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Macroeconomics > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Over the last 100 years output per person has _____ in most industrialized countries.

A

Increased

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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

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3
Q

Compound interest is paid on

A
  1. The original deposit
  2. Accumulated interest
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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

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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.

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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.

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7
Q

Economic growth is most often measured as a change in

A

real GDP per person.

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8
Q

The payment of interest not only on the original deposit but on all previously accumulated interest is known as _____.

A

Compound interest

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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.

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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

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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

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12
Q

Real GDP per capita can be expressed as __________ x __________

A

average labor productivity × the share of the population employed

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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.

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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

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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

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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.

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17
Q

what four things contribute specifically to economic growth?

A

Technology

Human capital

Physical capital

Natural resources

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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.

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19
Q

Economic growth generally requires a reduction in _____.

A

current consumption

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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.

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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

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22
Q

Policies to increase human capital include:

A

the provision of public education.

government funding of job training programs.

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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
  1. double
  2. five
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24
Q

Over the past 50 years, __________ people in the U.S. have had jobs and the rate of job growth has __________.

A
  1. more
  2. slowed
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25
Q

In the labor market, firms _________ labor

A

Demand

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26
Q

The U.S. has experienced __________ in wage inequality in recent decades.

A

substantial increase

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27
Q

T/F Until the economic downturn that began in 2008, total employment in the United States had been increasing substantially for several decades.

A

True

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28
Q

T/F In recent decades, there has been a pronounced increase in wage inequality in the United States.

A

True

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29
Q

The extra revenue gained by hiring an additional worker is the _____.

A

Value of the marginal product of labor

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30
Q

In the labor market, households and individuals ________ labor

A

Supply

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31
Q

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.

A

The marginal product of labor

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32
Q

A firm will hire a worker if and only if

A

the value of the marginal product of labor is greater than or equal to the wage rate.

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32
Q

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

A

2 and 4

An increase in the relative price of the product.

An increase in worker productivity

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32
Q

The value of marginal product of labor is the _____ generated by hiring an additional worker.

A

Additional revenue

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32
Q

Generally, if the value of the marginal product of labor is greater than the wage rate, the firm should _____.

A

Hire additional workers

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33
Q

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.

A

3 and 4

Decrease in the price of the worker’ output

An decrease in the relative price of the product

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33
Q

History is replete with examples of workers who opposed ______________ out of fear that their skills would become less valuable.

A

new technology

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34
Q

The minimum level of compensation that leaves someone indifferent between working and not working is their _____.

A

reservation price

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35
Q

If worker productivity increases, the labor demand curve will _____.

A

SHIFT to the right

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36
Q

An increase in immigration will lead the labor supply curve to _____.

A

SHIFT to the right

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37
Q

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

A

baby boomers entering the workforce

immigration

increases in women’s labor force participation rates

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38
Q

employment growth is _____ productivity growth combined with _____ in the supply of labor.

A

slower and an increase

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39
Q

Sluggish productivity growth since the 1970s combined with rapid increases in the supply of labor help explain the:

A

slowdown in real wage growth since the 1970s despite rapid employment growth

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40
Q

International trade increases wage inequality by increasing the wages of workers in _____ industries and decreasing the wages of workers in _____ industries.

A

exporting and then importing

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41
Q

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.

A

increases efficiency

hurts workers producing goods and services that are imported from abroad

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42
Q

_____ will reverse some of the inequality caused by international trade.

A

Worker mobility

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43
Q

The type of unemployment that is associated with the process of matching workers to jobs is called

A

frictional unemployment.

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44
Q

An auto worker in Michigan who loses his job because the company relocated the plant to another country is an example of ________.

A

structural unemployment

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45
Q

The increase in unemployment in the United States that accompanied the recession that started in December 2007 is an example of ___________ unemployment

A

cyclical

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46
Q

How would this affect the economy-wide supply of labor? The age at which people are eligible for Medicare is increased

A

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)

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47
Q

How would this affect the economy-wide supply of labor? Increased productivity causes real wages to rise

A

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.)

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48
Q

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

A

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.)

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49
Q

How would this affect the economy-wide supply of labor? More people decide to have children (consider both short-run and long-run effects)

A

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.)

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50
Q

How would this affect the economy-wide supply of labor? Social security benefits are made more generous

A

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.)

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51
Q

An increase in the productivity of labor

A

increases labor demand

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52
Q

According to the principle of diminishing returns to labor, if the amount of capital and other inputs is held constant, employing additional workers

A

increases output at a decreasing rate.

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53
Q

Worker mobility and transition aid to workers are two ways to offset some of the impacts of

A

increasing wage inequality.

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54
Q

Frictional unemployment may be economically beneficial if

A

it leads to a better match between worker and job

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55
Q

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
A
  1. Differences in the skills and experience of workers
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56
Q

As the real wage decreases, the quantity of labor demanded ______ and the quantity of labor supplied _______.

A

Increases, decreases

57
Q

Cyclical unemployment occurs because

A

the economy is experiencing a period of unusually low production.

58
Q

Slower real wage growth in the U.S. since the 1970s accompanied by rapid job growth, can be explained by

A

a productivity slowdown accompanied by an increase in the labor supply.

59
Q

__________ is defined as current income minus spending on current needs.

A

Savings

60
Q

To calculate the saving rate of an economic unit, you _____.

A

Divide its savings by it’s income.

61
Q

To calculate wealth, you _______?

A

Subtract liabilities from assets

62
Q

Saving can be defined as ___________?

A

current income minus current needs (expenses)

63
Q

______ is anything of value that one owns.

A

An asset

64
Q

Assets include what 3 things?

A

Cash
Real Estate
Stocks

65
Q

_________ is any debt that one owes to another person or institution.

A

A liability

66
Q

What’s listed on an individual’s balance sheet?

A

Liabilities and assets

67
Q

A measure that is defined at a point in time is known as a _____.

A

Stock

68
Q

Liabilities include what 3 things

A

mortgages
credit card balances
student loans

69
Q

Saving is considered a stock? A flow? or both?

A

flow

70
Q

If an individual saves $600 per month to pay off their student loans, their wealth will decrease? increase? stay the same?

A

Increase

71
Q

A measure that is defined per unit of time is known as a _____.

A

flow

72
Q

Increases in assets are called?

A

Capital gains

73
Q

Wealth is considered a stock? flow? both?

A

Stock

74
Q

Changes in an individual’s wealth are determined by what 3 things?

A

Capital gains
Capital losses
Savings

75
Q

_______ saving is done in order to leave an inheritance and ________ saving is done to save for unexpected expenses.

A

bequest and precautionary

76
Q

Changes in the value of existing assets are called___________ when an asset’s value decreases.

A

Capital Losses

77
Q

The real interest rate equals:

A

the nominal interest rate minus the rate of inflation

78
Q

The return to saving is higher when the real interest rate is:

A

High

79
Q

In theory, a higher real interest rate can have both positive and negative effects on saving. T/F

A

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
Q

The nominal interest rate minus the rate of inflation equals what?

A

The real interest rate

81
Q

______ occur(s) when people use the spending of others as a yardstick by which to measure their own living standards.

A

Demonstration Effect

82
Q

If national saving equals 72 and GDP is 600, then the national saving rate is:

A

12% (72/600 is 0.12) The national saving rate is national saving as a percentage of GDP. In this case

83
Q

The after-tax income of the private sector minus consumption expenditure (Y - T - C) equals:

A

Private saving

84
Q

Private saving can be broken down into:

A

Household saving and business saving

85
Q

The amount of the public sector’s income that is not spent on current needs is

A

public savings

86
Q

Net tax payments minus government spending equals

A

public savings

87
Q

National saving equals the sum of

A

private saving and public saving

88
Q

If the amount the government collects in taxes equals government spending, then the government is said to have a:

A

balanced budget

89
Q

Public saving is:

A

the amount of the public sector’s income that is not spent on current needs

90
Q

The sum of public saving and private saving equals

A

National savings

91
Q

The government budget surplus equals

A

public saving.

excess of government tax collections over government spending (T-G)

92
Q

The _____ determines the real cost to a firm of borrowing money to invest in new capital.

A

Real interest rate

93
Q

In the market for saving, the real interest rate functions as?

A

price

94
Q

The change in wealth during a period equals

A

saving + capital gains − capital losses.

95
Q

The self-control hypothesis suggests that people

A

want to save but lack the discipline to refrain from consuming.

96
Q

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 _____.

A

Savings is 175 +75 = 250

Savings rate is 250/1,300 = 19.2%

97
Q

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

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
Q

In the market for saving the _____ functions as the “price”.

A

real interest rate

99
Q

If the government budget deficit increases

A

the demand for investment will increase.

100
Q

If the government budget deficit increases, the real interest rate will _____ and national saving will _____.

A

rise
fall

101
Q

An increase in the government budget deficit will lead the _____ curve to shift to the _____.

A

supply of saving , left

102
Q

An increase in the government budget deficit will cause _____ to fall and _____ to rise.

A

national saving and investment; the real interest rate

103
Q

Money is a medium of ________ that is used in purchasing goods and services

A

Trade

104
Q

When people measure the worth of various items in terms of money, money is performing the function of a what?

A

Unit of account

105
Q

Any asset that can be used in exchange for goods and services is called ______.

A

money

106
Q

Because money is a medium of exchange, society avoids:

A

Barter

107
Q

Money serves as a store of value because it:

A

Serves as a means of holding wealth

107
Q

Bank reserves:

A

are cash or similar assets held by banks to meet depositor withdrawals and payments

107
Q

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.

A

True

108
Q

A situation in which bank reserves equal 100 percent of bank deposits is called _______________

A

100 percent reserve banking

109
Q

M1 and M2 are two alternative definitions of

A

money

110
Q

The reserve deposit ratio equals bank ________ divided by ________

A

reserve
deposit

111
Q

A fractional-reserve banking system is one in which the reserve-deposit ratio is _____.

A

less and 100 percent

112
Q

Money supply M1 includes ______ in the hands of the public and balances held in checking accounts.

A

currency

113
Q

If banks’ reserves equal $2,000 and their deposits equal $10,000, then the reserve-deposit ratio equals _____.

A

0.20 or 20%

114
Q

Cash or similar assets held by banks for the purpose of meeting depositor withdrawals and payments are called _____.

A

bank reserves

115
Q

Bank deposits will increase whenever the ratio of bank reserves to bank deposits is _____ than the desired reserve-deposit ratio.

A

greater

116
Q

The reserve-deposit ratio equals _____.

A

bank reserves divided by deposits

117
Q

In a fractional-reserve banking system, bank reserves are _____.

A

less than deposits

118
Q

In general, the money supply is equal to:

A

currency held by the public plus bank deposits

119
Q

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?

A

950,000

Money supply = Currency held by public + Bank reserves / Desired Reserve-deposit ratio.

Money supply = 200,000 + (75,000 + 0.10)

120
Q

If bank reserves equal $40,000 and the desired reserve-deposit ratio is 8 percent, then bank deposits will equal

A

500,000

Bank reserves / Desired reserve-deposit ratio

121
Q

The sum of all the currency held by the public and bank deposits is equal to:

A

Money supply

122
Q

When the Fed sells government bonds to the public, bank reserves _____.

A

Decreases

123
Q

When the Fed sells government bonds to the public, money supply:

A

decreases

124
Q

In general, the money supply is equal to:

A

Currency held by the public plus bank deposits

125
Q

Federal Reserve System decisions on monetary policy are made by the ______.

A

Federal open market committee

126
Q

Open-market purchases _____ the money supply.

A

increase

127
Q

An open-market sale is the _____.

A

sale of government bonds by the Fed to the public

128
Q

The _____ was established in response to a particularly severe banking crisis in 1907.

A

the federal reserve

129
Q

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.

A

lend money to banks

130
Q

Velocity is a measure of the speed at which

A

money changes hands in transactions involving final goods and services.

131
Q

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.

A

equals

132
Q

What is the quantity equation?

A

It’s where money times velocity equals nominal GDP. It’s simply rewriting the definition of velocity
M x V = P x Y

133
Q

The Federal Reserve consists of ______ regional banks, ______ governors on the Board of Governors, and ______ voting members of the Federal Open Market Committee.

A

12 , 7 , 12

134
Q

The direct trade of goods and services for other goods and services is called

A

barter

135
Q

After the Federal Reserve increases reserves in the banking system, banks create new deposits through multiple rounds of lending and accepting deposits until the

A

actual reserve-deposit ratio is equal to the desired reserve-deposit ratio.

136
Q

Assets of the commercial banking system include

A

Reserves, loans

137
Q

Commercial banks create new money

A

multiple rounds of lending

138
Q

Small differences in annual growth rates of real GDP generate large differences in real GDP over time because of ________

A

power of compound interest

139
Q

Public saving is positive when __________?

A

There is a government surplus

140
Q

The cost of a higher living standard in the future is giving up ______?

A

Current consumption

141
Q

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

A

1

142
Q

The costs of investment depend on the ______ and the _____

A

Price of new capital goods
real interest rate

143
Q
A

Macroeconomics (6 decks)

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