Exam 2 Review Questions PDF

Exam 2 Review Questions From Chapters 1,5,7,9 Which state is an example of increasing the capital- to labor ratio? - Giving construction crew more backhoes The answer is not c because that does not involve specific capital. GDP = Y = AF(L,K,H,N) L = land, K = capital input, H= Entrepreneursh...

Exam 2 Review Questions From Chapters 1,5,7,9 Which state is an example of increasing the capital- to labor ratio? - Giving construction crew more backhoes The answer is not c because that does not involve specific capital. GDP = Y = AF(L,K,H,N) L = land, K = capital input, H= Entrepreneurship, N = labor Situation that shows most output growth, you just multiply the growth, so if it's 10% for output and 10% for labor its 10* 10 for 100% growth. If you have an increase in capital concurrent with decrease in labor what will happen to output? - Stay, rise or stay the same You do not know directly how it changes If a country's currency appreciates, what impact will it have on aggregate demand or aggregate supply? a) AD will rise because the currency will buy more abroad b) SRAS will rise due to lower prices on imported goods If a country appreciates AD it will decrease because countries don't want to trade with you since it's too expensive. Exports go down, imports go up. GDP falls SRAS goes up. CAN'T BE A. The solution to simultaneous presence of inflation and unemployment is to implement policies that shift the: a) Aggregate demand curve to the left b) Aggregate demand curve to the right c) Short run aggregate supply to the right Any shift of AD will cause only 1 to change unemployment or inflation. Increasing output will create more jobs and lower costs of goods. Suppose the economy is at full employment and consumers spend more than usual. In the short run, prices will ___ in the long run prices will ___ a) increase , increase b) Increase; remain unchanged c) Remain unchanged, increase The answer is A because AD shifts to the right which increases inflation in the short term since prices have now gone up to the new equilibrium. Then SRAS shifts to the LRAS and leads to the new LRAS where it is higher. Suppose the economy is at full employment and consumers spend more than usual in the short run output will __ and in the long run output will ____. a) Remain unchanged; decrease b) increase ; remain unchanged c) Increase, increase d) Remain unchanged; increase The answer is B because initial increase and then in the long run, the economy tends to return to its potential output level because factors such as resource constraints and price adjustments come into play. Which item is NOT an example of investment in human capital? A) Apprenticeship B) Policy of universal education C) Acquisition of obsolete skills D) On the job training Human capital investment refers to activities that improve the skills, knowledge, and abilities of individuals to increase their productivity and earning potential. Apprenticeships, universal education policies, and on-the-job training are all investments that enhance valuable skills. However, acquiring obsolete skills does not improve one's productivity or value in the job market, making it not an example of investment in human capital. Aggregate Supply increase when a) there is a decrease in firms market power When firms have less market power (i.e., they face more competition), they may lower prices and increase output to stay competitive. NO MONOPOLY Developing countries tend to have a) limited supply and capital Which resource is an example of infrastructure? a) Computer manufacturing plant b) Coal mine c) New drained swamp d) Elementary school The other options are more directly related to capital or natural resources rather than infrastructure. The Long-Run Aggregate Supply (LRAS) curve is vertical at full employment because, in the long run, the economy's output is determined by its resources (labor, capital, technology, and natural resources) and not by the price level. This means that in the long run, the economy operates at its maximum sustainable level of output, also known as potential output or full-employment output, regardless of changes in the price level. LRAD is not vertical because it represents the total demand for goods and services in the economy at various price levels, and changes in the price level affect the purchasing power of consumers, interest rates, and international competitiveness. Increased taxes will shift the aggregate demand curve to the ___ and ___ output demanded a) Right; decrease b) left ; decrease The answer is B since increasing taxes will decrease consumption and output demanded by consumers. In the long run attempts to increase an economy's natural rate of unemployment will have what effect on output and inflation? a) Increased output b) Neither increased output not increased inflation c) Both increased output and increased inflation d) Increased inflation Unemployment and inflation have a direct relationship. As you increase unemployment you increase inflation. The long run aggregate supply curve is vertical because a) The economy will gravitate to the positions of full employment when all variables are flexible b) Wages, prices and interest rates are not flexible in the long run c) Many inputs are fixed The answer is A because in the long run, wages, prices, and other input costs are fully flexible, allowing the economy to adjust to any changes in demand or supply. Which factors will cause the aggregate demand curve to shift to the left? a) A fall in excess capacity of businesses> a decrease in business produces less than it can b) A rise in consumer confidence c) An appreciation of the dollar d) An increase in foreign income The answer is not A,B because those will increase the AD and also it is not D because when foreign income rises, people in other countries have more money to spend on imports, including goods and services from the domestic economy. Physical capital includes a) Physical talents of people b) Manufactured products that are used to produce other goods and services c) The ability to take physical resources and use them in creative ways to produce goods and services d) Land and raw resources from the earth The answer is B because physical capital encompasses the manufactured goods and tools that facilitate production, distinguishing it from human capital which is C and A and natural resources which is D Economic growth is measured in? Real GDP per Capita In the short run, the aggregate supply curve is ___ because input prices are __ a) Positively sloped, not completely flexible Prices are not fully flexible because of factors like the cost of changing prices, consumer expectations, market inertia, and the practical difficulties of constantly adjusting prices based on fluctuating supply and demand. Suppose the economy is at full employment and a booming market encourages consumption, What would most likely happen in the long run? a) The price level will fall and rGDP will fall b) RGDP first rises and then falls back to long run equilibrium c) Price level would fall and rGDP would rise A booming market leads to increased consumer spending, which boosts aggregate demand. This shift causes real GDP (rGDP) to rise above its long-run potential (full employment level). However, as the economy overheats due to excessive demand, factors such as higher wages and input costs will begin to rise. These increased costs will shift the short-run aggregate supply curve to the left, which eventually leads to a decrease in rGDP back to the long-run equilibrium level. A falling aggregate price level ___ demand for a countries exports and therefore ___ output demanded a) Increase, increase b) Reduces, reduces c) Reduces, increases d) Increases, reduces Lower pieces increase other countries' demand which increases the country's exports and therefore increases the output demanded since those exports have to be met with output. What are the determinants of short run aggregate supply? - Changes in input prices, taxes and business and inflationary expectations If a country has a low capital- to- labor ratio then it tends to have ___ labor productivity ___ wages. a) Low and low b) Low but high c) High but low The answer is A since it doesn't have enough labor productivity to make enough wages Which of these would be an example of a situation associated with short run economic growth? a) A new hybrid variety of a crop is produced that has a 20% higher than before yield b) A country reports that employment rises by 200,000, reducing the unemployment rate c) Firms purchase 5,000 additional conveyor belts to use in factories This scenario indicates an increase in economic activity and utilization of existing resources, which typically characterizes short-run growth. The other options involve longer-term changes in productivity or capacity rather than immediate increases in output or employment levels. What could cause the price level to decrease and employment to increase? b) shift to the right of the aggregate supply curve What happens if business expectations improve ? A) Aggregate demand shifts to the right B) Aggregate supply shifts to the right The answer is A since increase in investment Economic growth is shown as a ___aggregate supply curve. a) Shift to the right of the long run Economic growth means the economy's potential output is rising. Because the long-run aggregate supply curve is a vertical line at the economy's potential, we can depict the process of economic growth as one in which the long-run aggregate supply curve shifts to the right. The short run supply curve slopes upward because a) Wages increase at higher output levels in the short run b) Profits increase at higher price levels As firms produce more to take advantage of higher prices, they are willing to supply more, resulting in the upward slope of the short-run aggregate supply curve. Suppose the economy is at full employment, and energy prices spike. In the short run, output will _____; in the long run, output will _____. c) Decrease; remain unchanged The short run aggregate supply curve is positively sloped because a) A short run increase in GDP is accompanied by a slower rise in the price level b) Many inputs are slow to change in the short run c) All variables are fixed in the short run The answer is B because in the short run wages or the prices of raw materials are sticky or fixed, meaning they do not adjust immediately to changes in the economy, they take a while to adjust. Not all are fixed. The ability to use physical resources in creative ways to produce goods and services is known as. a) physical capital b) entrepreneurship ability, technology and ideas c) labor d) natural resources The answer is B since it combines human productivity with capital production Labor includes all of these factors EXCEPT the a) ability to use physical resources in creative ways b) mental talents of people c) physical talents of people d) time and effort provided by migrant workers on farms This is the only one that doesn’t have to do with labor, this option refers more to entrepreneurship or management, where individuals use resources efficiently. What is a determinant of aggregate supply? a) productivity