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The clearest sign of economic growth is a(n)

increase in the level of real GDP

General Motors Corporation (a U.S.-based firm) produces a Saab vehicle in Sweden, and sells it in the United States. In which country's GDP is it included?

Sweden because it was produced there.

The major difference between nominal GDP and real GDP is that

nominal GDP is the current market value and real GDP has been adjusted for inflation.

Potential GDP is an estimate of the economy's ability to produce goods and services if the

labor force is fully employed, or if there is no cyclical unemployment

An increase in the capital stock has the same effect on the production function as an increase in


The unemployment rate is equal to

the number unemployed divided by the labor force

Technological change or the effects of automation cause

structural unemployment

When you subtract the expected rate of inflation from the nominal rate of interest, you calculate the

real rate of interest

The real wage rate is defined as the wage rate divided by

the price level

If ten years ago the price of a movie ticket was $5 and the average hourly wage was $10, and today the price of a movie ticket is $8 and the average hourly wage is $20, then

movies are now relatively cheaper in terms of work hours

The level of investment will increase if

interest rates decrease

The profit earned from selling an asset for more than you paid for it is called

capital gains

More education and training usually lead to higher levels of


One reason given for the U.S. productivity slowdown in the period from 1973-1995 was

increasing energy prices

The largest component of aggregate demand is

consumer spending

Disposable income can be defined as national income

minus taxes plus transfers

The federal government's principal tool in altering consumer spending is changing

personal income tax rates

If the MPC is .80, then a change in disposable income of $60 billion will lead to a change in consumption of

$48 billion

Consumption functions would shift downward (decrease) if

wealth levels fall

If consumers' expectations about future income is very optimistic, then we should expect

the consumption function to shift upward

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