Macroeconomics Test #1 (Ch.

5/6)
133 terms by meganmarie992

An example of an abstraction used in

macroeconomics 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
supply held constant, the economy
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 be
illustrated 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 as the

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

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 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

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

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 percapita 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 wellbeing 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

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 welltimed 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 increasing
government 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

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 demand

management 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 the
govt. 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 the

economy 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

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 people

expressed 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

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

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 the

sum or two other growth rates. They are

growth rate of labor input and growth

rate 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 growth

rates 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

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 during
the

Great Depression

The aggregate demand curve shows the

quantity of domestic product

demanded at each possible price level

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
supply held constant, the economy
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 measure

of 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 they

are a part of a whole and not the
ultimate produce (example: tires on a
car)