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Terms in this set (61)

Expansionary fiscal policy involves
increasing government purchases or decreasing taxes.
Because of technological​ change, oil companies like Chevron were able to produce almost twice as much output from refineries in 2016 as in 1950 while using 60 percent fewer workers. This represents​ ________ in output per​ worker, which is also known as​ ________.
an​ increase; labor productivity
If real GDP in a small country in 2017 is​ $8 billion and real GDP in the same country in 2018 is​ $8.3 billion, the growth rate of real GDP between 2017 and 2018
is​ 3.75%
The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as
labor productivity
The total amount of physical capital available in a country is know as the​ country's
capital stock
Potential GDP refers to
the level of GDP attained when all firms are producing at capacity
Actual real GDP will be above potential GDP if
firms are producing above capacity.
Workers in
high−income
countries have​ ________ to work with than do workers in
low−income
countries.
more physical capital
In a closed​ economy, private saving is equal to which of the​ following?
Y
−
C
−
T​ + TR
In a closed​ economy, public saving is equal to which of the​ following?
T
−
G
−
TR
In a closed​ economy, public saving plus private saving is equal to
investment.
There is a government budget surplus if
T−Tr
​> G.
The demand for loanable funds is downward sloping because the ​______ the interest​ rate, the ​__________ the number of profitable investment projects a firm can​ undertake, and the ​_________ the quantity demanded of loanable funds.
​lower; greater; greater
The response of investment spending to an increase in the government budget deficit is called
crowding out
​________ are financial securities that represent promises to repay a fixed amount of funds
Bonds
Public saving in the economy can be increased by
raising taxes.
A decrease in the real interest rate will
increase consumption and investment
As the economy nears the end of an​ expansion, which of the following do we typically​ see?
rising interest rates
Suppose that in 2018 real GDP grew in Estonia by​ 3% and that the population increased by​ 5%. Therefore in​ 2018, Estonia experienced
economic​ growth, but not an increase in living standards.
In the long​ run, ________ differences in economic growth rates result in​ ________ differences in GDP per capita.
small; large
When an economy faces diminishing​ returns,
the slope of the​ per-worker production function becomes flatter as capital per hour worked increases.
In the early​ 1900s, Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line. What impact did the assembly line method for producing automobiles have on the
per−worker
production function for​ Ford?
It shifted up
According to new growth​ theory,
technological change is influenced by economic incentives.
Paul​ Romer, an economist at Stanford​ University, is most closely associated with what economic​ theory?
new growth theory
Which of the following government provisions would help increase the accumulation of knowledge​ capital?
education subsidies,
copyrights,
patents
According to Joseph​ Schumpeter, economic growth is achieved through
a process termed creative destruction
According to the World​ Bank, Albania does one of the worst jobs as a country enforcing the rule of law. The consequence of a weak rule of law is
difficulty in attracting investment and low economic growth.
Globalization refers to
the process of countries becoming more open to foreign trade and investment
Foreign direct investment occurs when a Chinese corporation
opens a new factory in France.
The term​ "brain drain" refers to
highly educated individuals who leave developing countries for
high−income
countries
The​ ________ shows the relationship between the price level and quantity of real GDP demanded.
aggregate demand curve
Because of the slope of the aggregate demand curve we can say that a decrease in the price level
leads to a higher level of real GDP demanded.
wealth effect
When the price level​ falls, the real value of household wealth rises.
aggregate demand curve slopes​ downward
Decreases in the price level raise real wealth and increase consumption spending
Decreases in the price level raise real wealth and increase consumption spending
an increase in net exports
If the U.S. dollar decreases in value relative to other​ currencies, how does this affect the aggregate demand​ curve?
This will shift the aggregate demand curve to the right.
Changes in the price level
do not affect the level of aggregate supply in the long run.
Which aggregate supply curve has a positive​ slope?
short run only
Suppose the economy is in​ long-run equilibrium and there is an increase in investment. As a​ result, real GDP will​ ________ in the short​ run, and​ ________ in the long run.
​increase; decrease to its initial value
Assuming the economy is initially at full​ employment, a decrease in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long​ run?
The price level will​ fall, and the level of GDP will be unaffected.
Why does the short run aggregate supply curve shift to the right in the long​ run, following a decrease in aggregate​ demand?
Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices.
A negative supply shock in the short run causes
aggregate supply shifts to the left.
In the long​ run,
unemployment is at its natural rate.
Stagflation usually results from
a supply shock.
The new Keynesians emphasize the importance of
sticky wages and prices.
Vulcan Materials stock price soared in the days following the election of President Trump.​ Vulcan's products, such as asphalt and​ concrete, are used in construction and President Trump had pledged to bring about increased spending on infrastructure projects that would require such products. Spending on infrastructure projects is an example of​ ________ aimed at increasing real GDP and employment.
discretionary fiscal policy
Fiscal policy refers to changes in
federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
The increase in the amount the government collects in taxes when the economy expands and the decrease in the amount the government collects in taxes when the economy goes into a recession is an example of
automatic stabilizers.
Since the Social Security system began in​ 1935, the number of workers per retiree has
continually declined.
Congress and the president carry out fiscal policy through changes in
government purchases and taxes.
Tax cuts on business income increase aggregate demand by increasing
business investment spending.
To combat a recession with discretionary fiscal​ policy, Congress and the president should
decrease taxes to increase consumer disposable income.
Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the​ ________ effect.
multiplier
The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the
decrease in taxes will be saved by households and not​ spent, and some portion will be spent on imported goods.
Suppose real GDP is​ $12.6 trillion and potential GDP is​ $12.4 trillion. To move the economy back to potential​ GDP, Congress should
lower government purchases by an amount less than​ $200 billion.
Suppose real GDP is​ $13 trillion, potential real GDP is​ $13.5 trillion, and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price​ level, Congress and the president would need to decrease taxes by
less than​ $500 billion.
The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because
the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy.
Crowding out refers to a decline in​ ________ as a result of an increase in​ ________.
private​ expenditures; government purchases
An economic expansion tends to cause the federal budget deficit to​ ________ because tax revenues​ ________ and government spending on transfer payments​ ________.
decrease; rise; fall
For the federal deficit to be​ lowered,
the federal​ government's expenditures must be lower than its tax revenue.
Stagflation occurs when
inflation rises and GDP falls.
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