consecutive quarters
why are economists concerned about deflation
because it could cause credit markets to freeze up, an, in turn cause economic growth to stop
why is the AD curve downward sloping
because lower prices cause an increase in real balances, which increases spending
why is the AS curve upward sloping
because firms will experience higher profits at higher prices and will therefore produce more
what will cause the AD curve to shift to the right
a decrease in the interest rate
when does macroeconomics equilibrium occur
when the AD curve interests the AS curve
what could cause the level of real GDP to rise but the price level to fall
a rightward shift in the AS curve
what can cause an increase in potential GDP
technological improvement
what does the real balance effect mean
a higher price will decrease the real value of financial assets thereby causing a decrease in consumption
what effect will a decrease in AD have if the economy is in a recession
the price level will drop a little, but the real GDP will fall a great deal
what is the result of an increase in labour productivity
an increase in potential GDP
what is the business cycle
the expansionary and contractionary phase in the growth rate of real GDP
what is meant by the term human capital
the accumulated skills and knowledge of human beings
what will contribute to economic growth
increase levels of human capital, increases in the capital stock, technological improvement, increased quantities of natural resources
what are the 4 components of AD
consumption, investment, government spending, and net exports
what will be the effect on trade of an increase in the canadian price level
it will decrease the volume of canadian exports but increase the volume of imports
what is the domestic effect of an increase in the incomes of a country’s major international trading partners
the AD curve will shift to the right
what are the implications if the price level is 100
there is as shortage of real output of $250
if the aggregate quantity demanded falls by $100 at every price level, what will be the new equilibrium price level and real output, respectively
105 and $650
at what level of real output will full employment occurs in this economy
cannot be determined
what is the slope of the AS curve, according to neoclassical economists
vertical, at the capacity level of output in the economy
what is teh slope of the AS curve according to keynesians
horizontal, because wages are inflexible
what does the multiplier effect indicate
that a change in autonomous expenditures will cause income to change by a larger amount
what is the marginal propensity to expend
it is the ratio of change in expenditures that result from a change in income
what is the effect of a decrease in government spending
it leads to an even larger decrease in income
what effect does an increase in exports have
it leads to an even larger increase in income
what is the effect of a decrease in the MTR
the MLR will decrease, and the multiplier will increase
what is the most important determinant of the level of consumption
the level of income
what circumstances will lead to a smaller multiplier
if the MPS becomes bigger
What is correct about the equilibrium level of income?
There will be no tendency for firms to increase or decrease production.
Unplanned investment in inventories will not occur.
Leakages equal injection.
Aggregate expenditures equal income.
What are induced consumption and the marginal propensity to consume?
The amount of consumption that results from higher levels of income and the change in consumption divided by the change in income
How is the AE function placed onto the 45 degree graph?
It starts on the vertical axis at the level of autonomous expenditures and rises with a slope equal to the MPE
If the MPE is equal to 0.4, what is the value of the MLR?
0.6
If the MPE is equal to 0.4, what is the value of the multiplier?
1.67
If X is an autonomous $90 (there are no autonomous imports) and the MPM is 0.2, what is the value of Xn at an income of $500?
-$10
What does the real-balances effect refer to?
The effect of a change in consumption on the real value of wealth
Which of the following variables in the expenditure model are wholly autonomous, and which are partly induced?
I, G, and X are autonomous; S, IM, and C are partly induced
Which two of the four components of aggregate expenditures are wholly autonomous?
I and G
What happens to income earned in Canada?
It is spent on consumption, imports, taxes, and saved
Graphically, when is the balance of trade equal to zero?
When the rising IM line intersects the horizontal X line
