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ECN302 mid term
Terms in this set (52)
Which is NOT a correct statement about the national income accounts?
The income approach to measuring economic activity provides a figure that is equal to the sum of revenues by the producers of output, which in turn is equivalent to that of the product approach.
What are the three approaches to measuring economic activity?
the income approach, the expenditure approach, and the product approach
The components of total spending are
consumption, investment, government spending, and net exports.
Why are imports subtracted when GDP is calculated in the expenditure approach?
They are produced abroad, and GDP only counts domestic production.
Net national product (NNP) is:
gross national product minus consumption of fixed capital.
Why is the distinction between intermediate and final goods important for measuring GDP?
GDP only includes final goods, in order to avoid double counting.
How does GDP differ from GNP?
GNP measures the output of factors of production owned by a nation, while GDP measures production taking place in a nation.
A reputable study shows that a particular new workplace safety regulation will reduce the growth of real GDP. Is this an argument against implementing the regulation?
No, because real GDP is not the same thing as well-being.
Which of the following best describes the relationship between saving and wealth?
Saving is a flow into the stock of wealth.
Since U.S. investment is generally higher than U.S. national saving:
the U.S. current account balance is generally negative.
Private saving is equal to:
disposable income minus consumption.
National saving is equal to:
government saving plus private saving.
Why is national wealth important?
The long-run economic well-being of a country depends on wealth.
What is national wealth?
National wealth is a country's domestic physical assets plus its net foreign assets.
How is national wealth linked to national saving?
National saving is the flow of additions to the stock of national wealth.
and nominal GDP are equal in the base year because current prices and base-year prices are the same in the base year.
Real GDP is a better measure of economic growth than nominal GDP because
an increase in nominal GDP may show an increase in prices rather than an increase in output.
What is a production function?
A mathematical relationship relating the amount of output produced to the quantities of capital and labor used.
Which of the following factors can cause a nation's production function to shift over time?
An improvement in technology.
What do you have to know besides an economy's production function to know how much output the economy can produce?
The quantities of capital and labor that the economy has.
The production function slopes upward because
additional units of input lead to additional output.
The slope of the production function declines from left to right because
there is diminishing marginal productivity, because at least one input is fixed.
The marginal product of capital (MPK) is
he additional amount of output produced when one unit of capital is added.
How can the MPK be shown graphically?
The MPK is the slope of the production function when labor is held constant.
Which of the following best explains why the profit-maximizing level of employment for a firm occurs when the marginal revenue product of labor (MRPN) equals the nominal wage (W)?
At that level of employment, the marginal benefit from the last worker is equal to the marginal cost of the last worker.
How can this profit-maximizing condition be expressed in real terms? In the equations below, MPN is the marginal product of labor, MRPN is the marginal revenue product of labor, W is the nominal wage, and P is the price level.
MPN = W/P
What is the marginal product of labor (MPN)?
the additional amount of output produced when one unit of labor is added.
How is the MPN curve related to labor demand?
The MPN curve is identical to the labor demand curve.
Which of the following will cause an increase in the supply of labor?
A decrease in the expected future real wage.
What two variables are related by the aggregate labor supply curve?
the quantity of labor supplied and the real wage
What are the primary factors that cause the aggregate labor supply curve to shift?
the expected future real wage, wealth, the size of the population, and factors that influence labor force participation
Suppose that the government levies a lump-sum tax on workers. Which of the following best explains the effect on the supply of labor?
A lump-sum tax has only an income effect, so increasing the tax will cause the supply of labor to increase.
Full-employment output is
the level of output that firms supply when wages and prices in the economy have fully adjusted.
How is full-employment output affected by an increase in labor supply?
Full-employment output will increase.
How is full-employment output affected by a beneficial supply shock?
Full-employment output will increase.
Why is the classical model of the labor market discussed in this chapter not very useful for studying unemployment?
It assumes that any worker who wants to work at the equilibrium real wage can find a job.
The unemployment rate is
the fraction of the labor force that is not employed.
The labor force participation rate is
the fraction of the adult population that is in the labor force.
The employment ratio is
the fraction of the adult population that is employed.
The natural rate of unemployment is equal to
frictional plus structural unemployment.
Cyclical unemployment is
the difference between the actual rate of unemployment and the natural rate of unemployment.
What does negative cyclical unemployment mean?
The economy is producing more than full-employment output.
Okun's law states that:
The gap between output and full-employment output increases by 2% for each 1% that the unemployment rate increases.
Why does a 1% increase in employment lead to twice as large an effect on output?
When cyclical unemployment is rising, other factors such as the labor force and worker hours tend to be falling, further reducing output.
If the tax rate on interest income declines, what happens to the expected real after-tax interest rate?
Which of the following types of changes in desired saving and desired investment does NOT lead to a large current account deficit in a small open economy?
An increase in taxes to finance government infrastructure investment projects.
What is the key difference that determines whether an international transaction appears in the current account or the financial account?
Trade in currently produced goods and services is entered in the current account, trade in assets is entered in the financial account.
Which of the following transactions is not recorded as an item of the current account in the balance of payments accounting?
A Florida resort complex is purchased by a Japanese firm.
Offsetting transactions that would ensure that the U.S. current account and the financial account balances would continue to sum to zero include:
any negative item in the financial account
In a small open economy, national saving _____ investment and output _____ absorption.
does not have to equal; does not have to equal
A large current account deficit is most likely to come about when desired investment _____ substantially and if desired national saving _____ substantially.
Consider two large open economy, the home economy and the foreign economy. Which of the following lowers the world real interest rate (rw)?
A decrease in the domestic expected marginal product of capital.
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