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Macroecon

Terms in this set (54)

Countries specialize in the production of goods for which they have a comparative advantage.
True
It can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage and then trade with one another
True
A nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good
False
The process of specialization and trade has positive net benefits and is therefore beneficial to everyone
False
Absolute advantage is the source of the potential gains from specialization and trade
False
When two countries choose to partake in international trade, it is a mutually beneficial activity for both countries
True
Through specialization and trade, it is possible for a country to consume a combination of goods that is beyond its original production possibilities frontier
True
Wealthier countries always benefit more from international trade than poorer countries
False
Countries trade for goods in which they do not have a comparative advantage, and therefore, would never trade with nations that have similar resource endowments
False
What promotes Economic Growth?
Clear laws regarding the transfer of property from one person to another

The use of competitive markets to allocate goods and services

The creation of a system of patent law
What inhibits Economic Growth?
The government confiscating the farmland

Income tax rates of 90%

A nation's central bank declares it will print money to pay for government expenditure

The creation of a price floor on sugar
Many economists think that effective institutions are essential for economic growth. In this context, what are institutions?
The laws, social norms, and conventions of a culture
Zimbabwe experienced what economists call "hyperinflation".
True
"Inflation is always and everywhere a monetary phenomenon" is a famous quote by Nobel Prize winning economist Milton Friedman. How does the story of Zimbabwe support this proposition?
Zimbabwe's central bank printed money to pay for government expenditures.
Since 2008 the Federal Reserve has mostly worried about preventing
Inflation
After discovering that flash steaming tuna first, before using mechanical processes to extract meat, removes more tuna flesh, more cans of tuna hit the shelves at all major grocers
Shift of the Supply Curve
Amplitude decides to join the smartphone market
Shift of the Supply Curve
Grocers are selling more gluten free pasta than ever before, even though the price of gluten free pasta has dropped substantially
Shift of the Supply Curve
Rising wages for igloo builders in Nunavut, Canada result in igloo builders moving to Nunavut
Movement Along the Supply Curve
A national consumer products company produces less of its premium quality soap as a result of lower soap prices
Movement Along the Supply Curve
Americans put up their gold and silver jewelry for sale as a result of rising prices
Movement Along the Supply Curve
Items included when calculating GDP: Consumption
- Ice cream
- A domestically manufactured personal computer
- Cab fare for personal use
- 55 cent tacos
- A Super Bowl ticket bought new from the NFL
Items included when calculating GDP: Investment
- A domestically manufactured business computer
Items included when calculating GDP: Government
- A public school teacher's salary
Items included when calculating GDP: Net Exports
- An exported dollhouse
Items NOT included when calculating GDP:
- The purchase of company stocks
- Social Security payments
- Babysitting paid for in cash and unreported
NOT included in GDP because of double counting
- wheels used to produce a skateboard that will be sold new
- a used copy of the Tony Hawk video game
- a used skateboard you buy for your brother
- a previously owned collector's skateboard
- a ticket for the X Games bought from a person on a street corner
Included in GDP:
- a new skateboard you buy for your niece
- the commission paid to the seller of a previously owned collector's skateboard
- a new building for Tony Hawk Industries
GDP
is the total market value of all final goods and services produced in an economy in a given year. Used items, intermediate goods, second-hand goods, and black market items are not included in the calculation. The commission paid on the sale of a used item is included because the sales service is new. Goods that are sold on a street corner and are, presumably, a resale do not get included in GDP.
Intermediate Goods:
Goods use in the production of a final good or service are not included in GDP as this would lead to double counting. The value (or cost) of the input goods used in production are already counted in the price of the final good. This would include wheels for a skateboard and a market to sign skateboards to be sold at a later time.
Investment goods:
Long-lasting, durable goods such as buildings and heavy machinery are included GDP calculations.
The double counting problem:
It exists because some goods are involved in multiple transactions before they are sold in their final market. For example, when wheels are used in the production of the skateboard, the company that assembles the skateboard pays for the wheels. But when they sell the skateboard, the price paid includes paying for the wheels. So if we count both transactions in GDP, we are counting the value of the wheels twice (double counting). In order to avoid this we only count the final transaction. The same idea applies to used goods. When the item is originally sold, it is included, but when it is sold again, it isn't. That doesn't represent a change in the output of the country, just a change in ownership and paperwork. In this case, we only count the original sale.
Increases GDP and the standard of living:
- improvements in production technologies
- school quality increases from procurement of new equipment
Increases GDP but not the standard of living:
- The black market shrinks because firms shift to the formal sector but production remains the same
- household unpaid work becomes formalized in GDP
Does not increase GDP but increases standard of living
- Workers work less, but produce same amount
- Volunteers clean a river used for swimming
- Income inequality decreases and people dislike inequality
- School quality increases from parental involvement
GDP formula
GDP = C + I + G + (Ex-Im)

c=spending by consumers
i=investment by businesses
g= government spending
ex-im=net exports (exports-imports)
Suppose the growth rate of the economy is 2%. The size of the economy roughly doubles every
35 years
If instead the growth rate is 7%, the doubling time for the economy is:
10%
Economic growth is important to understand because:
It is closely tied to standard of living.
Which of the following accurately characterizes the distribution of real GDP per capita internationally?
Real GDP per capita varies greatly across countries.
The U.S. GDP in 2004 was $11,853.3 billion, and the previous year the GDP was $11,142.2 billion. What was the rate of growth in GDP in 2004?
6.38%
Promote Economic Growth
- The presence of clearly defined property rights
- The enforcement of trademarks
- The use of competitive markets to allocate goods and services
Inhibit Economic Growth
- The creation of a price ceiling on gold
- A corrupt government
- Income tax rates of 90%
-A nation's central bank declares it will print money to pay for government expenditure
Rule of 70
in order to estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable. This rule is commonly used with an annual compound interest rate to quickly determine how long it would take to double your money.
Growth miracles
- Japan
- South Korea
Growth disasters
- Nigeria
- Argentina
Which of the following statements regarding economic growth is supported by the histories of the above mentioned countries?
Growth is not guaranteed, even when a country has experienced it in the past.
The U.S. Nominal Gross Domestic Product is:
all final goods and services legally produced within the territorial boundaries of the United States within a given time period and valued at the prices at which the goods or services sold.
GDP Deflator
(Nominal GDP/Real GDP) x 100
How does an oil spill affect GDP?
The costs of clean-up positively affect GDP
How much do the economists interviewed say an average person is willing to pay to avoid a 1 in 100,000 chance of death:
$60
Which in the list below is the most bad industry from the perspective of the research by Mendelson?
Coal power
True/False: Thomas Malthus suggested that economic growth could continue despite finite resources.
False
How can the economy continue to grow despite finite resources?
- Better use of resources
- New technologies that don't use the same resources/use them in the same way
- A shift from the consumption of physical goods to the consumption of services
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