Macro econ chapter 10 – Flashcards
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The most important factor in explaining increases in real GDP per capita in the long run is
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increases in productivity
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The two key factors that cause labor productivity to increase over time are
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the quantity of capital per hour worked and the level of technology.
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The keys to? Botswana's rate of economic growth are not shared by the other countries in the region. The most important contributing factor to? Botswana's recent growth is
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government policies that protect private property? rights, freedom of press and? democracy, and avoid political instability and corruption.
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The financial system of a country is important for? long-run economic growth because It is essential for economic growth that firms have access to adequate sources of? funds, because otherwise firms will not be
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firms need the financial system to acquire funds from households. able to invest in capital, adopt new technologies, and expand
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The total value of saving in the economy must equal the total value of investment. Assume a closed? economy, where:
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S=y-c-g
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Firms that act as financial intermediaries LOADING... match households that have excess funds with firms that want to borrow funds. What other key services does the financial system provide to savers and? lenders?
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Provides an easy method of exchanging a financial security for money. Collects and communicates information about borrowers to savers Allows savers to spread their money among many financial investments.
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a. The high point of economic activity is called b. The low point of economic activity is called c. The period between the high point of economic activity and the following low point is called d. The period between the low point of economic activity and the following high point is called
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a peak. a trough. a recession. an expansion.
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Consider the following choices. Which one of the following choices is? correct? Many economists agree that this difference is due to all of the following reasons? except:
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Recessions were more severe and lasted longer in the first half of the twentieth century and became shorter and milder in the second half. Since the? 1950s, people have become more rational and control their spending behavior countercyclically.
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Firms care about their? after-tax rate of return on investment projects. The graph on the right represents the market for loanable LOADING... funds.The initial demand and supply curves are Upper D 1D1and Upper S 1S1?, respectively. Use the line drawing tool to shift the demand and or supply curve to illustrate the effect of an increase in business taxes.? (For simplicity, assume no change in the federal budget deficit or budget? surplus). Properly label this new line. Carefully follow the instructions? above, and only draw the required objects. What will be the effect of an increase in business taxes on the quantity of investment by firms and the? economy's capital stock in the? future?
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When business taxes? increase, the equilibrium interest rate decreases and the equilibrium quantity of loanable funds decreases . The quantity of investment will decrease and the? economy's future capital stock will decrease.
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Real GDP per capita in the years 1900 and 2010? are: Real GDP Per Capita 1900 ?(in 2005? $) Real GDP Per Capita 2010 ?(in 2005? $) ?$5,600 ?$42,200
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Real GDP per capita increased 7.5 times in the United States between 1900 and 2010. ? The increase in real GDP per capita is likely to be smaller than the true increase in living standards.
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What is the rule of? 70? The rule of 70
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is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double. 70/percent
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The most important factor in explaining increases in real GDP per capita in the long run is
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increases in productivity
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The two key factors that cause labor productivity to increase over time are
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the quantity of capital per hour worked and the level of technology.
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Potential real GDP is Potential real GDP
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the level of GDP attained when all firms are producing at capacity. grows over time
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Suppose you had a choice between living in the United States in 1900 with an income of ?$979 comma 000979,000 per year or in the United States in 2014 with an income of ?$47 comma 00047,000 per year. Assume the incomes for both years are measured in 2014 dollars. In which year would you have the highest real? income? In which year would you have the better standard of? living?
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1900 2014
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Consider the importance of growth LOADING... in? GDP, particularly real GDP per? capita, to the quality of life of a? country's citizens. Indicate whether you agree or disagree with each of the following statements. Increases in real GDP per capita do not increase the amount of goods and services available to a? country's citizens.
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I disagree with this statement. Increases in real GDP per capita increase life expectancy at birth. I agree with this statement. Increases in real GDP per capita mean people will have a lower portion of leisure time over the course of their lives. I disagree with this statement.
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In? particular, the size of the health care sector in a developing country
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Think about the relationship between economic prosperity and life expectancy. The size of the health care sector in a less developed country is smaller than the size of the health care sector of a developed country. grows with economic prosperity as life expectancy increases.
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A study conducted by the? Moscow-based management consulting firm Strategy Partners found that average labor productivity LOADING... in Russia is only 17 percent of labor productivity in the United States. ?Source: Jason? Bush, "Why Is? Russia's Productivity So? Low?" BusinessWeek?, May? 8, 2009. What factors would cause U.S. labor productivity to be nearly six times higher than Russian labor? productivity?
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The U.S. has more capital available per worker and higher levels of technology.
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An article in the Economist magazine compares Panama to Singapore. It quotes? Panama's president as? saying: ?"We copy a lot from Singapore and we need to copy? more." The article observes? that: "Panama is not even? one-fifth as rich as its Asian model on a? per-person basis. But Singapore would envy its? growth: from 2005 to 2010 its economy expanded by more than? 8% a? year, the fastest rate in the? Americas." ?Source: "A Singapore for Central? America," Economist?, July? 14, 2011. Judging from the experience of? Singapore, if Panama is to maintain these high growth? rates, what needs to be true about the sources of? Panama's growth?
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High rate of technological change.
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A newspaper article on labor productivity in the United States observes? that, ?"...the best measure of productivity is probably output per? hour, not output per? person." ?Source: David? Leonhardt, "Even More Productive than? Americans," New York Times?, January? 26, 2011. The statement is
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correct because of? (a) and? (c).
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The keys to? Botswana's rate of economic growth are not shared by the other countries in the region. The most important contributing factor to? Botswana's recent growth is
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government policies that protect private property? rights, freedom of press and? democracy, and avoid political instability and corruption.
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The financial system of a country is important for? long-run economic growth because It is essential for economic growth that firms have access to adequate sources of? funds, because otherwise firms will not be
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firms need the financial system to acquire funds from households. able to invest in capital, adopt new technologies, and expand
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The financial systemlong dash—either financial markets or financial intermediarieslong dash—provides savers and borrowers with all of the following? except:
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The financial system provides security to savers by warranting that their funds are fully insured against loss.
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Which of the following is not a? "loanable fund"? Households supply loanable funds because of the Businesses demand loanable funds because
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Real estate. interest income received from the borrowers. firms need to borrow funds for new? projects, such as building new factories or carrying out new research projects.
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Suppose you can receive an interest rate of 1010 percent on a certificate of deposit? (CD) at a bank that is charging borrowers 2020 percent on new car loans. Which one of the following choices does not explain why you might be unwilling to loan money directly to someone who wants to borrow from you to buy a new? car, even if that person offers to pay you an interest rate higher than 1010 ?percent?
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You are better at assessing risks than the usual financial institutions.
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An International Monetary Fund Factsheet makes the following observation regarding sound financial? systems: ?"A country's financial? system...provide[s] a? framework...[for] supporting economic? growth." ?Source: "Financial System? Soundness," International Monetary Fund Factsheet?, March 2013. Do you agree with this? observation? Briefly explain. A weak financial system LOADING... might make economic growth LOADING... ?difficult, since
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capital? investment, essential for rapid economic? growth, is often financed by borrowed funds and an unstable financial system leads to difficulty attracting loanable funds.
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Consider the following data for a closed? economy: Y? = ?$1212 trillion C? = ?$88 trillion G? = ?$22 trillion Spublic? = ?$negative 0.50?0.50 trillion T? = ?$22 trillion Now suppose that government purchases increase from ?$22 trillion to ?$2.752.75 trillion but the values of Y and C are unchanged. What must happen to the values of S and? I?
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S and I drop by ?$0.75 trillion.
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This Making the Connection claims that Ebenezer Scrooge promoted economic growth more when he was a miser and saved most of his income than when he reformed and began spending freely.? Suppose, though, that most of his spending after he reformed involved buying food for the Cratchits and other poor families. Many economists believe there is a close connection between how much very poor people eat and how much they are able to work and how productive they are while working. Does this fact affect the conclusion about whether the? pre-reform or? post-reform Scrooge had a more positive impact on economic? growth?
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Uncertain
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In the market for loanable funds depicted by the figure to the? right, the supply of loanable funds is determined by gross saving in the economy. Gross saving in the economy is composed of gross private saving and gross government saving. This latter magnitude reflects the condition of the? government's
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budget
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Which of the following describes the effect of the business cycle on the inflation rate and the unemployment? rate? Why might the unemployment rate continue to rise during the early stages of a? recovery?
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The unemployment rate increases and the inflation rate falls during recessions. A. Employment growth may be slow relative to the growth in the labor force. C. Some firms continue to operate well below their capacity even after a recession has ended.
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Consider the following choices. Which one of the following choices is? correct? Many economists agree that this difference is due to all of the following reasons? except:
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Recessions were more severe and lasted longer in the first half of the twentieth century and became shorter and milder in the second half. Since the? 1950s, people have become more rational and control their spending behavior countercyclically.
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The National Bureau of Economic Research? (NBER), a private? group, is responsible for declaring when recessions begin and end LOADING... . The Bureau of Economic Analysis? (BEA), part of the federal? government, might not want to take on this responsibility. Which one of the following is the most appropriate reason for the? BEA's refusal?
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Because it is part of the? government, the BEA could be pulled into politics with the dating of recessions.
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?"Real GDP in 2012 was? $15.5 trillion. This value is a large number.? Therefore, economic growth LOADING... must have been high during? 2012." Do you agree or disagree with this? statement?
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No, I do not agree
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The Making the Connection gives examples of firms that prospered by expanding during recessions. As we have? seen, some firms prosper by expanding during recessions. When firms expand during? recessions, they A more cautious approach might be advisable in particular industries where
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cannot be certain when recovery will occur and know they could experience prolonged losses. sales are particularly cyclical.
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Imagine you own a business and that during the next recession you lay off 20 percent of your workforce. Once economic activity picks up and your sales begin to? increase, why might you not immediately start rehiring? workers?
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Before rehiring you would like to make sure that this economic expansion lasts.
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An article in the Economist magazine refers to? "The Great Delusion of a Great? Moderation..." ?Source: "Lending a? Hand," Economist?, September? 10, 2011. What is the Great? Moderation? By? 2011, why might some people have considered the Great Moderation to have been a? delusion?
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The absence of severe recessions in the United States since the? mid-1980s. The recession that began in December 2007 was the longest and most severe since the Great Depression of the 1930s.
