Exam 2

Question 0

Supply creates its own demand

Answer 0

Says law

Question 1

Assumed that in the long run the economy would adjust itself to a point of supply at the point of full employment

Answer 1

Classical economists

Question 2

Who put forth the idea that producing goods and services will creat the means and willingness to purchase goods and services

Answer 2

J.B. Says

Question 3

Assumptions of the classical economy

Answer 3

1. Pure competition exists
2. Wages and prices and interest rates are flexible to adjust the economy to equilibrium
3. People are motivated by self interest
4. People cannot be fooled by the money illusion.

Question 4

Income =

Answer 4

Consumption + savings

Question 5

What circulates in the economy to force supply?

Answer 5

Consumption spending

Question 6

What causes GDP to decrease as funds are drawn from the economy?

Answer 6

Savings

Question 7

Classical economists assume that money saved would what?

Answer 7

Be borrowed by firms and used in investment to buy capital goods

Question 8

GDP =

Answer 8

C+g+i+x

Question 9

What causes decrease in aggregate demand?

Answer 9

1. When the economy is at full employment
2. When the real GFP is below its long run level.
3. Unemployment decreases
4. Competition among workers and suppliers of inputs will push prices down
5. The economy will adjust to the LRAS curve at full employment

Question 10

Increase in aggregate demand?

Answer 10

1. When the economy is at full employment
2. Real GDP increased among its long run level
3. Employment increased above full employment
4. Competition among workers and suppliers of inputs will push prices up
5. The economy will adjust to the LRAS curve at full employment

Question 11

GDP measured in dollars

Answer 11

Nominal GDP

Question 12

GDP measured in terms of final goods and services produced in the economy

Answer 12

Real GDP

Question 13

Refers to an increase in Real GDP from one period to the next

Answer 13

Absolute real economic growth

Question 14

Refers to an increase from one period to the next in per capital real GDP.

Answer 14

Per capita real economic growth

Question 15

Specified the relation between technology and the quantity of factor inputs to outputs or real GDP

Answer 15

A production function

Question 16

Real GDP = T(L,k)

Answer 16

T is the technology coefficient
L is labor
K is physical capital like tools, machines, equipment etc

Question 17

When real GDP changes what else changes?

Answer 17

The long run aggregate supply curve

Question 18

Technology is endogenous - part of the economic system and is somehow gives to us through a process we do not understand

Answer 18

New growth theory

Question 19

Emphasizes labor and physical capital in the process of growth

Answer 19

Bro classical growth theory

Question 20

Discovering and implementing new ideas are what cause economic growth -

Answer 20

Paul romer

Question 21

Refer to the rules , regulation, laws, customs, and business practices of a country

Answer 21

Institutions

Question 22

If individuals and firms have property rights, they have an incentive to create new things without the fear that they will be stolen and sold by others

Answer 22

Property rights

Question 23

Individuals and firms need a legal system to enforce the laws and protect them

Answer 23

Legal system

Question 24

If the government promotes economic growth people in the economy are motivated to creat growth out of their own self interest

Answer 24

Growth promotions policies instead of transfer promoting policies

Question 25

Competitive markets, international trade, economic freedom, a stable monetary system, lower taxes, lower regulations

Answer 25

Other institutions

Question 26

Who believed in a Laissez Faire approach to the economy from the government " let it be" in other words

Answer 26

The classical economists

Question 27

The classical economists said that wages would - in the face of recession, prices would - , and interest rates would -

Answer 27

Wages would decrease Prices would decrease And interest rates would decrease

Question 28

Classical economists said that any money being saved is money not being spent and this would do what to the economy?

Answer 28

Bring it down

Question 29

October 1929 what happened?

Answer 29

Stock market crashes to be the official beginning of the Great Depression

Question 30

Who rebelled against the classical economists and proposed that the gov should use changes in taxes and government spending to boost economy

Answer 30

John Maynard Keynes

Question 31

Start with a balanced budget and we lower taxes and increase spending - budget deficit

Answer 31

Problem

Question 32

Level or consumption that does not depend on the level of encore

Answer 32

Autonomous consumption

Question 33

Consumption that goes up as our income increases

Answer 33

Discretionary consumption

Question 34

The number we multiply a small initial change in spending to calculate a total change in spending

Answer 34

Multiplier

Question 35

The greater the MPS the - the multiplier

Answer 35

Smaller

Question 36

Three sections of a keynesian AS curve

Answer 36

1. Horizontal range- price level remains constant 2. Up Sloping range - the other level will rise in an increase in GDP 3. Vertical range - price level will increase when we reach full employment

Question 37

The situation where production in the economy is short of full production

Answer 37

Recessionary gap

Question 38

The situation where production in the economy is beyond full production

Answer 38

Inflationary gap

Question 39

Inflation that is caused by too much demand in the economy

Answer 39

Demand pull inflation

Question 40

Consists of financial institutions such as commercial banks, investment banks, brokerage funds, and mor

Answer 40

Financial sector

Question 41

Consists of firms that produce goods and services, individuals who buy food and services, individuals who work for firms and more

Answer 41

Real sector

Question 42

What occurs when financial firms and financial markets undergo s major disruption

Answer 42

A financial crisis

Question 43

Assets =

Answer 43

Liabilities + owner equality

Question 44

Aloe

Answer 44

Assets- a thing of value Liability - a debt owed to another Owners equity- the value that would be left over for the owner of all the assets were sold and used to pay off liabilities

Question 45

A situation for a bank where the value of its liabilities is greater than the value of its assets

Answer 45

Insolvency

Question 46

An unjustified dramatic increase in the price of a type of asset

Answer 46

Bubble