ECON202 – Flashcards
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As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by:
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dividing the annual rate of inflation into "70."
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A competitive market system:
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encourages growth by allowing producers to make profitable investment decisions based on market signals.
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Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?
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Firms respond to shorter term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels.
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Demand-pull inflation:
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occurs when total spending exceeds the economy's ability to provide output at the existing price level.
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Demand shocks:
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refer to unexpected changes in the desires of households and businesses to buy goods and services.
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Other things equal, which of the following would decrease the rate of economic growth, as measured by changes in real GDP?
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A decrease in the labor force participation rate
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(Consider This) The Consider This box on patents and innovation demonstrates that:
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Patent protection for U.S. companies may not be as effective when other countries do not respect or enforce U.S. patent laws.
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Innovations such as the microchip and the Internet lead to business cycle variations because:
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significant innovations occur irregularly and unexpectedly.
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The annual growth of U.S. labor productivity:
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was greater between 1995 and 2009 than between 1973 and 1995.
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(Consider This) The main point of the Consider This box on clipping coins is that:
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inflation imposes a "hidden tax" on those who hold money.
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An outward shift of a nation's production possibilities curve:
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neither ensures a nation of an increase in real GDP nor of an increase in real GDP per capita.
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The intense competition of free trade prevents the investment that generates economic growth.
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False
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Transfer payments are:
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excluded when calculating GDP because they do not reflect current production.
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If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is:
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$320 billion. (positive = less)
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In the short run, firms are more likely to respond to demand shocks by altering inventory levels than by changing how much they produce.
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True.
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When economists refer to "investment," they are describing a situation where:
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resources are devoted to increasing future output.
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At the economy's natural rate of unemployment:
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the economy achieves its potential output.
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Between 1950 and 2009, U.S. real GDP grew at an average annual rate of about:
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3.2 percent.
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Okun's law:
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shows the relationship between the unemployment rate and the size of the negative GDP gap.
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The phase of the business cycle in which real GDP is at a minimum is called:
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the trough.
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The natural rate of unemployment is:
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that rate of unemployment occurring when the economy is at its potential output.
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Which figure(s) represent a situation where prices are sticky?
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Sticky = Horizontal Line @ P ** Not Angled Line
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(STICKY (Horiz line) GRAPH) Assuming this market is representative of the economy as a whole, this economy:
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(STICKY (Horiz line) GRAPH) faces fluctuating output levels whenever there is a demand shock.
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(STICKY (Horiz line) GRAPH) Assuming this market is representative of the economy as a whole, a negative demand shock will most likely:
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(STICKY (Horiz line) GRAPH) increase unemployment.
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(Vertical Line GRAPH) Assuming this market is representative of the economy as a whole, this economy:
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(Vertical Line GRAPH) is capable of always producing at its optimal capacity.
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Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation
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Positive net investment is occurring in: economy C only.
