Macroeconomics 2 Answers – Flashcards

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The influential book written by Adam Smith was:
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The Wealth of Nations
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The Circular flow model:
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Illustrates the interdependence of business and consumers
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Which statement best describes a command economy
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The production and allocation of goods and services is determined primarily through government
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Which of the following is a limitation of the simpler circular flow model:
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The determination of product and resource prices is not explained.
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A competitive market will:
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Achieve an equilibrium price
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Government set floor prices and price ceilings
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Interfere with the rationing function of price in a free market.
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A perfectly inelastic demand schedule:
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Can be represented by a line parallel to the vertical axis.
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Demand is said to be elastic when:
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A reduction in price results in a decrease in total revenue.
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The main determinant of elasticity of supply is the
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Amount of time the producer has to adjust inputs in response to a price change.
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Price elasticity of supply is
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Greater in the long run than in the short run.
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Block's Perfume
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.33 and inelastic
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Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:
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The price of some other product.
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The distinction between a change in demand and a change in quantity demanded is best made by saying that:
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A change in quantity demanded is caused by a change in price and a change in demand is caused by a change in other factors.
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Suppose the total monetary value of all final goods and services produced in a particular country in 2008 is 500 billion and the total monetary value of final goods and services sold is 450 billion. We can conclude that:
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GDP in 2008 is 500 billion.
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If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that
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Net investment is negative
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Real GDP measures
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Current output at base year prices
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The GDP tends to
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Understate economic welfare because it does not take into account increases in leisure.
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A consumer price index attempts to measure changes in
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The price of a select market basket of goods and services
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The rate of unemployment when the economy is at its potential is called the
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Natural rate of unemployment
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Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is
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Structural
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If the annual inflation rate is 5 percent a year, about how many years will it take for hte price level to double?
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14 Years
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The industries or sectors of the economy in which business cycle fluctuations tens to affect output the most are
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Capital goods and durable consumer goods.
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In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
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Expansion
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A college student using the summer following graduation to search for a job would best be classified as
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Frictional unemployment
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In which of the following cases would real income rise?
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Nominal increases by 2 percent, and the price level remains unchanged.
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The size of the MPC is assumed to be:
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Greater than zero, but less than one.
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If business taxes are reduced and the real interest rate increases:
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The level of investment spending might either increase or decrease
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A private closed economy inclused
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Households and businesses, but not government or international trade.
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The equilibrium level of GDP in a private closed economy is where
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Aggregate expenditures equal GDP.
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Suppose that the level of GDP increased by 100 billion in a private closed economy where the marginal propensity to consume is .5. Aggregate expenditures must have increased by
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50 billion
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If a 10 billion decrease in lump-sum taxes increases equilibrium GDP by 40 billion then
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The MPC for this economy is .8
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Savings and investment are, respectively
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A leakage and an injection
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Over time, an increase in the real output and incomes of the trading partners of the United States will
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Increase US exports and US imports
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The amount by which an aggregate expenditures schedule must shift downward to eliminate demand-pull inflation and still achieve the full employment GDP is an
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Inflationary expenditure gap
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Keynesian economists believe that
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Government can implement policy proposals that can positively impact the economy
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Laissez-Faire economists believe that
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Most government policies would probably make things worse
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At the equilibrium GDP for a private open economy
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Net exports may be either positive or negative.
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Assume the MPC is .8. If government were to impose 50 billion of new taxes on household income, consumption spending would initially decrease by
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40 billion
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Other things equal, the multiplier effect associated with a change in government spending is
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Equal to that associated with a change in investment or consumption.
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Taxes represent
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A leakage or purchasing power, like saving.
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If MPC =.5, a simultaneous increase in both taxes and government spending of 20 will
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Increase GDP by 20
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Other things equal, serious recession in the economies of US trading partners will
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Depress real output and employment in the US economy
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The level of potential output and location of the long run aggregate supply curve are determined by
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The natural rate of unemployment
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In the absensce of unexpected shocks, the economy will tend to experience
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Positive growth with mild amounts of inflation
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Stagflation refers to
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An increase in inflation accompanied by decreases in real output and employment.
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Which of the following is a tenet of supply side economics?
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High marginal tax rates severely discourage work, saving, and investment.
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Critics of supply side economics
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Contend that the relationship between tax rates and economic incentives is small and of uncertain direction.
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The ideas of economist Arthur Laffe became the centerpiece for tax policy during war
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Reagan Administration
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