Macroeconomics exam 2 Flashcards
In 1950, GDP was $300B and the GDP deflator was 13.7. In 1951, GDP was $347B and the GDP deflator was 14.7. Real GDP for 1951, adjusted to the 1950 price level, would be.
$323B
The phase of the business cycle when Real GDP is increasing is called
Expansion
On a simple circular flow diagram
Households provide resources
Suppose an economy has consumption=200, savings=40, government spending=20, investment=20, exports=30, and imports equal to 20. How much are expenditures in this economy
250
Suppose an economy has consumption=200, savings=400, government spending=20, investment=20, exports=40, and imports equal to 20. How much are taxes in this economy?
20
For GDP purposes what would be investment spending? (give ex.)
Max buys a new display case for her jewelry store.
Which of the following statements is false
Government purchases is the largest component of GDP
Nominal GDP may increase if
There is an increase in the price level, if there is an increase in production, and even if Real GDP decreases
An investment will be made
If the expected rate of return is greater than the interest rate
A decrease in aggregate demand could be caused by
an increase in tax rates
A decrease in short-run aggregate supply could be cause by
An increase in wage rates
An adverse supply shock would cause
SRAS to decrease, leading to a higher price level
Decreases in AD tend to cause
the price level to decrease, real GDP to decrease & unemployment to increase
Increases in SRAS tend to cause
Real GDP to increase
Hawkins National Laboratory can invest in new machinery which costs $500,000 and will generate additional annual profits of $40,000. The rate of return
8%
If businesses become more optimistic about future returns
Investment spending will increase and aggregate demand will increase
Net exports will increase if
the exchange rate for the dollar depreciates
According to classical economic theory, if the desire to save increases
The resulting decrease in consumption will be offset by an increase in investment
The ideal quantity of total output in the economy
Is called the Natural Real GDP
According to Say’s Law
Supply creates it’s own demand; this means that the act of production leads to equivalent income to resource owners
According to classical economic theory
A market economy will automatically adjust to Natural Real GDP, supply creates it’s own demand, and flexible interest rates assure that any consumer savings will be exactly offset by business investment.
If Real GDP is greater than Natural Real GDP
the economy is in an inflationary gap and the shortage of labor will cause wage rates to rise
If Real GDP is less than Natural Real GDP
The economy is in a recessionary gap
According to classical economonic theory, a market economy will automatically close an inflationary gap by
The shortage of labor will cause wage rates to rise, the increase in age rates will shift the SRAS curve to the left, and the SRAS curve will shift to the left until Real GDP equals Natural Real GDP.
