Macro quiz 3

Question 1

Productivity

Answer 1

amount of goods and services produced for each hour of work, explains why standards of living vary so much

Question 2

Determinants of productivity

Answer 2

physical capital, human capital, natural resources, and technological knowledge

Question 3

Physical capital per worker

Answer 3

stock of equipment and structures used to produce goods and services ex. saws, lathes, drill presses

Question 4

Human capital per worker

Answer 4

knowledge and skills that workers acquire through education, training, and experience

Question 5

Natural resources per worker

Answer 5

land, rivers, mineral deposits, and other resources provided by nature and used as inputs into production

renewable and nonrenewable

Question 6

Technological knowledge

Answer 6

understanding of the best ways to produce goods and services

Question 7

Diminishing returns

Answer 7

as the stock of capital rises, the extra output produced from an additional unit of capital falls

Question 8

Higher saving rate in long run

Answer 8

In the long run, the higher saving rate leads to a higher level of productivity and income but not to higher growth in these variables

Question 9

Catch-up effect

Answer 9

controlling for other variables, such as percentage of GDP devoted to investment, poor countries tend to grow at faster rates than rich countries

Question 10

Foreign direct investment

Answer 10

capital investment that is owned and operated by a foreign entity

Question 11

Foreign portfolio investment

Answer 11

investment financed with foreign money but operated by domestic residents

Question 12

externality

Answer 12

effect of one person’s actions on the well-being of a bystander

Question 13

barin drain

Answer 13

emigration of highly educated workers to rich countries, where these workers can earn more

Question 14

Property rights

Answer 14

ability of people to exercise authority over the resources they own, need to be respected for this process to work 567567

Question 15

Inward-oriented policies

Answer 15

aim to increase productivity and living standards by avoiding interaction with the rest of the world

Question 16

Outward-oriented policies

Answer 16

integrate these countries into the world economy

Question 17

Public good

Answer 17

once one person discovers an idea, it enters society’s pool of knowledge, and other people can freely use it

Question 18

Affects of large labor force

Answer 18

large population means more workers are available to produce goods and services

Question 19

Determinants of standard of living

Answer 19

saving/investment, diminishing returns/catch-up effect, investment from abroad, education, health/nutrition, property rights/political stability, free trade, research and development, population growth

Question 20

Financial system

Answer 20

consists of the institutions that help match one person’s saving with another person’s investment

-move scare resource from savers (people who spend less than they earn) to borrowers (people who spend more than they earn)

Question 21

Financial markets

Answer 21

institutions through which a person who wants to save can directly supply funds to a person who wants to borrow

Question 22

Bond

Answer 22

certificate of indebtedness that specifies the obligations of the borrower to the buyer of the bond

Question 23

Date of maturity

Answer 23

time at which the loan will be repaid

Question 24

Principal

Answer 24

buyers of the bond give their money in exchange for the promise of interest and eventual repayment

Question 25

Term and perpetuities

Answer 25

term: length of time until the bond matures perpetuities: bonds that never mature

Question 26

credit risk, default, high-yield bond

Answer 26

credit risk: probability that the borrower will fail to pay some of the interest or principal default: the failure of payment high-yield bonds: raise money since its pays high interest

Question 27

Tax treatment and municipal bonds

Answer 27

tax treatment: way the tax laws treat the interest earned on it municipal bonds: bond owners are not required to pay federal income tax on th interest income and, income cases, may not need to pay state and local taxes either

Question 28

Inflation protection

Answer 28

Treasury Inflation-protected securities which generally pay a lower interest rate than similar bonds without this feature

Question 29

stock, equity finance, debt finance, stock index

Answer 29

stock: represents partial ownership in a firm and is a claim to some of the profits the firm makes equity finance: sale of stock to raise money debt finance: sale of bonds stock index: tack overall level of stock prices, computed as an average of a group of stock prices

Question 30

Financial intermediaries

Answer 30

financial institutions through which savers can indirectly provide funds to borrowers ex. banks and mutual funds

Question 31

Banks

Answer 31

take in deposits from people who want to save and use these deposits to make loans to people who want to medium of exchange: special asset that people use to engage in transactions store of value: wealth that people have accumulated in past saving in stocks and bonds

Question 32

Mutual fund

Answer 32

institution that sells shares to the public and uses the proceeds to buy a selection or portfolio of various types of stocks, bonds, or both advantage: allow people with small amounts of money to diversify their holdings, give ordinary people access to the skills of professional money managers,

Question 33

Index funds

Answer 33

buy all the stock in a stock index, perform somewhat better on average than mutual funds that take advantage of active trading by professional money managers

Question 34

Main goal of financial institutions

Answer 34

directing the resources of savers into the hands of borrowers

Question 35

Accounting

Answer 35

refers to the way in which various numbers are defined and added up

Question 36

Closed economy and open economy

Answer 36

one that does not interact with other economies and one that interacts with other economies around the world

Question 37

Closed economy equation

Answer 37

Y = C + I + G (closed, so no trade, so cut exports)

Question 38

National saving

Answer 38

Y - C - G = I (Y - C - G) -> total income in economy after paying for consumption and government purchases -> substitute S = I

Question 39

Two components of national saving

Answer 39

private saving (Y - T - C): amount of income that households have left after paying their taxes and paying for their consumption public saving (T - G): amount of tax revenue that the government has left after paying for its spending

Question 40

Budget surplus and budget deficit

Answer 40

surplus: (T - G) is positive deficit: (T - G) is negative

Question 41

saving vs. investment

Answer 41

saving: income exceeds consumption so purchasing stock or bonds investment: refers to the purchase of new capital such as equipment or buildings

Question 42

Market for loanable funds

Answer 42

income that people have chosen to save and lend out rather than use for their own consumption and to the amount that investors have chosen to borrow to fund new investment projects governed by supply and demand saving is the source of the supply for loanable funds

Question 43

Demand for loanable funds

Answer 43

comes from households and firms that wish to borrow to make investments investment is the source of the demand for loanable funds quantity of loanable funds supplied rises as the interest rate rises

Question 44

Affects of reform on tax laws saving and investing

Answer 44

saving incentive: encourage greater saving, the result is lower interest rates and greater investment investment incentive:encourage greater investment, the result is higher interest rates and greater saving

Question 45

Investment tax credit

Answer 45

gives tax advantage to any firm building a new factory or buying a new piece of equipment

Question 46

Balanced budget

Answer 46

government spending = tax revenue

Question 47

Crowding out

Answer 47

fall in investment caused by government borrowing represented by the movement along the demand curve

Question 48

Effects on supply and demand for loanable funds on budget deficit

Answer 48

when government reduces national saving by running a budget deficit, the interest rate rises, and investment falls, reduce economy's growth rate

Question 49

Flow of resources available to fund private investment

Answer 49

government budget deficit reduces the supply of loanable funds

Question 50

flow of resources available from private saving

Answer 50

government budget deficit would increase demand rather than reduce supply