Exam 4 Flashcards
Chapters: 10, 11, 13
If competitive industry Z is making substantial economic profit, output will
expand in industry Z, as more resources will move into that industry
Which of the following is an example of a public good?
a weather warning system
As it relates to corporations, the principal-agent problem is that
the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals)
If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?
Nominal GDP would rise, but real GDP would be unchanged
A good measure of the standard of living is
real GDP per capita
If real GDP per capita measured in 2009 dollars was $6,000 in 1950 and $48,000 in 2018, we would say that in 2018, the average American could buy ________ times as many goods and services as the average American in 1950
8
Countries with high rates of economic growth tend to have
a labor force that is more productive
The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as
labor productivity
The total amount of physical capital available in a country is know as the country’s
capital stock
Human capital refers to which of the following?
the accumulated knowledge and skills workers acquire from education and training or from their life experiences
Potential GDP refers to
the level of GDP attained when all firms are producing at capacity
Actual real GDP will be above potential GDP if
firms are producing above capacity
Suppose that real GDP for 2017 was $10,000 billion and real GDP for 2018 was $11,000 billion. What is the rate of growth of real GDP between 2017 and 2018?
10%
Suppose that real GDP for 2017 was $10,000 billion and real GDP for 2018 was $9,500 billion. What is the rate of growth of real GDP between 2017 and 2018?
-5%
If GDP grows at a rate of 3% per year, approximately how long will it take for GDP to double in size?
23 years
If an economy is growing at a rate of 2.5% per year, how long will it take the economy to double in size?
28 years
Which of the following is most liquid?
a dollar bill
One difference between stocks and bonds is that
stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond
In a closed economy, which of the following components of GDP is not included?
net exports
Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds
demanders; suppliers
The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase during the next decade, and due to these higher deficits, “the nation’s capital stock ultimately would be smaller, and productivity and income would be lower than would be the case if the debt was smaller.” This higher budget deficit would be represented graphically by
a shift in the supply curve for loanable funds to the left
In comparison to a government that runs a balanced budget, when the government runs a budget deficit
business investment will fall
Refer to Figure 21-5. “Crowding out” of firm investment as a result of a budget deficit is illustrated by the movement from ________ in the graph above
A to B
The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase during the next decade, and due to these higher deficits, “the nation’s capital stock ultimately would be smaller, and productivity and income would be lower than would be the case if the debt was smaller.” This higher budget deficit could crowd out business investment if it resulted in an increase in interest rates. Crowding out of business investment would be represented graphically by a
a movement to the left along the demand curve for loanable funds
A country with no trade and no borrowing and lending relationships with other countries is known as a(n)
closed economy
Refer to Figure 21-6. The loanable funds market is in equilibrium, as shown in the figure above. An increase in the supply of loanable funds could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium?
The real interest rate is 3 percent, and the quantity of loanable funds is $150 million
During the expansion phase of the business cycle, which of the following eventually increases?
all of these
During the recession phase of the business cycle
interest rates are usually falling
The period between a business cycle peak and a business cycle trough is called
recession
From 1991 until 2001, the United States was in a period of
expansion
Purchases of which of the following goods would be dramatically reduced during a recession?
refrigerators
The economic effects of a recession are likely to have the smallest impact on the sales of which of the following businesses?
a fast-food restaurant
GDP is the
monetary value of all the final goods and services produced within the borders of a nation in a particular year
Which of the following is an intermediate good?
the purchase of baseball uniforms by a professional baseball team
Economic growth is best defined as an increase in
either real GDP or real GDP per capita
One reason that Mexico has experienced relatively low rates of economic growth is that
the country has problems with organized crime and corruption
The rapid growth of the Chinese economy should
benefit U.S. consumers as they have access to less-expensive consumer goods
Suppose that in 2018, real GDP grew in Estonia by 3% and the population increased by 5%. Therefore, in 2018, Estonia experienced
economic growth, but not an increase in living standards
The period of time from 1,000,000 B.C. to 1300 A.D. was a period of
no sustained economic growth
Refer to Table 22-1. Based on the table above, which country has a higher standard of living and why?
Ireland has a higher standard of living because their GDP per capita is higher
In the long run, ________ differences in economic growth rates result in ________ differences in GDP per capita
small; large
________ is considered a high income country, ________ a developing country, and ________ a newly industrializing country
United States; Somalia; Taiwan
An economic growth model explains
changes in real GDP per capita in the long run
Refer to Figure 22-1. Diminishing marginal returns is illustrated in the per-worker production function in the figure above by a movement
up along any of the production functions
Refer to Figure 22-1. Using the per-worker production function in the figure above, the largest changes in an economy’s standard of living would be achieved by a movement from
B to C to D
In the early 1900s, Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line. What impact did the assembly line method for producing automobiles have on the per-worker production function for Ford?
It shifted up
Knowledge capital is nonrival in the sense that
two people can use the same knowledge to develop and produce a product
Firms free ride on the research and development of other firms when they
use knowledge other firms have developed without paying for that knowledge
Creative destruction means that
firms develop new products that replace old products in the economy, thereby encouraging economic growth
Refer to Figure 22-3. Technological change is shown in the figure above by the movement from
B to E
Refer to Figure 22-3. Which of the following would cause an economy to move from a point like A in the figure above to a point like B?
an increase in capital per hour worked
Growth in the United States from 1800 to 1900 can be characterized as
positive and increasing
Growth in real GDP per hour worked in the United States was slowest during what period of time?
2006-2016
Some economists argue that the higher productivity growth that began in the mid-1990s is based on the development of
information technology
One of the primary reasons that Mexico has had trouble attracting foreign investment and has therefore experienced relatively low rates of economic growth is
the failure to fully establish the rule of law
The economic growth model predicts that
the level of real GDP per capita in poor countries will grow faster than in rich countries
Refer to Figure 22-5. Based on the “catch-up line” drawn above, poorer countries are more likely to be at a point like ________, where growth in GDP is relatively ________, while richer countries are more likely to be at a point like ________, where growth in GDP is relatively ________.
A; high; B; low
The purchase by an individual or firm of stock or bonds issued in another country is called
foreign portfolio investment
High-income countries have ________ and ________ as compared to developing countries
high rates of savings; high rates of growth
Which of the following best explains why productivity growth in the United States has been faster than in other leading industrialized nations?
There are fewer government regulations in the United States regarding the way firms can hire and fire workers
The term “brain drain” refers to
highly educated individuals who leave developing countries for high-income countries
Disease, poor nutrition, and substandard health care in developing nations can reduce growth in an economy by
reducing human capital
Enforcing property rights in an economy will
raise the level of investment
The most important determinate of consumption and saving is the
level of income
The greater is the marginal propensity to consume, the
smaller is the marginal propensity to save
At the equilibrium GDP for a private open economy,
net exports may be either positive or negative
Other things equal, an improvement in productivity will
shift the aggregate supply curve to the right
In macroeconomic models, prices are assumed to be completely inflexible in
the very short run only
The basic aggregate demand and aggregate supply curve model helps explain
short-term fluctuations in real GDP and the price level
When the economy enters into a recession, your employer is ________ to reduce your wages because ________.
unlikely; lower wages reduce productivity and morale
An increase in the value of which of the following would not increase household wealth?
a credit card balance
The international trade effect states that
an increase in the price level will lower net exports
During the recession of 2007-2009 in the United States, ________ relative to potential GDP
net export spending rose and consumption spending declined
Refer to Figure 24-1. Ceteris paribus, an increase in interest rates would be represented by a movement from
AD2 to AD1
Refer to Figure 24-1. Ceteris paribus, an increase in personal income taxes would be represented by a movement from
AD2 to AD1
Refer to Figure 24-1. Ceteris paribus, an increase in households’ expectations of their future income would be represented by a movement from
AD1 to AD2
Refer to Figure 24-1. Ceteris paribus, a decrease in the growth rate of domestic GDP relative to the growth rate of foreign GDP would result in U.S. exports increasing faster than U.S. imports. This would be represented by a movement from
AD1 to AD2
Refer to Figure 24-1. Ceteris paribus, an increase in the value of the domestic currency relative to foreign currencies would be represented by a movement from
AD2 to AD1
Refer to Figure 24-1. Ceteris paribus, an increase in government spending would be represented by a movement from
AD1 to AD2
Refer to Figure 24-1. Ceteris paribus, an increase in firms’ expectations of the future profitability of investment spending would be represented by a movement from
AD1 to AD2
Refer to Figure 24-1. Ceteris paribus, an increase in the growth rate of domestic GDP relative to the growth rate of foreign GDP would be represented by a movement from
AD2 to AD1
The long-run aggregate supply curve
is vertical
Which aggregate supply curve has a positive slope?
short run only
Refer to Figure 24-2. Ceteris paribus, an increase in the labor force would be represented by a movement from
SRAS1 to SRAS2
Refer to Figure 24-2. Ceteris paribus, a decrease in the capital stock would be represented by a movement from
SRAS2 to SRAS1
Refer to Figure 24-2. Ceteris paribus, an increase in the price level would be represented by a movement from
point A to point B
Refer to Figure 24-3. Suppose the economy is at point C. If government spending decreases in the economy, where will the eventual long-run equilibrium be?
A
Refer to Figure 24-3. Suppose the economy is at point C. If investment spending decreases in the economy, where will the eventual long-run equilibrium be?
A
When the price of oil rises unexpectedly, the equilibrium price level ________ and the unemployment rate ________ in the short run
rises; rises
Stagflation usually results from
a supply shock
On average, in the recessions since 1950, it has taken ________ for real GDP to return to its cyclical peak
about 18 months
Refer to Figure 24-4. In the figure above, LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2?
10%
Refer to Figure 24-4. Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?
1.8%
Refer to Figure 24-4. In the figure above, AD1, LRAS1 and SRAS1 denote AD, LRAS and SRAS in year 1, while AD2, LRAS2 and SRAS2 denote AD, LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the actual growth rate in GDP in year 2?
7.3%
Refer to Figure 24-4. Given the economy is at point A in year 1, what will happen to the price level in year 2?
It will rise
