Question 1

___________________________ alternating periods of economic expansion and economic recession

Accepted Answer

business cycle

Question 2

1. ___________________________ the process by which rising productivity increases the standard of living  2. the best measure of standard of living is __________________; we measure long-run economic growth by increases in __________________ over long periods of time, generally a decade or more

Accepted Answer

1. \"long-run economic growth\"  2. real GDP capita

Question 3

1. one easy way to calculate approximately how many years it will take real GDP per capita to double is to use the _________________ (equation)

Accepted Answer

1. rule of 70  2. number of years to double = (70/Growth Rate)

Question 4

Long-run economic growth requires what 3 things?

Accepted Answer

1. \"technological change\"   2. \"increases in capital per hour worked\"  3. government provision of \"secure property rights\"

Question 5

_____________________ refers to the accumulated knowledge and skills workers acquire from education and training of from their life experiences

Accepted Answer

human capital

Question 6

_____________________ the level of real GDP attained when all firms are producing at capacity

Accepted Answer

Potential GDP

Question 7

definition of Potential GDP?

Accepted Answer

the level of real GDP attained when all firms are producing at capacity

Question 8

What factors increase potential GDP?

Accepted Answer

1. technological change  2. increases in capital per hour worked

Question 9

______________________ the system of financial markets and financial intermediaries through which firms acquire funds from households

Accepted Answer

financial system

Question 10

the financial system provides 3 key services for savers and borrowers:

Accepted Answer

1. risk sharing  2. liquidity   3. information

Question 11

in a closed economy, net exports are zero, so the relationship between GDP and its components is:

Accepted Answer

Y = C + I + G  or   I = Y - C - G

Question 12

equation for \"private saving\" (Sprivate):

Accepted Answer

Sprivate = Y + TR - C - T  (TR = transfer payments)

Question 13

equation for \"public saving\" (Spublic):

Accepted Answer

Spublic = Y - G - TR

Question 14

equation for \"total saving\" (S) in the economy?

Accepted Answer

S = Sprivate + Spublic

Question 15

the sum of public and private saving in a closed economy is equal to?

Accepted Answer

1. Y - C - G

Question 16

which of the following would increase public savings?  a.) a decrease in taxes  b.) a decrease in transfers  c.) an increase in government purchases  d.) all of the above would increase public saving

Accepted Answer

b.) a decrease in transfers (because transfer payments include Social Security and unemployment insurance payments)

Question 17

increasing the amount of consumption spending and reducing the amount of savings ______________ investment expenditures, and ______________ long run economic growth.

Accepted Answer

1. decreases  2. decreases

Question 18

1. when the government spends the same amount it collects in taxes, there is a ___________________  2. when the government spends more than it collects in taxes there is a ____________________  3. when the government spends more than it collects in taxes, there is a _____________________

Accepted Answer

1. balanced budget   2. budget deficit   3. budget surplus

Question 19

an increase in the government budget surplus will shift the ____________ curve for loanable funds to the ____________ and the equilibrium real interest rate will ____________.

Accepted Answer

1. supply  2. right   3. fall

Question 20

the interaction of borrowers and lenders that determines the market interest rate and quality of loanable funds exchanged

Accepted Answer

market for loanable funds

Question 21

how does an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds?

Accepted Answer

(an increase in household saving increases the supply of loanable funds)   1. an increase in household saving shifts supply curve to the left  2. shifts the supply curve for loanable funds to the right   3. decrease in equilibrium interest rate   4. increase in equilibrium quantity of loanable funds

Question 22

an increase in the demand for loanable funds will occur if there is

Accepted Answer

increase in expected profits from firm investment projects

Question 23

how would the equilibrium quantity of loanable funds respond to a change from an income tax to a consumption tax?

Accepted Answer

a.) equilibrium quantity would rise

Question 24

a decline in \"private expenditures\" as a result of an increase in \"government purchases\"

Accepted Answer

crowding out

Question 25

explain how government deficits can \"crowd out\" private investment?

Accepted Answer

1. government runs a budget deficit   2. supply of loanable funds is reduced (left)  3. equilibrium interest rate increases  4. equilibrium quantity of loanable decreases

Question 26

1. during the ________________ of the business cycle, production, employment, and income are increasing   2. the period of ________________ ends with a ______________________

Accepted Answer

1. expansion phase  2. expansion; business cycle peak

Question 27

1. following the business cycle peak, production employment and, income decline as the economy enters the ____________________ of the cycle   2. the __________________ comes to an end with a ________________________, after which another period of expansion begins

Accepted Answer

1. recession phase   2. recession; business cycle trough

Question 28

A(n) ____________ comes to an end with a business cycle ______________.  a.) recession, peak  b.) recession; trough  c.) expansion; trough  d.) expansion; bubble

Accepted Answer

b. recession; trough

Question 29

which of the following goods would see the largest decline in demand during a recession?  a.) automobiles  b.) food  c.) clothing  d.) haircuts

Accepted Answer

a.) automobiles

Question 30

1. during \"economic expansions\", the inflation rate usually __________________  2. near the end of the \"expansion\", and during \"recessions\", the inflation rate usually ___________________

Accepted Answer

1. increases  2. decreases

Question 31

recessions cause the inflation rate to _____________, but the cause the \"unemployment rate\" to _______________

Accepted Answer

1. fall   2. rise

Question 32

if, in an economy experiencing inflation, the government decided to tax real interest income rather than nominal interest income, this change would cause the real interest rate to ________________ and the equilibrium quantity of loanable funds to _______________

Accepted Answer

1. fall   2. rise

Question 33

during the recession phase of the business cycle, ________________ are usually falling

Accepted Answer

interest rates

Question 34

inflation tends to ___________ during the expansion phase of the business cycle and ____________ during the recession phase of the business cycle

Accepted Answer

1. increase  2. decrease

Question 35

why does unemployment continue to rise after a recession?

Accepted Answer

1.even though employment begins to increase as the recession ends, it maybe increasing more slowly than the growth in the labor force resulting from population growth  2. some firms continue to operate well below their capacity

Question 36

why was the U.S. economy experienced a period of relative stability from 1950 to 2007

Accepted Answer

1. increasing importance of \"services\" and declining \"importance of goods\"  2. establishment of \"unemployment insurance\" and other government transfer programs  3. active federal government policies to stabilize the economy  4. increased stability of the financial system

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