Download Unit 2 Study Guide Review Chapter 10 Question 1 It is widely

Unit 2 Study Guide Review
Chapter 10
Question 1
It is widely accepted among economists that increases in __________ __________ determine
improvements in the standard of living.
What are the three ways that labor productivity can increase?
#1.
#2.
#3.
Which of these three does long-run economic growth ultimately depend on?
Question 2
Give an example using the “Rule of 70” that demonstrates how quickly the standard of living in
a country could double (use any numbers you want to).
Using the Rule of 70, how long would it take for my investment of $ 100,000 to double if the
stock is growing at 3.5 %?
What is the equation to calculate the percentage change in real GDP (Y)?
Question 3
Use the equations from class to prove that national saving (S) and investment (I) are equal in the
long-run. Assume the economy is closed (NX = 0).
Question 4
Draw a graph showing how an increase in G affects the market for loanable funds. In the new
equilibrium, what is the effect on private investment (I)? What do we call this?
Question 5
Draw a complete business cycle. Label the peaks, the troughs, expansions, and recessions.
Explain how the inflation rate and the unemployment rate behave over the course of the business
cycle.
1
List and explain three reasons why the business cycle has become less severe in the United States
in the past five decades.
#1.
#2.
#3.
Chapter 12
Question 1
List and explain the four categories of spending in an economy.
#1.
#2.
#3.
#4.
Therefore, A.E. = ____________________.
Question 2
With respect to consumption spending (C), what five variables influence it?
#1.
#2.
#3.
#4.
#5.
Which one of these components is the most important to consumption?
Question 3
2
Determining the level of aggregate expenditure (A.E.) in the economy
Term
Definition or Equation
Consumption Function
Marginal
Propensity
Consume (MPC)
to
Question 4
Suppose your marginal propensity to consume (MPC) is 0.75. How much will your consumption
change if your disposable income (YD) rises from $ 10,000 to $ 20,000?
Question 5
Graphing Macroeconomic Equilibrium
Draw the 45°-line discussed in class. Clearly label the axes. What does this graph represent?
Now draw a line that represents the aggregate expenditure (A.E.) function for an economy on the
same graph.
Question 6
On the horizontal axis of your Keynesian cross above, identify three unique levels of real GDP:
a) a point where real GDP is equal to A.E. (Point A)
b) a point where real GDP is less than A.E. (Point B)
c) a point where real GDP is greater than A.E. (Point C)
Question 7
Of these three different GDP levels you identified, which one of these points represents an
economic expansion?
In this situation (an economic expansion), how will the economy adjust to reach its true
macroeconomic equilibrium?
3
Question 8
Of these three different GDP levels you identified, which one of these points represents a
recessionary?
In this situation (an economic contraction), how will this economy adjust to reach its true
macroeconomic equilibrium?
4