Exam 2 Flashcards
1
Q
Over the last 100 years output per person has _____ in most industrialized countries.
A
Increased
2
Q
How to compound? Example problem: If you invest $100 in a savings account with an interest rate of 3 percent, compound annually, then how much money will be in your account after 15 years?
A
156
100 x 1.03 (Always add the 1 for investment) ^15
Round up to 156
3
Q
Compound interest is paid on
A
- The original deposit
- Accumulated interest
4
Q
Small differences in real GDP growth rates between two countries will result in small differences in the average standard of living between those countries in the long run.
True or false?
A
True
5
Q
What is formula 72?
A
Small differences in real GDP growth rates between two countries will result in small differences in the average standard of living between those countries in the long run.
6
Q
If GDP per capita grows at an annual rate of 2 percent, then 72/2
(or 36) tells you approximately
A
the number of years it will take GDP per capita to double.
7
Q
Economic growth is most often measured as a change in
A
real GDP per person.
8
Q
The payment of interest not only on the original deposit but on all previously accumulated interest is known as _____.
A
Compound interest
9
Q
Small differences in real GDP growth rates between two countries will
A
have large differences in average living standards over a long period of time.
10
Q
Real GDP per capita can be expressed as average labor productivity × the share of the population employed.
True/False?
A
True
Y/POP = Y/N x N/POP
Y= Real GDP
POP = Population
N= Number of people employed
11
Q
Real GDP per person measures the quantity of goods and services available to the typical resident of a country at a particular time.
True/False
A
True
12
Q
Real GDP per capita can be expressed as __________ x __________
A
average labor productivity × the share of the population employed
13
Q
T/F : The share of the population employed has generally been increasing over the last 50 years, but this trend is unlikely to continue.
A
True:
Reason: As women’s entry into the labor force stabilizes and as the baby boom generation begins to retire, the share of the population employed is likely to fall.
14
Q
Which of the following are accurate in terms of human capital and physical capital? (two are correct)
1.They are both acquired through investment of time, energy, and money.
2.They both involve an opportunity cost of resources.
3.Neither require an investment of time, energy, and money.
4.Returns to human capital exceed returns to physical capital.
A
1 and 2
15
Q
Which of the following affect worker productivity? choose multiple
1.The market price of the goods that workers produce
2.The total product of labor
3.A worker’s human capital
4.The amount of physical capital available to the worker
A
3 and 4
16
Q
Suppose a yogurt shop has 4 yogurt machines. The owner discovered that the first machine added more to total output that the second machine. The second machine added more to total output than the third machine. And the third machine added more to total output than the fourth. This in an example of?
A
diminishing returns to capital.
17
Q
what four things contribute specifically to economic growth?
A
Technology
Human capital
Physical capital
Natural resources
18
Q
The costs of increasing economic growth may include. choose multiple
1.lower levels of current consumption.
2.longer work hours.
3.lower levels of research and development.
A
lower levels of current consumption.
longer work hours.
19
Q
Economic growth generally requires a reduction in _____.
A
current consumption
20
Q
T/F
One cost of economic growth is that current consumption may need to be sacrificed in order to free resources to create new capital.
A
True:
Reason: Policies promoting economic growth require resources that must be taken from other types of production.
21
Q
Governments can encourage economic growth by promoting policies aimed at _____.
1.increasing workers’ human capital
2.encouraging household saving
3.encouraging entrepreneurship
4.eliminating property rights
A
1, 2 and 3
22
Q
Policies to increase human capital include:
A
the provision of public education.
government funding of job training programs.
23
Q
In 2016, U.S. real wages were more than __________ one word) as large as they were in 1960 and more than ___________ (one word) times as large as they were in 1929.
A
- double
- five
24
Q
Over the past 50 years, __________ people in the U.S. have had jobs and the rate of job growth has __________.
A
- more
- slowed
25
In the labor market, firms _________ labor
Demand
26
The U.S. has experienced __________ in wage inequality in recent decades.
substantial increase
27
T/F Until the economic downturn that began in 2008, total employment in the United States had been increasing substantially for several decades.
True
28
T/F In recent decades, there has been a pronounced increase in wage inequality in the United States.
True
29
The extra revenue gained by hiring an additional worker is the _____.
Value of the marginal product of labor
30
In the labor market, households and individuals ________ labor
Supply
31
Diminishing returns to labor refers to the tendency for _____ to decrease as firms hire additional workers when the amount of capital and other inputs is held constant.
The marginal product of labor
32
A firm will hire a worker if and only if
the value of the marginal product of labor is greater than or equal to the wage rate.
32
Which of the following factors lead to an increase in the demand for labor?
1.A decrease in the price of workers' output
2.An increase in the relative price of the product.
3.A decrease in wages
4.An increase in worker productivity
2 and 4
An increase in the relative price of the product.
An increase in worker productivity
32
The value of marginal product of labor is the _____ generated by hiring an additional worker.
Additional revenue
32
Generally, if the value of the marginal product of labor is greater than the wage rate, the firm should _____.
Hire additional workers
33
Which of the following factors lead to a decrease in the demand for labor?
1.An increase in wages
2.An increase in worker productivity
3.A decrease in the price of workers' output
4.An decrease in the relative price of the product.
3 and 4
Decrease in the price of the worker' output
An decrease in the relative price of the product
33
History is replete with examples of workers who opposed ______________ out of fear that their skills would become less valuable.
new technology
34
The minimum level of compensation that leaves someone indifferent between working and not working is their _____.
reservation price
35
If worker productivity increases, the labor demand curve will _____.
SHIFT to the right
36
An increase in immigration will lead the labor supply curve to _____.
SHIFT to the right
37
Over the last several decades, the labor supply has increased because of ______________.
baby boomers entering the workforce
the decline in the age at which people retire
immigration
increases in women's labor force participation rates
baby boomers entering the workforce
immigration
increases in women's labor force participation rates
38
employment growth is _____ productivity growth combined with _____ in the supply of labor.
slower and an increase
39
Sluggish productivity growth since the 1970s combined with rapid increases in the supply of labor help explain the:
slowdown in real wage growth since the 1970s despite rapid employment growth
40
International trade increases wage inequality by increasing the wages of workers in _____ industries and decreasing the wages of workers in _____ industries.
exporting and then importing
41
Which of the following are accurate statements about international trade?
It increases efficiency.
It hurts workers who produce goods and services that are imported from abroad.
It hurts workers who produce goods and services that are exported to other countries.
It is not efficient.
increases efficiency
hurts workers producing goods and services that are imported from abroad
42
_____ will reverse some of the inequality caused by international trade.
Worker mobility
43
The type of unemployment that is associated with the process of matching workers to jobs is called
frictional unemployment.
44
An auto worker in Michigan who loses his job because the company relocated the plant to another country is an example of ________.
structural unemployment
45
The increase in unemployment in the United States that accompanied the recession that started in December 2007 is an example of ___________ unemployment
cyclical
46
How would this affect the economy-wide supply of labor? The age at which people are eligible for Medicare is increased
supply of labor would increase (An increase in the age for Medicare eligibility means that more people will continue working in order to obtain employer-paid health insurance or to earn more to be able to pay for their own health care costs. As a result, the supply of labor will increase)
47
How would this affect the economy-wide supply of labor? Increased productivity causes real wages to rise
supply of labor would remain unchanged ( An increase in productivity shifts the demand for labor up. The supply of labor is unaffected. The real wage and employment rise as the economy moves along the labor supply curve.)
48
How would this affect the economy-wide supply of labor? War preparations lead to the institution of a national draft, and many young people are called up
the supply of labor would decrease (The draft removes people from the labor force and thus reduces the supply of labor. (This effect may be offset if patriotism drives more civilians to enter the labor force, as appears to have been the case during World War II.)
49
How would this affect the economy-wide supply of labor? More people decide to have children (consider both short-run and long-run effects)
the supply of labor would decrease (The effect on labor supply depends on how the generosity of Social Security benefits affects people's retirement decisions. Assuming that people will want to retire earlier when they are offered better benefits, the labor supply falls.)
50
How would this affect the economy-wide supply of labor? Social security benefits are made more generous
the supply of labor would decrease (The effect on labor supply depends on how the generosity of Social Security benefits affects people's retirement decisions. Assuming that people will want to retire earlier when they are offered better benefits, the labor supply falls.)
51
An increase in the productivity of labor
increases labor demand
52
According to the principle of diminishing returns to labor, if the amount of capital and other inputs is held constant, employing additional workers
increases output at a decreasing rate.
53
Worker mobility and transition aid to workers are two ways to offset some of the impacts of
increasing wage inequality.
54
Frictional unemployment may be economically beneficial if
it leads to a better match between worker and job
55
Features of the labor market that are likely to cause structural unemployment include all of the following except
1. Labor unions
2. Minimum wage laws
3. Employment compensation
4. Differences in the skills and experience of workers
4. Differences in the skills and experience of workers
56
As the real wage decreases, the quantity of labor demanded ______ and the quantity of labor supplied _______.
Increases, decreases
57
Cyclical unemployment occurs because
the economy is experiencing a period of unusually low production.
58
Slower real wage growth in the U.S. since the 1970s accompanied by rapid job growth, can be explained by
a productivity slowdown accompanied by an increase in the labor supply.
59
__________ is defined as current income minus spending on current needs.
Savings
60
To calculate the saving rate of an economic unit, you _____.
Divide its savings by it's income.
61
To calculate wealth, you _______?
Subtract liabilities from assets
62
Saving can be defined as ___________?
current income minus current needs (expenses)
63
______ is anything of value that one owns.
An asset
64
Assets include what 3 things?
Cash
Real Estate
Stocks
65
_________ is any debt that one owes to another person or institution.
A liability
66
What's listed on an individual's balance sheet?
Liabilities and assets
67
A measure that is defined at a point in time is known as a _____.
Stock
68
Liabilities include what 3 things
mortgages
credit card balances
student loans
69
Saving is considered a stock? A flow? or both?
flow
70
If an individual saves $600 per month to pay off their student loans, their wealth will decrease? increase? stay the same?
Increase
71
A measure that is defined per unit of time is known as a _____.
flow
72
Increases in assets are called?
Capital gains
73
Wealth is considered a stock? flow? both?
Stock
74
Changes in an individual's wealth are determined by what 3 things?
Capital gains
Capital losses
Savings
75
_______ saving is done in order to leave an inheritance and ________ saving is done to save for unexpected expenses.
bequest and precautionary
76
Changes in the value of existing assets are called___________ when an asset’s value decreases.
Capital Losses
77
The real interest rate equals:
the nominal interest rate minus the rate of inflation
78
The return to saving is higher when the real interest rate is:
High
79
In theory, a higher real interest rate can have both positive and negative effects on saving. T/F
True:
A higher real interest rate increases the benefit to saving, but it also reduces the amount that people need to save each year to reach a given saving target.
80
The nominal interest rate minus the rate of inflation equals what?
The real interest rate
81
______ occur(s) when people use the spending of others as a yardstick by which to measure their own living standards.
Demonstration Effect
82
If national saving equals 72 and GDP is 600, then the national saving rate is:
12% (72/600 is 0.12) The national saving rate is national saving as a percentage of GDP. In this case
83
The after-tax income of the private sector minus consumption expenditure (Y - T - C) equals:
Private saving
84
Private saving can be broken down into:
Household saving and business saving
85
The amount of the public sector's income that is not spent on current needs is
public savings
86
Net tax payments minus government spending equals
public savings
87
National saving equals the sum of
private saving and public saving
88
If the amount the government collects in taxes equals government spending, then the government is said to have a:
balanced budget
89
Public saving is:
the amount of the public sector's income that is not spent on current needs
90
The sum of public saving and private saving equals
National savings
91
The government budget surplus equals
public saving.
excess of government tax collections over government spending (T-G)
92
The _____ determines the real cost to a firm of borrowing money to invest in new capital.
Real interest rate
93
In the market for saving, the real interest rate functions as?
price
94
The change in wealth during a period equals
saving + capital gains − capital losses.
95
The self-control hypothesis suggests that people
want to save but lack the discipline to refrain from consuming.
96
Aparajita earns $1,300 per week and spends $1,050 per week on living expenses, puts $175 in a savings account, and buys $75 worth of shares in a stock mutual fund. Aparajita's savings are _____, and Aparajita’s saving rate is _____.
Savings is 175 +75 = 250
Savings rate is 250/1,300 = 19.2%
97
Which of the following will increase firms' willingness to invest in new capital?
1. Higher relative price for the firm's output
2. an increase in the real interest rate
3. decline in the price of capital goods
4. Technological improvements that increase the marginal product of capital
A higher relative price for the firm's output
A decline in the price of capital goods
Technological improvements that increase the marginal product of capital
98
In the market for saving the _____ functions as the "price".
real interest rate
99
If the government budget deficit increases
the demand for investment will increase.
100
If the government budget deficit increases, the real interest rate will _____ and national saving will _____.
rise
fall
101
An increase in the government budget deficit will lead the _____ curve to shift to the _____.
supply of saving , left
102
An increase in the government budget deficit will cause _____ to fall and _____ to rise.
national saving and investment; the real interest rate
103
Money is a medium of ________ that is used in purchasing goods and services
Trade
104
When people measure the worth of various items in terms of money, money is performing the function of a what?
Unit of account
105
Any asset that can be used in exchange for goods and services is called ______.
money
106
Because money is a medium of exchange, society avoids:
Barter
107
Money serves as a store of value because it:
Serves as a means of holding wealth
107
Bank reserves:
are cash or similar assets held by banks to meet depositor withdrawals and payments
107
T/F M1 is a narrower measure of money and M2 is a broader measure that includes M1 along with several other relatively liquid assets.
True
108
A situation in which bank reserves equal 100 percent of bank deposits is called _______________
100 percent reserve banking
109
M1 and M2 are two alternative definitions of
money
110
The reserve deposit ratio equals bank ________ divided by ________
reserve
deposit
111
A fractional-reserve banking system is one in which the reserve-deposit ratio is _____.
less and 100 percent
112
Money supply M1 includes ______ in the hands of the public and balances held in checking accounts.
currency
113
If banks' reserves equal $2,000 and their deposits equal $10,000, then the reserve-deposit ratio equals _____.
0.20 or 20%
114
Cash or similar assets held by banks for the purpose of meeting depositor withdrawals and payments are called _____.
bank reserves
115
Bank deposits will increase whenever the ratio of bank reserves to bank deposits is _____ than the desired reserve-deposit ratio.
greater
116
The reserve-deposit ratio equals _____.
bank reserves divided by deposits
117
In a fractional-reserve banking system, bank reserves are _____.
less than deposits
118
In general, the money supply is equal to:
currency held by the public plus bank deposits
119
Suppose bank reserves are $75,000, currency held by the pubic is $200,000, and the desired reserve-deposit ratio is 10 percent, then the total money supply will equal?
950,000
Money supply = Currency held by public + Bank reserves / Desired Reserve-deposit ratio.
Money supply = 200,000 + (75,000 + 0.10)
120
If bank reserves equal $40,000 and the desired reserve-deposit ratio is 8 percent, then bank deposits will equal
500,000
Bank reserves / Desired reserve-deposit ratio
121
The sum of all the currency held by the public and bank deposits is equal to:
Money supply
122
When the Fed sells government bonds to the public, bank reserves _____.
Decreases
123
When the Fed sells government bonds to the public, money supply:
decreases
124
In general, the money supply is equal to:
Currency held by the public plus bank deposits
125
Federal Reserve System decisions on monetary policy are made by the ______.
Federal open market committee
126
Open-market purchases _____ the money supply.
increase
127
An open-market sale is the _____.
sale of government bonds by the Fed to the public
128
The _____ was established in response to a particularly severe banking crisis in 1907.
the federal reserve
129
In order to prevent bank panics, the Federal Reserve was given the power to ____ so that banks could pay off depositors who wanted to withdraw cash.
lend money to banks
130
Velocity is a measure of the speed at which
money changes hands in transactions involving final goods and services.
131
The quantity equation implies that if velocity and real GDP are constant, then the rate of growth of the money supply ____ the rate of inflation.
equals
132
What is the quantity equation?
It's where money times velocity equals nominal GDP. It's simply rewriting the definition of velocity
M x V = P x Y
133
The Federal Reserve consists of ______ regional banks, ______ governors on the Board of Governors, and ______ voting members of the Federal Open Market Committee.
12 , 7 , 12
134
The direct trade of goods and services for other goods and services is called
barter
135
After the Federal Reserve increases reserves in the banking system, banks create new deposits through multiple rounds of lending and accepting deposits until the
actual reserve-deposit ratio is equal to the desired reserve-deposit ratio.
136
Assets of the commercial banking system include
Reserves, loans
137
Commercial banks create new money
multiple rounds of lending
138
Small differences in annual growth rates of real GDP generate large differences in real GDP over time because of ________
power of compound interest
139
Public saving is positive when __________?
There is a government surplus
140
The cost of a higher living standard in the future is giving up ______?
Current consumption
141
features of the labor market that are likely to cause structural unemployment include all of the following except _______?
1. differences in skills and experience of workers?
2. Labor unions
3. unemployment compensation
4. minimum wage laws
1
142
The costs of investment depend on the ______ and the _____
Price of new capital goods
real interest rate
143
