Term
| Investment spending projects are undertaken when the rate of return is: |
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Definition
| greater than the equilibrium interest rate |
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Term
| Providing a linkage between savers and investors is an important aspect of: |
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Definition
| a well-functioning financial system |
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Term
| A semiconductor firm is considering opening a new plant. The plant will generate profits of $100 million for each of three years after the first year of production and then zero profits after that. If the interest rate is 10%, what is the maximum cost (to the nearest million) the firm is willing to pay for the plant? |
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Definition
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Term
| The short-run aggregate supply curve illustrates: |
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Definition
| the positive relationship between the aggregate price level and aggregate output supplied |
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Term
| Suppose the economy is operating in long-run equilibrium. If a positive demand shock hist the economy, we would expect: |
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Definition
| a short-run increase in real GDP and the price level, and a long-run decrease in real GDP and increase in the price level |
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Term
| The point at which the long-run aggregate supply curve touches the x-axis is: |
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Definition
| the economy's potential output |
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Term
| The wealth effect suggests: |
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Definition
| a negative relationship between the price level and consumption spending |
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Term
| In the aggregate expenditures model, if real GDP exceeds aggregate expenditures, the economy will: |
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Definition
| contract, causing employment to decrease |
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Term
The MPC in the aggregate consumption function is:
(TEST 2 #9) |
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Definition
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Term
| The aggregate supply curve shows the relationship between: |
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Definition
| the aggregate price level and the quantity of aggregate output supplied |
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Term
If the government in a closed economy is running a budget balance of zero when it decides to increase defense spending by $200 billion and then finances the spending by selling goods, the government will crowd out $___ in private investment spending.
(TEST 2 #11) |
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Definition
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Term
| You receive an email from a firm proposing the following business deal. They will send you $1,000 now and in exchange you will send them $1,100 in one year. You will just break even from this deal if the annual interest rate is: |
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Definition
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Term
Suppose the consumption function rises by $200. The result would be an increase in the equilibrium of real GDP of:
(TEST 2 #13) |
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Definition
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Term
| All other things unchanged, a general decrease in the amount of government borrowing will typically: |
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Definition
| shift the loanable funds demand curve to the left |
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Term
| When the economy is in income-expenditure equilibrium: |
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Definition
| real GDP equals planned aggregate spending |
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Term
| The MPS plus the MPC must equal: |
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Definition
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Term
| You win a prize at your sorority and you are given the following options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest is 10%, the present value of option 1 is: |
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Definition
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Term
| According to the long-run aggregate supply curve, when ___, the quantity of aggregate output supplied ___. |
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Definition
| the aggregate price level rises, does not change |
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Term
| The short-run aggregate supply curve will decrease if: |
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Definition
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Term
| If Mega Corp. borrows $9,000 and agrees to pay the lender $10,500 in one year, the annual interest rate on this loan is approximately: |
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Definition
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Term
| Whenever GDP exceeds planned aggregate spending: |
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Definition
| firms reduce production, thereby reducing GDP |
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Term
| Which of the following would cause a shift in the short-run aggregate supply curve? |
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Definition
| a change in commodity prices |
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Term
| Actual investment spending equals: |
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Definition
| planned investment plus unplanned investment |
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Term
| Suppose the economy is in short-run equilibrium where the actual output is greater than potential output. The economy is in: |
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Definition
| an inflationary gap, nominal wages increase and SRAS will shift to the left until the actual GDP is equal to GDP in the long run |
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Term
| Which of the following is one of the reasons that the aggregate demand curve slopes downward? |
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Definition
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Term
| An increase in investment leads to ___ in the price level and ___ in real GDP in the short-run. |
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Definition
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Term
| Suppose investment spending increases by $50 billion and as a result the equilibrium income increases by $200 billion. The value of the MPC is: |
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Definition
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