question

The long-run growth framework focuses on factors affecting

answer

incentives to produce

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The short-run business cycle framework focuses primarily on factors

answer

affecting demand

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policies that affect aggregate expenditures are primarily relevent to the

answer

short-run business cycle framework

question

policies that affect work, capital accumulation, and technological change are primarily relevant to

answer

the long-run growth framework

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per capita real output would be certain to increase if

answer

real GDP increases and population decreases

question

Between 1990 and 2001, both Finland and France had average annual population growth rates of 0.4 percent. The growth rate of real GDP in the two countries in the same time period, however, was 3 percent in Finland and 1.8 percent in France. From this we can conclude that France's per capita GDP

answer

grew less rapidly than Finland's per capita GDP

question

The secular trend growth rate is the

answer

average rate of growth in real output over many years

question

There is a tradeoff between the level of material consumption and the level of pollution

answer

As more goods are used to control pollution, fewer must be available for material consumption and vice versa

question

Which of the following statements best characterizes the Classical view of business cycles?

answer

Fluctuations in business activity are to be expected and should be accepted just as changes in the seasons are accepted

question

Which of the following statements best characterizes the Keynesian view of business cycles?

answer

Expansions and contractions of the business cycle are symptoms of underlying problems and should be dealt with through activist government policies

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During the business cycle, an economic expansion occurs

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in between the trough and peak

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The business cycle consists of several stages or phases. Which is the accurate sequence?

answer

Recession, trough, expansion, peak

question

Most economists agree that during a depression

answer

economic policy should be used to improve economic conditions

question

Aggregate accounting

answer

provides a way of measuring total or aggregate production

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Which of the following statements about aggregate accounting is false?

answer

It provides the only way to measure social welfare

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GDP is the

answer

market value of an economy's production of final goods and services in a one year period

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GNP is the

answer

aggregate final output of the citizens and businesses of an economy in a one year period

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Net foreign factor income is

answer

the difference between the income earned abroad by domestic factors and the income earned domestically by foreign factors

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The value of intermediate goods is

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excluded from both GDP and GNP

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If you decide not to spend $1,000 you earned at your summer job but instead intend to buy shares in a mutual fund, in terms of aggregate economic accounting you would be

answer

saving

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Government expenditures for social security and unemployment insurance are, for GDP accounting purposes, considered

answer

transfers, and are not included in government spending as part of GDP

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To move from gross domestic product (GDP) to gross national product (GNP), one must

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add net foreign factor income to GDP

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Which of the following is not included in GDP but is included in GNP?

answer

Economic activity of U.S. citizens working abroad

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If substantially more foreign money is invested in Ireland than Irish citizens have invested abroad, then one will likely expect Irish

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GDP to exceed Irish GNP

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The value of the productive capacity of the assets of an economy, measured by the goods and services it can produce both now and in the future rather than by the money prices of the assets, is called

answer

real wealth

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Which of the following is most likely to be asset price inflation?

answer

A rise in the current price of assets caused by expectation of higher asset prices in the future

question

Suppose real estate prices rise by 40 percent in a four-year period, while goods and services rise in price by eight percent in the same time period. Population, the stock of houses, and other variables important to real estate prices have remained almost constant. Which of the following is most likely?

answer

Asset inflation has occurred

question

If nominal wealth increases faster than real wealth,

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asset inflation has occurred

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When real wealth increases,

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the economy can produce more goods and services than it did before

question

To calculate GDP

answer

weight the output of each final good and service produced in an economy in a year by its price in that year and then sum the result

question

The reason economists include only the value of final goods and services when they calculate GDP is that intermediate goods

answer

would be double counted otherwise

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Transfers of assets, such as stock sales are

answer

not included in GDP because they do not increase domestic production

question

Which of the following would increase this year's GDP?

answer

A commission charged by your broker when you sold 100 shares of Borden stock

question

Aggregate income is a measure of

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household and business earnings from the sale of productive resources

question

The key to the equality of output and income is

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profit

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Depreciation

answer

estimates the decrease in value of capital goods due to wear and tear over the year

question

In 2008, gross investment was $2,593 billion and net investment was $873 billion; therefore depreciation was

answer

$1,720 billion

question

In comparing the per capita GDPs of two countries, purchasing power parity adjusts for differences in

answer

prices

question

The total annual market value of a nation's final output of goods and services computed at existing prices is called

answer

nominal GDP

question

Real GDP is calculated by

answer

dividing nominal GDP by the appropriate price index times 100

question

Given nominal GDP of $4.2 trillion and a GDP deflator which is 40 percent greater than the base year, we can conclude that real GDP is equal to

answer

$3.0 trillion

question

Bhutan's government publishes a "gross national happiness" measure that embraces everything from protecting national resources to promoting a strong national culture and ensuring democratic government. This approach to measuring progress is similar to the approach that the text calls

answer

Genuine Progress Indicator

question

If real GDP has increased by 3% and nominal GDP has increased by 5%, then

answer

inflation is 2%

question

As a result of the Great Depression, economic thought placed greater emphasis on

answer

short-run fluctuations

question

Modern macroeconomics developed as an attempt to explain

answer

short-run business cycles

question

The study of economic growth focuses on the factors that cause an

answer

economy's production possibility curve to shift out

question

Say's Law allows growth theorists to

answer

ignore aggregate demand and focus only on aggregate supply

question

The Rule of 72 implies that a country with a growth rate of 8 percent will double its income in about

answer

9 years

question

Suppose Botswana doubles its income in 6 years while South Africa doubles its income in 9 years. According to the Rule of 72, the growth rate in Botswana is

answer

4 percentage points higher than the growth rate in South Africa

question

Markets help to promote growth by

answer

increasing specialization and the division of labor

question

By increasing specialization and the division of labor, markets make it possible for a country to focus its production more heavily on its area of comparative advantage. This increases efficiency and productivity

answer

makes the average person better off but may worsen the distribution of income

question

Economic growth through the market has

answer

helped both rich and poor

question

If output increases by 5 percent and population growth is 3 percent, per capita output

answer

grows by 2 percent

question

If the distribution of the gains from growth matter, growth in median income is

answer

a more informative measure of growth than growth in per capita income when the gains from growth are concentrated on a small segment of the population

question

What effect would we expect the market for loanable funds if people increase their saving?

answer

Supply will shift right and demand will not change

question

In the early 2000s, analysts feared that low academic achievement in math in the United States may reduce U.S. economic growth by as much as half a percentage point a year. In terms of factors leading to growth, the low math scores indicate that the U.S. may be at a disadvantage in terms of

answer

human capital

question

Some economists argue that well-functioning capital markets that allow funds to move from those who have but do not need funds to those who need but do not have funds, are essential for rapid economic growth. Well-functioning capital markets are an example of

answer

growth compatible institutions

question

Over the last three decades, the Chinese government has adopted a series of market-oriented reforms that have shifted control of many parts of the Chinese economy from government officials to private individuals. These reforms have most likely stimulated China's growth for which of the following reasons?

answer

They have provided individuals with a greater incentive to be efficient

question

The Indian government is known for creating obstacles to foreign investment with tariffs, investment caps and tons of red tape. What effect does "red tape" have on growth?

answer

it discourages entrepreneurship

question

Growth compatible institutions

answer

have incentives built into them that lead people to put forth effort

question

Which of the following would tend to inhibit growth?

answer

Government approval of all economic activity

question

Many economists now de-emphasize capital accumulation as a source of growth because

answer

capital accumulation alone does not necessarily lead to growth

question

To an economist, a production function is

answer

an equation showing how much output can be produced from various combinations of inputs

question

The law of diminishing marginal productivity implies that opportunity cost

answer

increases as one input is increased to produce successive units of output

question

The most important policy implication of the Classical growth model is that

answer

policies to stimulate saving and investment will stimulate economic growth

question

Jamaica has far less capital than Singapore. Based on this, the Classical growth model would predict that as each accumulates more capital Jamaica would grow

answer

more rapidly than Singapore

question

How do investment in technology and investment in capital differ?

answer

They have different effects on output because of the positive externalities associated with investments in technology

question

Learning by doing implies that

answer

greater experience increases efficiency

question

The law of diminishing marginal productivity

answer

may apply even when learning by doing is present

question

. New growth theory emphasizes the importance of all of the following except

answer

diminishing marginal productivity

question

Network externalities

answer

can explain why the economy fails to adopt the most efficient technologies

question

Keynesian economists believe

answer

. government can implement policy proposals that can positively impact the economy

question

. Laissez-faire economists believe

answer

most government policies would probably make things worse

question

"Classical economist" is often used interchangeably with which term?

answer

Laissez-faire economist

question

Keynesian economists focus their analysis on

answer

the short run

question

Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian economist would most likely blame this increase in unemployment on

answer

a decline in the level of aggregate demand

question

Which of the following statements would a Classical economist of the 1930s most likely disagree with?

answer

Unions do not impede wage and price adjustment

question

The Classical economists argued that

answer

if unemployment occurs, it will cure itself because wages and prices will fall

question

Which of the following was not a solution to the Depression favored by Classical economists?

answer

Hire unemployed workers for public works programs

question

Equilibrium income is that level of income

answer

toward which the economy gravitates in the short-run

question

Keynes believed equilibrium income was

answer

not fixed at the economy's potential income

question

In 2009, the personal savings rate rose. If the additional savings were not translated into investment, Keynes would predict that aggregate income would

answer

decline and remain there

question

The paradox of thrift occurs when

answer

an increase in saving reduces output

question

Keynes argued that

answer

the short-run is a more important policy concern than the long-run

question

The shapes of the curves in the AS/AD model are based

answer

on the relationship between the price level and total output

question

How is the AS/AD model related to the supply and demand model of microeconomics?

answer

It looks similar to the supply and demand model but is not based on it

question

As prices fall, people become richer and buy more. This occurs as a result of

answer

the money wealth effect

question

An increase in the price level

answer

decreases the purchasing power of money, leading to higher interest rates and decreases investment

question

If the price level rises, the interest rate effect will cause investment

answer

and the quantity of aggregate demand to decrease

question

A rise in the U.S. price level will cause

answer

exports to decrease and imports to increase

question

In the AS/AD model, the repercussions that a change in quantity demanded has on production and subsequently on income and expenditures is called the

answer

multiplier effect

question

The multiplier effect exists because

answer

production and expenditures are interdependent

question

When aggregate demand is declining and the price level needs to fall to bring about equilibrium, pressure for the price level to fall brings expectations of falling aggregate demand, lower asset prices, and financial panics triggered by the decline in the value of financial assets. If these forces are strong enough, these dynamic effects can create a

answer

leftward shift in the aggregate demand curve

question

A decrease in the expected future income of the U.S. would likely

answer

shift its AD curve to the left

question

Which of the following would shift the aggregate demand curve to the right?

answer

an increase in foreign income

question

A change in the distribution of income affects the AD curve because

answer

workers are more likely than stockholders to spend the income they receive

question

If the multiplier effect is 4, a $15 billion increase in government expenditures will shift the AD curve

answer

to the right by $60 billion

question

If productivity increases by 5% but wages increase by 2%, then it is most likely that the price level will

answer

fall by 3 percent

question

If actual output exceeds potential output, the economy

answer

is experiencing an inflationary gap

question

Fiscal policies are policies that directly affect

answer

government spending and taxes

question

A policy that raises taxes or reduces government spending is called

answer

a contractionary fiscal policy

question

Contractionary fiscal policies are most appropriate when the economy is in

answer

an inflationary gap

question

output is beneath potential output so

answer

expansionary fiscal policy like a tax cut is most appropriate

question

An expansionary fiscal policy is most appropriate when

answer

an economy is experiencing a recessionary gap

question

A contractionary fiscal policy is most appropriate when

answer

an economy is experiencing an inflationary gap,

question

When output equals potential output an economy is in long-run equilibrium,

answer

so no change in fiscal policy is desirable

question

The multiplier model

answer

provides numerical estimates of how equilibrium output changes in response to changes in aggregate expenditures

question

The multiplier model is designed to answer which one of the following questions?

answer

How will output be affected by changes in aggregate expenditures?

question

Graphically, the aggregate production curve is a straight line that

answer

. goes through the origin and has a slope of 1

question

At all points on the aggregate production curve

answer

income equals production

question

Autonomous expenditures are defined as expenditures that

answer

occur regardless of the level of income

question

Induced expenditures are defined as expenditures that

answer

change as income changes

question

Autonomous expenditures are expenditures that occur when

answer

income is zero

question

The marginal propensity to expend equals the ratio of

answer

the change in aggregate expenditure to a change in income

question

As the mpe rises, the slope of the expenditures curve

answer

increases

question

The marginal propensity to expend

answer

depends on the marginal propensity to consume but is not entirely determined by it

question

An increase in the marginal propensity to import

answer

will reduce the marginal propensity to expend

question

Income tends to vary

answer

more than induced aggregate expenditures

question

An increase in the marginal propensity to expend

answer

raises output by raising induced expenditures

question

The multiplier effect would not occur if

answer

the marginal propensity to expend equaled 0

question

During the first year of the Reagan administration, taxes were cut significantly. At that time, potential GDP was $5.4 trillion while actual GDP was $5.3 trillion. Given this, the tax cut most likely

answer

decreased a recessionary gap

question

Assume the mpe = 0.8, GDP = $2,400 billion, and potential GDP = $2,200 billion. According to the multiplier model, the economy could achieve potential GDP if government spending were

answer

decreased by $40 billion

question

If the marginal propensity to consume is 0.8, the marginal tax rate is 0.25, and the marginal propensity to import is 0.1, the multiplier is

answer

2

question

Suppose the marginal propensity to consume is 0.8 and the tax rate is 0.25 and all other components of aggregate expenditures are determined outside the model. If the president wants to increase income by 500, her advisers would suggest that she increases government spending by

answer

200

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