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Economic growth is best defined as an increase in

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either real GDP or real GDP per capital.

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Growth is advantageous to a nation because it

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lessens the burden of scarcity.

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The Industrial Revolution and modern economic growth resulted in

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the average human lifespan more than doubling.

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Which of the following economic regions has experienced the least growth in real GDP per capita since 1820?

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Africa

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Strong property rights are important for modern economic growth because

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people are more likely to invest if they don't fear that others can take their returns on investment without compensation.

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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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Economic growth can be portrayed as

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an outward shift of the production possibilities curve.

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Labor productivity is measured by

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real output per worker hour.

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More than half the growth of real GDP in the United States is caused by

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increases in the productivity of labor.

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A nation's infrastructure refers to

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public capital goods such as highways and sanitation systems.

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The fundamental invention underpinning the recent rise in the average rate of productivity growth is the

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microchip.

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Critics of economic growth

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argue that economic growth does not resolve socioeconomic problems such as an unequal distribution of income and wealth.

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Recurring upswings and downswings in an economy's real GDP over time are called

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business cycles.

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The phase of the business cycle in which real GDP declines is called

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a recession.

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What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

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Prices are sticky in the short run.

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The labor force includes

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employed workers and persons who are officially unemployed.

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Official unemployment statistics

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understate unemployment because discouraged workers are not counted as unemployed.

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Cyclical unemployment results from

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a deficiency of spending on goods and services.

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Structural unemployment

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may involve a locational mismatch between unemployed workers and job openings.

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If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, real GDP is

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$385 billion.

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Inflation means that

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prices on average are rising, although some particular prices may be falling.

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The annual rate of inflation can be found by subtracting

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last year's price index from this year's price index and dividing the difference by last year's price index.

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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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Rising per-unit production costs are most directly associated with

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cost-push inflation.

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Real income is found by

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dividing nominal income by the price index (in hundredths).

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Personal saving is equal to

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Disposable income minus consumption

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The consumption schedule shows the relationship of household consumption to the level of

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Disposable income

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Refer to the consumption schedule below. At income level 3, the amount of saving is represented by the line segment https://learn.vccs.edu/bbcswebdav/pid-77491680-dt-content-rid-69302060_2/courses/PV282.ECO.201.40.FA15/PV282.ECO.201.40.FA15_ImportedContent_20150813093510/q%2005%20p%2003.png

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FG

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The fraction, or percentage, of total income which is consumed is called the

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Average propensity to consume

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The MPC can be defined as the

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Change in consumption divided by the change in income

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Dissaving occurs when

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Income is less than consumption

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The fraction, or percentage, of total income which is saved is called the

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Average propensity to save

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If the slope of the consumption schedule is .75, then the slope of the saving schedule is

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0.25

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When consumers decide to increase household debt, this action will

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Shift the consumption schedule upward

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As the consumption and saving schedules relate to real GDP, an increase in taxes will shift

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Downward both the consumption and saving schedules

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A lower real interest rate typically induces consumers to

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Purchase more goods that are bought using credit

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Refer to the consumption schedule below. The marginal propensity to consume is represented by https://learn.vccs.edu/bbcswebdav/pid-77491680-dt-content-rid-69302059_2/courses/PV282.ECO.201.40.FA15/PV282.ECO.201.40.FA15_ImportedContent_20150813093510/q%2005%20p%2013.png

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GE/AB

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The Great Recession of 2007-2009 altered the prior behavior of consumers in the economy by

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Shifting the consumption schedule down

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An investment demand curve shows the varying amounts of investment that would be undertaken at various levels of

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Real interest rate

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Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,000 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be $250,000. The expected rate of return from this new computer software is

answer

25 percent

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Which of the following factors would decrease investment demand?

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An increase in the cost of acquiring capital goods

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If businesses feel more optimistic about the state of the economy, then this change is likely to

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Shift the investment demand curve to the right

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The multiplier can be calculated by dividing

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The change in real GDP by the initial change in spending

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In general, the steeper the consumption schedule the

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Larger is the multiplier

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If households in the economy save more of any extra income that they earn, then the multiplier effect will

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Decrease

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The investment schedule shows the

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Amounts business firms collectively intend to invest at each possible level of GDP

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In a private closed economy, there will be an unplanned increase in inventories when

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GDP exceeds aggregate expenditures

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Refer to the graph below for a private closed economy. In this economy, investment is https://learn.vccs.edu/bbcswebdav/pid-77491709-dt-content-rid-69302063_2/courses/PV282.ECO.201.40.FA15/PV282.ECO.201.40.FA15_ImportedContent_20150813093538/q%2006%20p%2003.png

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$100 billion

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Refer to the graph below for a private closed economy. The equilibrium level of GDP in this economy is https://learn.vccs.edu/bbcswebdav/pid-77491709-dt-content-rid-69302062_2/courses/PV282.ECO.201.40.FA15/PV282.ECO.201.40.FA15_ImportedContent_20150813093538/q%2006%20p%2003%281%29.png

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$450 billion

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Refer to the graph below for a private closed economy. The multiplier for the above economy is https://learn.vccs.edu/bbcswebdav/pid-77491709-dt-content-rid-69302066_2/courses/PV282.ECO.201.40.FA15/PV282.ECO.201.40.FA15_ImportedContent_20150813093538/q%2006%20p%2003%282%29.png

answer

3

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Saving is $15 billion at the $125 billion equilibrium level of output in a closed, private economy. Actual investment must be

answer

Equal to $15 billion

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Planned investment is $20 billion and saving is $9 billion at the $175 billion level of output in a private, closed economy. Actual investment at this level must be

answer

$9 billion

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If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by

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$20 billion

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Net exports are negative when

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Imports exceed exports

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Other things constant, if domestic consumers purchase fewer foreign goods at each level of GDP in the short run

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GDP will rise

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Which of the following statements is correct?

answer

An increase in exports will tend to increase, and an increase in imports will tend to decrease, the equilibrium GDP

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Over time, an increase in the real output and incomes of the trading partners of the United States will most likely

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Increase U.S. exports

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A tax-cut will have a greater effect on equilibrium GDP if the

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Marginal propensity to save is smaller

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Refer to the graph below. If this economy was an open economy without a government sector, the level of GDP would be https://learn.vccs.edu/bbcswebdav/pid-77491709-dt-content-rid-69302064_2/courses/PV282.ECO.201.40.FA15/PV282.ECO.201.40.FA15_ImportedContent_20150813093538/q%2006%20p%2014.png

answer

300 billion

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Refer to the graph below. The size of the multiplier associated with changes in government spending in this economy is https://learn.vccs.edu/bbcswebdav/pid-77491709-dt-content-rid-69302065_2/courses/PV282.ECO.201.40.FA15/PV282.ECO.201.40.FA15_ImportedContent_20150813093538/q%2006%20p%2014%281%29.png

answer

5.00

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Injections into the income-expenditure stream include

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Investment and exports

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Leakages from the income-expenditure stream are

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Saving, taxes, and imports

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In which of the following situations for an open mixed economy will the level of GDP contract?

answer

When Sa + M + T exceeds Ig + X + G

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A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because

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Households may save part of the additional income from the tax cut

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An economy characterized by high unemployment is likely to be

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In a recessionary expenditure gap

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The amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as

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An inflationary expenditure gap

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The stimulus package enacted by the Federal government in 2009 was intended to

answer

Push the aggregate expenditures schedule upward

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In 2008, the Federal government provided tax rebate checks to taxpayers in the hope that

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C would shift up

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Classical economists held the view that in the economy

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Unemployment was temporary and was soon eliminated

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The major economic issue during the Great Depression of the 1930s that concerned John Maynard Keynes was

answer

Unemployment

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The aggregate demand curve is the relationship between the total demand for output and the

answer

Price level

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Refer to the graph below, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will https://learn.vccs.edu/bbcswebdav/pid-77491728-dt-content-rid-69302069_2/courses/PV282.ECO.201.40.FA15/PV282.ECO.201.40.FA15_ImportedContent_20150813093601/q%2007%20p%2002.png

answer

increase by $200 billion

question

A decrease in interest rates caused by a change in the price level would cause a(n)

answer

Increase in the quantity of real domestic output demanded

question

A decrease in expected returns on investment will most likely shift the AD curve to the

answer

Left because Ig will decrease

question

A decrease in government spending will cause a(n)

answer

Decrease in aggregate demand

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Which would shift the aggregate demand curve? A change in

answer

Foreign-exchange rates

question

An aggregate supply curve represents the relationship between the

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Price level and the production of real domestic output

question

The slope of the immediate-short-run aggregate supply curve is based on the assumption that

answer

Both input and output prices are fixed

question

The upward slope of the short-run aggregate supply curve is based on the assumption that

answer

Wages and other resource prices do not respond to price level changes

question

The short-run aggregate supply curve

answer

Becomes steep at output levels above the full-employment output

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The long-run aggregate supply curve is

answer

Vertical

question

A fall in the prices of inputs will shift the aggregate

answer

Supply curve rightward

question

An increase in productivity will

answer

Increase aggregate supply

question

The intersection of the aggregate demand and aggregate supply curves determines the

answer

Equilibrium level of real domestic output and prices

question

A decrease in aggregate demand in the short run will reduce

answer

Both real output and the price level

question

A decrease in aggregate supply means

answer

The real domestic output would decrease and the price level would rise

question

With cost-push inflation in the short run, there will be

answer

A decrease in real GDP

question

Disinflation refers to a situation where

answer

The rate of inflation falls, but the price level does not

question

Prior to 1980, changes in oil prices greatly affected U.S. inflation. When oil prices rose, the U.S. would experience

answer

Cost-push inflation and falling output

question

An increase in the price level, other things equal, will shift the

answer

Consumption, investment, and net exports schedules of the aggregate expenditures model downward

MacroEconomics ECO201 Exam 2 – Flashcards

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