Economic 3

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1. 
thestudy of aggregate economic behavior is referred to as
 
macroeconomics
 
2. 
alternating periods of growth and contraction
 
business cycles
 
3. 
which of the following is a basic measure of macroeconomic performance
 
output growth unemploymentinflation
 
4. 
which is of the following is a downturn in the business cycle
 
higher unemployment rates
 
5. 
which of the following is true during the expansionary phase of the business cycle
 
real GDP increases
 
6. 
as the economy falls from the peak to the trough of the business cycle
 
cyclical unemployment should increase and real GDP should decline
 
7. 
the total value of goods and services produced within a nations boarders measured in constant prices refers to the
 
real GDP
 
8. 
a decline in an economy's level of output can lead to
 
a lower standard of loving
 
9. 
a decline in the real gdp for at least two consecutive quarters is referred to as
 
recession
 
10. 
which of the following is likely if an economy is in a recession or headed for 1"?
 
a decrease in consumer confidencea decrease in the rate of inflationan increase in unemployment
 
11. 
if the population of a country is 1000000 people its labor force consists of 800000 and 80000 people are unemployed the unemployment rate is
 
unemployment rate
unemployment rate= number of unemployed /size of labor force =80000/80000 = 10%
 
12. 
a stock person who is laid off by a department store because retail stores across the country have decreased is_______________unemployed.
 
cyclically


 
13. 
full employment in the U.S. economy means
 
the total employment rate has been reduced to zero
 
14. 
inflation is defined as
 
an increase in the average level of prices
 
15. 
inflation functions as a redistribution mechanism because people
 
have different abilities and incomes
 
16. 
real income
 
is real income adjusted for inflationis the amount of money income measured in constant dollars
reflects the purchasing power of money

 
17. 
the consumer price index
 
a measure of changes in the average price of consumer goods
 
18. 
which of the following are internal market forces
 
innovation
population spending behavior
 
19. 
external shocks to the economy
 
disruptions in trade
war, natural disasters
 
20. 
which of the following are policy levers
 
government regulation, tax policy, availability of money
 
21. 
which of the following concepts is consistent with classical theory
 
self adjustment of the economy\flexible priceslack of goverment intervention
 
22. 
the classical view of the economy is built on the concept
 
flexible wages and pricesself adjustment
 
23. 
says law sates that
 
supply creates its own demand
 
24. 
according to Keynes
 
small disturbances in prices or output were likely to be magnified by the market
government intervention in the economy is necessary at times
the economy is fairly unstable
 
25. 
any influences on macro outcomes must be transmitted through
 
aggregate supply and demand
 
26. 
the various quantities of output that all market participants are willing and able to buy at alternative levels in a given time period
 
aggregate demand
 
27. 
which of the following is not a reason for the downward slope of the aggregate demand curve
 
the income effect
 
28. 
the aggregate supply curve is upward sloping because
 
a higher price means wider profit margins and more incentive to produce
 
29. 
in macro equilibrium
 
buyers and sellers intentions are compatible
 
30. 
even if the economy is in macro equilibrium it is possible that the equilibrium
 
output is not optimal
 
31. 
which of the following is likely to occur if the U.S. government significantly increases spending o military weapons
 
aggregate demand will increase or shift to the right
 
32. 
if an economy is experiencing a recession the keynesian approach to achieving full employment is to
 
employ expansionary fiscal policy including tax cuts and more government spending
 
33. 
Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should
 
cut taxes and or increase government spending
 
34. 
which of the following ia an example of fiscal policy
 
a change in the government spending on goods and services;a change in taxes that affects consumer spending;a change in taxes that affects investment spending
 
35. 
monetary policy involves
 
the use of money and interest rates to influence the macro economy
 
36. 
a supply side policy approach to achieve both lower prices and full employment would be to
 
decrease marginal tax rates and reduce government regulation
 
37. 
fiscal policy involves
 
the use of government spending and taxes
 
38. 
inflation occurs when
 
aggregate demand increases faster than output
 
39. 
the four components of aggregate demand are
 
consumption,investment, government spending, and net exports
 
40. 
the largest component of aggregate demand for the U.S. economy is
 
consumption
 
41. 
expenditures on new plant and equipment plus changes inventories is known as
 
investment
 
42. 
net exports are
 
negative if american exports less goods that they import
 
43. 
which of the following will occur if aggregate demand is below full employment gdp
 
recession
 
44. 
the marginal propensity to consume
 
the percentage of disposable income spent on consumption
 
45. 
the multiplier is equal to
 
1/1-MPC
 
46. 
if consumers spend 80 cents out of every dollar received
 
multiplier =1/1-.80 =1/.2 =5
 
47. 
assume an MPC of .75. the change in total spending for the economy as a result of $20 billion new government spending injection would be
 
multiplier=1/1-.75 =4total change in spending= 4x 20 billion =80 billion
 
48. 
when we compare the total impact o aggregate demand of a 100 billion increase in government expenditures and a 100 billion decrease in taxes we find that the
 
increase on governt expenditures will have a greater total impact on aggregate demand
 
49. 
fiscal restraint
 
is used to reduce inflationary pressures results in leftward shift of aggregate demand includes tx hikes and spending cuts
 
50. 
m1
 
includes the most liquid forms of money;the narrowest definition of money supply;largely consists of transactions-account balances
 
51. 
one of the main functions of the bank is
 
creating money
 
52. 
if the banking system has a required reserve ratio of 25% then the money multiplier is
 
money multiplier=1/.25 = 4
 
53. 
when money serves as a mechanism for transforming current income into future purchases it is functioning as a
 
store of value
 
54. 
which of the following defines the money multip[lier
 
1/R
 
55. 
the term fractional reserve refers to
 
reserves being a fraction of total deposits
 
56. 
a firms variable cost
 
the level of output
 
57. 
which of the following are constraints on the ability of the banking system to create new money
 
willing borrowers;willing lenders;government regulation
 
58. 
the alternate measures of the money supply such as m1 m2 etc are all intended to reflect
 
variations in liquidity and accessibility of assets;whether deposits are domestic or international;how often depositors use the accounts
 
59. 
in the case of wide spread unemployment in the economy fiscal policy would call for the government running s=a budget
 
deficit
 
60. 
the policy tools
 
fiscal tax cuts changes in government spendingmonetary open market operations reserve requirements discount ratessupply side tax incentives for investment and saving deregulation education and training immigration trade policy
 
61. 
automatic stabilizer
 
federal expenditure or revenue item that automatically responds counter cyclically to changes in national income , unemployment benefits income taxes
 
62. 
fiscal year
 
the 12th month period used for accounting purposes : begins October 1 for federal government
 
63. 
stagflation
 
when the economy suffers from both inflation and unemployment at the same time
 
64. 
modern Keynesian's acknowledge that monetary policy might help
 
increases in the money supply may lower interest rates and give investment spending a boost
 
65. 
monetarists
 
believe the only response to a recession is patience
 
66. 
supply siders
 
-emphasize the need to improve production incentives.-urge cuts in marginal tax rates on investment and labor-find ways to reduce government regulation
 
67. 
four obstacles to policy success
 
goal conflicts ;measurement problems;design problems;implementation problems
 
68. 
in designing policy policy makers must depend on economic forecasts that is
 
informed guesses about what the economy will look like in the future