Eco-2013 Exam Ii Review

Front 1

Neoclassical Growth Theory

Back 1

Proposition that the real GDP per person grows because technological change induces saving and investment that make capital per hour of labor grow

Front 2

Loanable Funds Market

Back 2

The aggregate of all the individual financial markets

Front 3

New Growth Theory

Back 3

holds that real GDP per person grows because of the choices people make in the pursuit of profit and that growth will persist indefinitely

Front 4

Net Investment

Back 4

(Gross investment) -- (Depreciation)

Front 5

An increase in labor productivity

Back 5

Shifts demand for labor curve rightward and the production function upward

Front 6

Growth rate of real GDP per capita

Back 6

(Growth Rate of Real GDP) -- (Growth Rate of the Population)

Front 7

Crowding-out Effect

Back 7

The tendency for a government budget deficit to raise the real interest rate and decrease investment

Front 8

Households make saving decisions by considering all of the following factors

Back 8

1. default risk

2. disposable income

3. wealth

Front 9

Classical Growth Theory

Back 9

View that the growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion eventually brings it back down to the subsistence level

Front 10

The output gap

Back 10

The gap between real and potential GDP

Front 11

Recessions cause the output gap to be _____.

Back 11

negative

Front 12

New Goods Bias

Back 12

New products are introduced to the market near recalibration and are expensive

Front 13

Quality Change Bias

Back 13

CPI overstates inflation because part of price increase is an improvement in quality

Front 14

CPI is

Back 14

upwardly biased

Front 15

Substitution Bias

Back 15

Consumers choose cheaper substitutes;

CPI ignores the substitution

Front 16

Outlet Bias

Back 16

CPI ignores online and discount stores.

CPI overstates the inflation

Front 17

Investment equation

Back 17

Investment = Savings + (Taxes - Gov't Spending) + (Imports - Exports)

I = S + (T-G) + (M-X)

Front 18

AE > GDP

Back 18

Decrease in inventory

Real GDP and employment increase

Front 19

AE < GDP

Back 19

Increase in inventory

Real GDP and employment decrease

Front 20

Aggregate Expenditure Equation

Back 20

Y = C + I + G + X - M

Front 21

Income approach to measuring GDP sums together ________.

Back 21

Compensation of employees net interest, rental income, corporate profits, and proprietors' income

Front 22

To make income equal GDP you must (two things)

Back 22

Add taxes less subsidies

Add depreciation

Front 23

GDP is not a perfect measure of well-being because _______.

Back 23

GDP is not adjusted for pollution,

Front 24

The unemployment rate is supposed to _______.

Back 24

measure underutilized labor

Front 25

What is an example of frictional unemployment

Back 25

Robin s quitting his current job to find another that has better prospects

Front 26

What is an example of structural unemployment

Back 26

Outsourcing resulted in many job losses in the mid 2000s.

Front 27

Growth Rate of Real GDP per capita =

Back 27

= (Growth rate of real GDP) - (Growth rate of population)

Front 28

What 3 factors increase the demand for loanable funds?

Back 28

1. Real interest rate

2. Expected profitability

3. corporate or business income taxes

Front 29

What 4 factors affect the supply of loanable funds?

Back 29

1. Real interest rate

2. Disposable income

3. Expected future income

4. Wealth

Front 30

The components of aggregate expenditure that are influenced by GDP are _______.

Back 30

Consumption expenditure and imports

Front 31

When real GDP increases, the change in consumption expenditure equals ______.

Back 31

The MPC x the increase in real GDP

Front 32

When real GDP increases, the change in imports equals ______.

Back 32

The MPI x the increase in real GDP

Front 33

Real GDP increases by more than the increase in investment because ______.

Back 33

Induces an increase in consumption expenditure