Exam 3 Flashcards
A payment is said to be ________________ if it is automatically adjusted for inflation.
Indexed
What term is used to describe a hypothetical group of different items, with specified quantities of each one, used as a basis for calculating how the price level changes over time?
Basket of goods and services
Which of the following characteristics relate to quality/new goods bias?
Inflation calculated using a fixed basket of goods over time tends to overstate the true rise in cost of living because it doesn’t take into account improvements in the quality of existing goods or the invention of new goods.
What term is used to describe a measure of inflation based on the prices paid for supplies and inputs by producers of goods and services?
Producer Price Index
What is meant by GDP deflator?
A measure of inflation based on all the components of GDP.
What term is used to describe the economic statistic actually announced at that time, not adjusted for inflation; contrast with real value?
Nominal value
_________ implies that pressure for price increases reaches across _______________ markets, not just one.
Inflation; most
If the price index moves from 107 to 110, the rate of inflation is;
2.8%
One of the reasons that a rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer’s true cost of living, is;
substitution bias
The difference between nominal GDP and real GDP is;
real GDP adjusts for inflation
When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be _______.
indexed
Which of the following refers to the rate of interest with inflation subtracted?
Real interest rate
Aggregate supply (AS) denotes the relationship between the __________________ that firms choose to produce and sell and the _________________, holding the price of inputs fixed.
total quantity; price level for output
Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output.
relatively flat; relatively steep
_______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment.
Full employment GDP
Refer to the graph above. A government creating economic policy in these circumstances should be most concerned about
unemployment but not inflation.
Referring to the above diagram, which of the following is a true statement?
There is insufficient aggregate demand to reach full employment.
Potential GDP in the U.S. will be unaffected by ____________________.
the unemployment rate
Say’s Law argues that a given ____________________ must create an equivalent ________________________ somewhere else in the economy.
value of supply; value of demand
According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.
an increase; domestic investment
According to the Keynesian framework, which of the following may help a country reduce inflation, but will not help that country to get out of a recession?
an increase in taxes on business investments
Aggregate demand is more likely to _________________ than aggregate supply in the short run.
shift substantially
Consumption, investment, government spending, exports, and imports are
all components of aggregate demand
If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy
is producing at a point where output is more than potential GDP.
If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy
is producing at a point where output is less than potential GDP.
If markets throughout the global economy all have flexible and continually adjusting prices, then
each economy will always head for its natural rate of unemployment.
In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?
recessionary gap
Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.
policy prescription
Refer to the graph shown below. At point A,
the economy has full employment
Refer to the graph shown below. Point C in the graph represents
moderate inflation and all of the above
The economic theory known as the permanent income hypothesis is synonymous with which of the following?
lifetime income expectations
The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?
750
A vertical aggregate supply curve, where the quantity of output is consistent with many different price levels, also implies
a vertical Phillips curve.
________________ economists place an emphasis on __________ run economic performance.
Neoclassical; long
From a neoclassical perspective, which of the following would most likely be viewed as an element that underpins long-run productivity growth in the economy?
investments in human capital
From a neoclassical viewpoint, government should focus less on
Flexible Market Forces
If aggregate supply is vertical, then aggregate demand does not affect
the quantity of output.
Referring to the diagram above, complete the following sentence: Any increase in aggregate demand in the short-run will lead to
an increase in output (Q1 to Q2), but it will also lead to prices increasing.
Referring to the diagram above, which of the following is a true statement?
The increase in output (Q1 to Q2) may come about because of lower levels of taxation.
Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?
standard of living is ultimately determined by long-term growth
