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ECON1102 Chapter Notes - Chapter 5: Loanable Funds, Potential Output, Business Cycle

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School
ANU
Department
Economics
Course
ECON1102
Professor
Timo

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Document Summary

Economic growth, the financial system and business cycle. Long run economic growth is the key to rising living standards. The australian economy experiences both long-run economic growth and the business cycle. The business cycle refers to alternating periods of expansion and contraction in economic activity relative to the trend in growth that the economy experiences in the long-run. Long-run economic growth is the process by which rising productivity increases the standard of living of the typical person. Because of economic growth, the typical australian today can buy more than five times as much as the typical australian of 1990. Long-run growth is measured by increases in real gdp per capita. Increases in real gdp per capita depend on increases in labor productivity. Labor productivity is the quantity of goods and services that can be produced by one worker or by one hour of work.

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Related Questions

*********The best answer plus points will go to the person who answers the questions correctly^^^^^ Please provide an explanation to answers..

Which one of the following statements is correct?

A. A. Most production possibilities curves illustrate decreasing marginal opportunity costs.

B. B. Relative scarcity is no longer a central idea in economics because we are in an age of abundance.

C. C. The production possibilities curve shows society's preferences for consumer goods relative to capital goods.

D. D. The central concept underlying the production possibilities curve is that of limited resources.


A government subsidy to the producers of a product:

A. A. reduces product supply.

B. B. increases product demand

C. C/ increases product supply.

D. D/ reduces product demand.


If the price of DVD players decreases, we can expect that the demand for DVDs will:

a. A. increase.

b. B. be unaffected.

c. C/ shift left.

decD. Decrease


Which of the following is assumed in constructing a typical production possibilities curve?

a. the economy is engaging in international trade.

b. production technology is fixed.

c. the economy is using its resources inefficiently.

d. resources are perfectly shiftable (equally efficient) among alternative uses.


A system of private property rights

A. A.enhances economic growth by creating incentives to the Fed to maintain stable prices.

B. B. enhances economic growth by increasing the probability that a person can gain from making investments today.

C. C. retards economic growth by serving the interests of the wealthy only.

D. D. retards economic growth by limiting the options of people who own nothing.


An increase in growth rates will cause the production possibilities curve to

a. A. shift inward.

b. B. become steeper.

c. C. become flatter.

D. d. shift outward.

If population growth is greater than the growth of real output,

A. A. real per capita Gross Domestic Product (GDP) growth will be less than the growth of real Gross Domestic Product (GDP).

B. B. the production possibilities curve is shifting to the left.

C. C. real per capita Gross Domestic Product (GDP) growth will be greater than the growth of real Gross Domestic Product (GDP).

D. D. real per capita Gross Domestic Product (GDP) and real Gross Domestic Product (GDP) will be growing at the same rate.


In general, economists have found that as nations' levels of per capita real Gross Domestic Product (GDP) increase,

A. A. the rate of population growth declines.

B. B. the rate of population growth experiences dramatic increases.

C. C. there is no effect on population growth.

D. D. the rate of population growth increases at the same rate as economic growth.




Question 3

According to Joseph Schumpeter, the theory of creative destruction describes a process by which

A

some new products unleash a gale of destruction that drive other new products out of the market.
B

new products unleash a gale of destruction that drives old products out of the market.
C

new products are created by the destruction of capital.
D

the creation of new products never involves the destruction of old products.

Question 4

Which of the following countries had the highest GDP per capita in 2012?

A Qatar
B

United States
C

Japan
D

Norway

Question 5

________ save a ________ of their income. This ________ capital in their economy and raises economic growth.

A

Developing countries; large proportion; decreases
B

Developing countries; small proportion; increases
C

High-income countries; large proportion; increases
D

High-income countries; small proportion; increases

Question 6

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

A

A

government
B

households
C

banks
D

firms

Question 7

The U.S. economy has been more stable since 1950.

True

False

Question 8

When the economy reaches a trough in a business cycle, which of the following will occur?

A

Income, production, and employment will continue to fall.
B

Income, production, and employment will begin to rise.
C

Income and production will rise, but employment will continue to fall.
D

Employment rises, but income and production will continue to fall.

Question 9

In a closed economy, what is the relationship between saving and investment?

A

Saving is greater than investment.
B

Investment is greater than saving.
C

Investment is equal to saving.
D

Investment may be greater or smaller than saving.

Question 10

The per-worker production function shows the relationship between ________ per hour worked and ________ per hour worked, holding ________ constant.

A

labor; real GDP; technology
B

capital; real GDP; technology
C

labor; capital; real GDP
D

capital; labor; real GDP

Question 11

New growth theory states that increases in ________ capital will result in ________ at the ________ level.

A

knowledge; increasing returns to scale; firm
B

physical; decreasing returns to scale; firm
C

knowledge; decreasing returns to scale; economy
D

knowledge; increasing returns to scale; economy

Question 12

Which of the following is not a reason why the Industrial Revolution occurred when and where it did?

A

The British government was committed to upholding private property rights.
B

The British government was able to eliminate arbitrary increases in taxes.
C

The British government was able to more easily seize wealth.
D

Institutional changes by the British government helped protect wealth.

Question 13

Growth in real GDP per capita for the world economy was greatest during

A

the seventeenth century.
B

the eighteenth century.
C

the nineteenth century.
D

the twentieth century.

Question 14

Which of the following is a normative statement about economic growth?

A

Economic growth is associated with higher labor productivity growth.
B

Economic growth increases GDP per capita.
C

Economic growth hurts developing countries.
D

Foreign direct investment stimulates economic growth.

Question 15

The effect of a recession on a company like Whirlpool Corporation is such that

A

sales decline more sharply for Whirlpool as compared to firms that do not produce durable goods.
B

profits fall less sharply as compared to firms that do not produce durable goods.
C

the decline in sales is more short-lived as compared to firms that do not produce durable goods.
D

there is no difference in the impact of the recession on its profits as compared to firms that do not produce durable goods.

Question 16

For the recessions in the United States since the 1950s,

A

cyclical unemployment has been non-existent.
B

unemployment rises on average by about 1.2 percentage points 12 months after a recession begins.
C

unemployment falls on average by 2 percentage points 12 months after a recession begins.
D

unemployment rises on average about 5 percentage points 12 months after a recession begins.

Question 17

You are an economic advisor to the president. You are asked to recommend a policy to promote long-term economic growth in the economy. Which of the following policies would you choose?

A

a reduction in sales taxes
B

an investment tax credit
C

a reduction in taxes on luxury yachts
D

All of these

Question 18

In comparison to a government that runs a balanced budget, when the government runs a budget deficit,

A

the equilibrium interest rate will fall.
B

business investment will fall.
C

household savings will fall.
D

None of these

Question 19

If labor productivity growth slows down in a country, this means that the growth rate in ________ has declined.

A

labor force participation
B

the quantity of goods or services that can be produced by one hour of work
C

the working-age population
D

nominal GDP

Question 20

Policies to promote growth by increasing saving and investment work through

A

decreasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.
B

increasing the supply of loanable funds, increasing the interest rate, raising the level of investment in physical capital.
C

increasing the supply of loanable funds, lowering the interest rate, lowering the level of investment in physical capital.
D

increasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.

Article by Brandon Fuller.

A nation's GDP is determined by its labor force, its capital stock, and its technological knowledge. An increase in the amount of capital per worker increases a nation's GDP. An improvement in technology allows a nation to get more GDP out of its existing capital stock. Technology refers to the way an economy organizes its labor and capital to produce goods and services. If two nations have the same number of workers and capital but one nation uses better technology to get more out of its labor and capital, it will generate more GDP. The nation with better technology has higher productivity - it gets more output per hour of labor input.

A recent Hal Varian commentary in the New York Times focused on the role of technological knowledge in explaining the different productivity experiences of Europe and the United States. Compared to Europe, the United States experienced much stronger growth in output per labor hour over the past decade. Why? The evidence suggests that American firms integrate information technology more quickly than their European counterparts. Follow the link to find out more: Productivity.