Econ 211 Exam 3 Chris Mann

Rule of 70 formula (# of years it takes to double)

70/growth rate

Income of high-income and lower-income countries get closer

convergence hypothesis

MPC equation

change in consumer spending/change in disposable income

MPS equation

1-MPC

consumption function

C=a+(MPC*yd)

Multiplier

1/(1-MPC)

present value (pv) equation

PV=FV/(1+r)

Future Value (FV) equation

FV=PV*(1+r)

savings-investment spending identity

savings and investment spending are always equal

If the multiplier is 4, the marginal propensity to save is

4=1/(1-MPC)

4(1-MPC)=1

(1-MPC)=.25

MPS=.25

A general increase in wages will result primarily in the________ curve shifting to the__________

short-run aggregate supply; left

Planned investment spending ______ the interest rate

is negatively related to

In an income-expenditure equilibrium

there is no unplanned inventory investment

Compared with bonds, stocks generally provide a _______ return and carry a _______ financial risk

higher; higher

Economists say that long-run economic growth is almost entirely due to:

rising productivity

The short run in macroeconomic analysis is a period in which many production costs can be taken as________

fixed

If private savings increase, the _______ loanable funds will_____, interest rates will ______, and the amount of borrowing will ______

supply of; increase; decrease; increase

The budget balance equals:

taxes minus government spending

The bigger the MPC, the _______ the multiplier

bigger

Investment in human capital causes ________ in the aggregate production function.

an upward shift

If real GDP exceeds aggregate expenditures, the economy will:

contract, reducing employment

hypothesis that states at any time, stock prices are fairly valued, reflecting all available information

efficient markets hypothesis

If disposable income increases there will be a _________ movement along the consumption function

rightward

The tendency for increases in the price level to increase the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases)

interest rate effect

The aggregate demand curve will shift _________ when consumer expectations improve

to the right

Among the public goods important for economic growth is:

political stability

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

stagflation

The SRAS curve slopes upward because a _______ aggregate price level leads to _______

higher; higher output

a part of unplanned investment and may either be positive or negative

Inventory investment

A recessionary gap will be eliminated because there is _______ pressure on wages, shifting the ________

downward; SRAS curve to the right

a higher growth rate of real GDP leads to higher planned investment spending

accelerator principle

gap that occurs when real GDP is less than potential output

recessionary

Producing a short-run level of aggregate output that exceeds the economy's potential output results in a(n) _____ adjustment in _____.

upward; nominal wages

Worker's skills made possible by education, training, and knowledge

human capital

If unplanned inventories rise then

the economy is slowing down

An improvement in the business outlook of firms is a type of positive_______shock and therefore shifts the_______ curve to the______

demand; aggregate demand; right

An increase in aggregate wealth will ______ and shift the consumption function_____

increase autonomous consumption; up

A decrease in aggregate demand will generate ______ in real GDP and ______ in the price level in the short run

a decrease; a decrease

Productivity is declining when

population growth exceeds real GDP growth.

The MOST important determinant of consumer spending is

disposable income

Potential output is the level of real GDP that the economy would produce if all prices were ________

fully flexible

Determinates of Consumer spending

wealth, expected disposable income, disposable income

In the long run, nominal wages are

flexible (because contracts and informal agreements are renegotiated in the long run)

the net inflow of funds into a country

Capital Inflow

_______ _______ means that private investment decreases when the government borrows money

Crowding Out

If the government increases its borrowing, then at every interest rate there is an ________ funds

additional demand for

when prices decrease, the purchasing power of assets increases and consumer spending increases (vice versa)

wealth effect

When the price level decreases, firms in perfectly competitive markets will

decrease output

the amount of output produced from a given amount of factor inputs

Total factor productivity