macroeconomics test #1 (ch. 5:6) flashcards | quizlet

7/23/2019 Macroeconomics Test #1 (Ch. 5:6) flashcards | Quizlet

1/10

Macroeconomics Test #1 (Ch. 5/6)

133 terms by meganmarie992

An example of an abstraction used inmacroeconomics is

price level

the aggregate demand curve shows the

quantity of domestic product

demanded at each possible price level

If aggregate demand shifts outward over

a long period of time, with aggregate

supply held constant, the economy

should experience

inflation

if aggregate demand shifts inward over a

long period of time, with aggregate


should experience

unemployment/recession**

A recession is a period during which aggregate demand and production falls

while unemployment rises

in aggregate demand-aggregate supply

model, economic growth can beillustrated by an

outward shift of the aggregate demand

curve

the clearest sign of inflation would be

a(n)

increase in the price level

Gross Domestic Product is best

described asthe

sum of money values of all final output

produced in the domestic economy

within the year

nominal GDP is GDP measured in current prices

Real GDP is nominal GDP adjusted for changes in the

price level

Which of the following is a true measure

of national output?

GDP in constant dollars

If the prices of all goods and services rise

during the year

nominal GDP must rise
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2/10

The clearest sign of economic growth is

a(n)

increase in real GDP

A good produced in 2009 and held in

inventory until it is sold in 2010 would be

include in which measure of GDP?

In 2009 GDP

A real estate salesperson sells a house in

2011 that was bult in 2005. How doesthis transaction get counted in the GDP

statistics?

The real estate salesperson's commission

but not the price of the house is includedin 2011's GDP

Macroeconomic models use abstract

concepts such as "price level" and

"national income" that are calculated by

combining many markets into one. This

process is known as

aggregation

Real GDP differs from nominal GDP in

that nominal GDP measures

output of goods and services at current

prices

Intermediate goods, like milk sold by a

farmer to a supermarket are

not included in GDP

In periods of generally rising prices real GDP will grow slower than nominal

GDP

Inflation refers to an increase in the price level

The major difference between nominal

GDP and real GDP is that

nominal GDP is the market value and real

GDP has been adjusted for inflation

Gross Domestic Product is a monetary

measure of

the total value of all final goods and

services

An example of an intermediate good

would be a(n)

tire for a new car

Real GDP is another term for constant dollar GDP

Nominal GDP is another term for current dollar GDP

Which of the following is included in

GDP?

the cost of government-provided social

services

In March of 2011 many college students

bet on the NCAA finals in dorm gambling

pools. This is an example of

underground economic activity


3/10

Gross Domestic Product is an economic

aggregate that represents the

total product of a nation's economy

Gross Domestic Product is a dollar

measure of

the value of all final goods and services

produced in one time period

Nominal GDP is calculated by using current prices

Poor Asian countries may have per-

capita GDP's that may be less than $250.

Why is this somewhat misleading for

comparative purposes?

A significant amount of poor country

GDP is non market activity

Is GDP an accurate measure of a

country's well-being?

No, it is not.

The Italian govt. collects a smaller

amount of the taxes it is owed than the

US govt. Other things being equal,

US and Italian GDP should be equal

Growth in GDP systematically

understates the growth in national well-

being because

ecological costs are netted out of GDP

International per capita GDP

comparisons are misleading when

countries involved differ greatly in

the percentage of economic activity that

is transacted in organized markets

Since countries differ in the amount of

economic activity that is transacted in

organized markets,

international comparisons of per capita

GDP are often misleading

How does the calculation of GDP include

the costs of natural resource depletion

that occurs when output is produced?

The cost of resource depletion is not

measured in GDP.

A period in which the price level is rising

is experiencing

inflation

In The General Theory of Employment,

Interest, and Money, Keynes rejects the

idea that

a capitalist economy always gravitates

toward high levels of employment

What was suggested by Keynes to move

the economy out of a depressed state?

Monetary and Fiscal policiy

The human consequences of the Great

Depression include:

homeless families, closed factories,

bankrupt farmers, soup lines


4/10

The international organization most

responsible for rising prices during the

1970s was the

OPEC

Stagflation can be defined as a combo of economic stagnation and inflation

The tax cut of 2001 turned out to be well-

timed because it caused a

rightward shift of the aggregate demand

curve

The name given to government programs

implemented to prevent or shorten

recessions and counteract inflation is

stabilization policy

Government policy to reduce

unemployment and increase national

output can be illustrated by an

outward shift of the aggregate demand

curve caused by an increase in

government spending

The primary benefit to the

macroeconomy of increasinggovernment spending is a(n)

decrease in the unemployment rate

If the government uses stabilization

policies to reduce inflation, the economy

may have to suffer

higher rates of unemployment

Combating recession may require the

government to

increase aggregate demand

In figure 5-2, if the aggregate demand

curve shifts outward over time, the

economy will

experience inflation

In figure 5-2, an increase in government

spending would cause

an outward shift in the aggregate

demand curve and an increase in the

price level

In figure 5-2, if the aggregate demand

curve moves to the right less rapidly than

the aggregate supply curve, then

the price level will tend to increase

To fight inflation, the government may decrease aggregate demand, which will

also lead to higher unemployment rates

To fight recession, the government may increase aggregate demand, which will

also lead to higher price levels


5/10

Stabilization polivy is the name given to

government economic policies designed

to

stabilize price level, shorten and/or

prevent recessions, diminish

unemployment

An increase in aggregate demand is most

likely to result in

inflation

A rightward shift in the aggregate

demand curve is most likely to result in

inflation

Recessions are common features of the american

economy

You can generally distinguish an

aggregate supply-caused recession from

an aggregate demand-caused recession

because

the price level will fall in an aggregate

demand recession

The govt. can use aggregate demandmanagement policies to reduce

unemployment rates. A byproduct of this

policy will be

an increase in the price level

If the aggregate demand curve shifts to

the left and the aggregate supply curve

shifts to the right, the result will be a

decrease in the price level

Technological changes can shift the

aggregate supply curve outward. If thegovt. is decreasing spending the outcome

is

increase in real GDP

inputs land, labor, capital, technology available

for production of goods and services

outputs goods and services that the economy

produces

growth policy government policies intense to make theeconomy grow faster in the long run

Labor Productivity the amount of output a worker turns out

in an hour (or a week, or a year) of labor

Potential GDP the real GDP the economy could produce

if the labor force and other resources

were fully employed


6/10

Labor Force the number of people holding or seeking

jobs

Production Function shows the volume of output that can be

produced in the economy from the given

inputs (like labor and capital), given the

available technology

Unemployment Rate the number of unemployed peopleexpressed as a percentage of the labor

force

Discouraged Worker an unemployed person who gives up

looking for work and is no longer

counted as part of the labor force

Frictional Unemployment unemployment due to normal turnover

in the labor market. Includes ppl who are

temporarily "between" jobs b/c they are

moving or changing occupations

Structural Unemployment workers who have lost their jobs because

they have been displaced by automation,

b/c their skills are no longer in demand

Cyclical Unemployment the portion of unemployment that is

attributable to a define in the economy's

total production

Full Employment a situation in which everyone who is

willing/able to work can find a job.

**At full unemployment, the measured

unemployment rate is still positive

Purchasing Power volume of goods and services that a

given sum of money will buy

Real Wage Rate wage rate adjusted for inflation

calculated as the nominal wage divided

by price index

Relative Price price of one good in terms of another

good rather than in terms of dollars

Real Rate of Interest % increase in purchasing power that the

borrower pays to the lender for the

privilege of boring


7/10

Nominal Rate of Interest % which the money the borrower pays

back exceeds the money that he

borrowed, making no adjustment for any

fall in purchasing power

Capital Gain difference b/w the price an asset is sold

and the price it was bought

Price Index expresses the cost of market basket of goods relative to cost of the same basket

in a base period

Consumer Price Index (CPI) measured by pricing items

representative of a typical urban house

budget

Labor productivity is defined as the amount of OUTPUT a typical worker

turns out in an HOUR of work

The production function has _______ on

the horizontal axis.

labor input

An increase in capital stock will shift the

production function

upward

If the capital stock increases, then the

economy can produce ______ output with

the _______ amount of labor.

more, same

If the capital stock decreases, then the

economy will produce _______ output with

the ______ amount of labor.

less, same

An increase in the capital stock has the

same effect on the production function

as an increase in

technology

A decrease in the capital stock would be

expected to

decrease real GDP per capita

Potential GDP is an estimate of the

economy's ability to produce goods and

services if the

labor force is fully employed

In the analysis of potential GDP, labor

and capital are considered

inputs

Real GDP is the product of the total hours of work X output per hour


8/10

Environmentalists worry that economic

growth imposes costs on society. Among

these are

pollution, crowding, waste disposal

The growth rate of potential GDP

depends on

rate of technological progress

If the rate of technical progress

decreases, then the growth

rate of potential GDP will decrease

One of the determinants of real GDP is

output per hour of labor. This is also

called labor ___________

productivity

One of the key factors that determine an

economy's real GDP is labor productivity,

which is a measure of

output per hour of work

The growth rate of potential GDP is thesum or two other growth rates. They are

growth rate of labor input and growthrate of labor productivity

The growth rates of actual and potential

GDP

are similar in the long run but not the

short run

Growth in potential GDP depends on the labor force growth rate, capital stock

growth rate, and rate of technical

progress

The growth rate of potential GDP

depends on

rate of technological progress, growth

rate of capital stock, growth rate of labor

force

GDP = hours of work X ________ output per hour

Labor productivity X hours of work = GDP

The growth rate of potential GDP is the

sum of the growth rates of

labor force and labor productivity

Over long periods of time, the growthrates of actual and potential GDP have

been

similar

When real GDP grows more slowly than

potential GDP

the unemployment rate rises

If the labor force grows faster than the

number employed, the

unemployment rate will rise


9/10

The unemployment rate is the number of

unemployed people, expressed as

a percentage of the labor force

The shortfall between actual real GDP

and potential GDP

increases as the unemployment rate

rises

Persons who give up looking for work are

classified as

discouraged workers

People who failed to look for a job are

classified as

out of the labor force

discouraged workers are/are not

included in the labor force category?

ARE NOT INCLUDED in the labor force

category

The unemployment rate is equal to the number of employed divided by the

labor force

# of employed/labor force

Someone who is out of work b/c they are

between jobs is experiencing

frictional unemployment

One of the factors contributing to the

existence of frictional unemployment is

occupational mobility

Technological change or the effects of

automation cause

structural unemployment

Structural unemployment may be

particularly severe for

workers with "high tech" skills

The reduction of structural

unemployment in the US economy may

require

increased spending on worker retraining

Full employment is defined by most

economists as the minimization of

cyclical unemployment

The program of unemployment

insurance in the US was created duringthe

Great Depression

The aggregate demand curve shows the

quantity of domestic product

demanded at each possible price level


10/10

If aggregate supply curve shifts inward

over a long period of time, with

aggregate demand held constant, the

economy should experience

Both recession and inflation

If aggregate demand shifts outward over

a long period of time, with aggregate


should experience

Inflation

A recession is a period during which aggregate demand and production falls

while unemployment rises

The clearest sign of inflation would be

a(n)

increase in the price level

Real GDP is GDP at CONSTANT prices

Which of the following is a true measureof national output?

Real GDP

A good produced in 2009 and held in

inventory until it is sold in 2010 would be

included in which measure of GDP?

In 2009 GDP

A real estate salesperson sells a house in

2011 that was built in 2005. How does

this transaction get counted in the GDP

statistics?

The real estate salesperson's commission

but not the price of the house is included

in 2011's GDP

Gross Domestic Product (GDP) The sum of all the monetary goods and

final services within a year

Business Inventory those goods INCLUDED in GDP of a

certain year (example: car made in 2010

but sold in 2011 is included in GDP of

2010)

Intermediate goods those goods EXLUDED in GDP b/c theyare a part of a whole and not the

ultimate produce (example: tires on a

car)

macroeconomics test #1 (ch. 5:6) flashcards | quizlet

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