Macro Exam 1

Question

Prices were much higher in 2012 than 1890.
Were people economically better off in 1890?
Uncertain

If people were better off in 2012 than 1890, it must be true that _______ have risen faster than prices.
Incomes

Macroeconomic forecasting is mainly concerned with ?
predicting what will happen to the economy in the future.

According to the text, there are relatively few economists focused on economic forecasting because?
it is very difficult, because it is impossible to take into account all factors that impact future trends

.
What is a business cycle?
the short-run movements (expansions and recessions) of economic activity.

The unemployment rate ______ during recessions and ______ during expansions, and _______ reaches zero.
1.) Increases 2.) Decreases 3.)never

According to the text, which of the following conditions is necessary for a theory to be useful?
it must have implications that can be tested by empirical analysis.

A period of rising prices and high unemployment is know as?
Stagflation

Classical economists believe that the best way to solve the problem of high unemployment is:
to do nothing, the economy will rapidly adjust on its own.

For the purpose of assessing an economy's growth performance, the more important statistic is:
1.) Nominal GDP 2.) Real GDP 3.)The CPI
2.) Real GDP

real GDP is 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.

the correct interest rate for studying most economic decision is:
the expected real interest rate.

the problem with using the expected real interest rate to study economic decisions is that:
it is difficult to determine what the public's expected rate of inflation is.

Since U.S. investment is generally higher than U.S. national saving:
the U.S. current account balance is generally negative.

Real GDP:
and nominal GPD are equal in the base year because current prices and base-year prices are the same in the base year.

Goods and services are counted in GDP at market value:
so that different types of goods and services can be added together.  

a problem with using market values to measure production is that:
some goods and services are not sold in a formal market.

A nations gross domestic product is defined as the market value of final goods and services newly produced within a nation during a fixed period of time. There are many partial issues that arise in measuring economic activity as defined above. What is NOT on of them?
Capital goods are those that are used to produce other goods but not used up in the same period.

How does GDP differ from GNP?
GNP measures the output of factors of production owned by a nation, while GDP measures production taken place in a nation.

If a country employed many foreign workers, GDP is likely to be ______ GNP.
higher than

What is a use of economy's private saving?  
1.) Lending to foreigners 2.) Financing the government budget deficit 3.) financing investment in new capital, houses, and inventory.

Best explanation why the profit-maximizing level of employment for a firm occurs when the marginal revenue product (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-marginal condition be expressed in real terms?
MPN=W/P

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 of the adult population that is employed.

A temporary increase in the wage rate is likely to ______ the amount of labor supplied.
Increase

this is b/c for the temporary wage change:
the income is likely to be less than the substitution effect.

effect of a permanent wage increase?
for a permanent wage increase, the income effect is likely to exceed the substitution effect, and thus the amount of labor supplied will fall.

Which of the following will cause an increase in the demand of labor?
an increase in the productivity of workers.

When current income rises, desired consumption _______ and desired savings _____
1.) increases 2.) increases

when expected future income rises, desired consumption ______ and desired saving ______
1.) increases 2.) Decreases

When wealth rises, desired consumption ______ and desired savings _______
1.) increases 2.) Decreases

What are the two components of the user cost of capital?
1.) the real interest rate 2.) the real rate of depreciation.

What two explanations of productivity growth does endogenous growth theory offer?
Accumulation of human capital and technological innovation.

The the Solow model, the production function _______, while in the endogmous growth model, the production function ________.
exhibits diminishing marginal productivity; does not exhibit diminishing marginal productivity.

What is meant by a steady state, in terms of Solow Model?
output per worker, consumption per worker, and capital per worker all grow at the same rate, and all grow at a constant rate.

of the three sources of growth identified by growth accounting, which one is primarily responsible for the slowdown in the U.S. economy growth after 1973?
growth in productivity

what are the main sources of economic growth, according to the growth accounting system?
Growth in capital Growth in labor Growth in productivity