Chapter 11: Economic Growth
Chapter 12: Growth Theory
Chapter 13: Aggregate Demand - Aggregate Supply
Chapter 14: Recessions, Expansions, & Debates
Chapter 15: Federal Budget
100
Compared to poorer nations, wealthier nations generally have fewer deaths among newborns and a greater percentage of adults who can do this.
Answer: What is read and write?
Explanation: Wealthier nations invest more in healthcare and education, leading to lower infant mortality rates and higher literacy rates.
100
According to early growth theory, the wealthiest countries in the world had more of this type of resource, which helped drive their economic growth.
Answer: What is physical capital?
Explanation: Early growth models emphasized physical capital—such as factories and machines—as a key driver of economic prosperity. However, modern theories recognize the importance of human capital, technology, and institutions as well.
100
Define Aggregate Demand.
Answer: What is… the total demand for final goods and services in an economy?
Explanation: Aggregate Demand is the sum of spending in an economy, so it relies on GDP = C + I + G + Nx.
Additional Note: You can know when AD shifts based on if it impacts GDP
100
The unemployment during the Great Depression, Great Recession, and Coronavirus Recession are…
Answer: What are 25%, 10%, and 14.7%, respectively?
100
What is Social Security and Medicare?
Answer: What is …. A government-administered retirement funding program and a mandated US federal program that funds health care for people over 65 yrs, respectively?
Explanation: Social Security requires a portion of a worker's earnings into the social security fund w/promise to receive it upon retirement.
Medicare: Ensure that all retired workers have some funding for their healthcare
Additional Note: The challenge is that the number of workers per retiree is decreasing. Workers per social security beneficiary was 5:1 in 1960; it’s now c. 3:1 and will be 2:1 by 2050.
Medicaid funds health care for those without jobs or low-income
200
The rapid economic growth that started during the Industrial Revolution was driven by a shift away from farming and towards this type of production.
Answer: What is manufacturing?
Explanation: As economies moved from agriculture to industrial production, technological advancements and increased efficiency led to higher incomes and improved living standards.
200
The Solow growth model suggests that an economy will eventually reach this condition, where capital accumulation stops increasing output.
Answer: What is the steady state?
Explanation: In the steady state, investment in new capital equals depreciation, meaning there is no net capital accumulation, and economic growth slows unless driven by technological advancements.
200
Define a Short-run Aggregate Supply.
Answer: What is … the period in which some prices have not yet adjusted
Explanation: It does not adjust because, in the short run, firms cannot change things rapidly because prices are sticky, contrasting to the long run.
Additional Note: What can shift AS is typically changes in resource prices, changes in the expectation of prices, and supply shocks. Think like a firm.
200
Define “NINJA” loans and their application to the Great Recession.
Answer: What is No Income, No Job or Assets?
Explanation: Banks were making reckless loans, which caused loans to fail, leading to a breakdown of the loanable funds market. This caused a decrease in AD, which caused the Great Recession.
Additional Note: The Dodd-Frank Act was introduced to prevent these issues.
200
What is the difference between Mandatory and Discretionary Outlays?
Answer: What is… alteration?
Explanation: Mandatory Outlays are composed of ongoing programs such as Social Security and Medicare
They cannot be altered unless there is long-term changes to the law
Discretionary Outlays can be changed or altered when the annual budget is set.
300
To get a more accurate measure of a country's economic progress, economists adjust total economic output for both price changes and population size, calling the result this.
Answer: What is real per capita GDP?
Explanation: Real per capita GDP accounts for inflation and changes in population, making it a better indicator of improvements in economic well-being than just total GDP.
300
On a production function graph, what happens when a country experiences a natural disaster that destroys a significant amount of its physical capital?
Answer: What is a downward movement along the production function?
Explanation: A loss of capital moves the economy downward along its production function, reducing output. However, the marginal product of capital increases, potentially leading to higher future investment and recovery.
300
A renewable energy company has found new technology making it easier to manufacture solar panels. What occurs.
Answer: What is a shift to the right in the LRAS?
Explanation: The new technology increasing the efficiency of manufacturing leading to a permanent increase in output. Demand and Supply will eventually adjust in the long run.
300
Key differences between Classical economics and Keynesian economics.
Answer: What is government intervention, price flexibility, and the market side of the economy?
Explanation: Keynes believed government intervention was needed, and Hayek believed the market needed to be left alone.
300
What is the difference between deficit and debt?
Answer: What is cumulative and one is annual?
Explanation: A deficit when government outlays are greater than/ or exceed revenue in a given amount of time (usually annual). While debt is the total of all accumulated debt and budget deficits (surplus removed from debt)
400
This simple rule helps estimate how many years it will take for a country’s income to double based on its annual growth rate by dividing 70 by that rate.
Answer: What is the Rule of 70?
Explanation: The Rule of 70 provides a quick way to understand the long-term impact of economic growth rates. For instance, if an economy grows at 5% per year, its income will double in 14 years (70 ÷ 5 = 14).
400
If a country experiences positive net investment, what will happen to its position on the production function graph?
Answer: What is an upward movement along the production function?
Explanation: Positive net investment means that new capital is being added, increasing output and shifting the economy to a higher point along the production function. However, due to diminishing marginal returns, each additional unit of capital increases output by a smaller amount.
400
There has been an increase in workers' union activity. Firms are expecting to increase the wages of their workers as protests grow. This can be expected to...
Answer: What is … a decrease in aggregate supply?
Explanation: From the firm's perspective, when they expect an increase in wages, which is an increase in input prices, they have to lower their supply.
400
What caused the COVID Recession? What occurred graphically?
Answer: What is a negative supply shock?
Explanation: The pandemic was a classic supply shock. This caused an abrupt shift in RAS to the left. There was also a decrease in demand, at a lesser scale. The shifts together caused a contractionary state/ recession.
400
Demographic changes that affect the future of social security and medicare.
Answer: What is …
People live longer
More retired workers
Baby Boomers reach 65 in 2011
Explanation: With people living longer, it means that the amount of time post-retirement for which individuals collect social security and medicare has increased, increasing the need for funds. The amount of retirements has also increased which causes an increasing need for SS and Medicare and the baby boomers entering retirement age does not decrease need as they are one of the largest generations. Young people may not be able to support SS, especially as there are less young than older workers.
500
Some countries rich in natural resources struggle with economic development due to corruption and poor management of their wealth, a problem known as this.
Answer: What is the resource curse (or paradox of plenty)?
Explanation: Instead of leading to prosperity, an abundance of natural resources can sometimes lead to economic instability, weak institutions, and lack of investment in education and innovation.
500
The Solow growth model predicts that poorer countries should grow faster than wealthier ones due to higher marginal returns on capital. This prediction is known as this economic concept.
Answer: What is convergence?
Explanation: Convergence suggests that poorer nations should catch up to wealthier ones because additional capital investment yields higher returns in capital-scarce economies. However, real-world data show that not all countries converge, often due to differences in institutions, policies, and access to technology.
500
In 2025, the government has made threats to introduce imports. Firms are expecting input prices to increase for their intermediate goods. Nothing is certain. Define the short-run and long-run effects (if tariffs are introduced) on price, output, and unemployment.
Answer: What is…..?
Short-run Effect:
- Prices - Increases
- Output - Declines
- Unemployment - Increases
Long-Run Effect:
- Prices - Increases, possibly decreases if markets adjust
- Output - Output would decrease with potential recovery if new efficient suppliers are found
- Unemployment - Decreases
Explanation: In the short run, the SRAS moves to left due to the expectation of increase in unemployment. In the long-run there are uncertainties, but due to permanent change in resources available the LRAS would move to the left, hypothetically.
500
What was the government's error during the Great Depression?
Answer: What is a decrease in the money supply?
Explanation: Policy makers became worried about creating an economic bubble, which made stocks too high. Due to incompetence/ error, they decided to reduce the money supply, leading to less borrowing and investment, eventually causing the collapse of 9,000 banks.
500
Name all Sources of Government Revenue and what they are.
Answer: What is…
Social Insurance Tax
Progressive Income Tax System
Marginal tax Rate
The Average Tax Rate
Explanation:
Social Insurance Tax: Social security and medicare come from the taxes on worker’s wages (15.3)
Progressive Income Tax System: People w/ higher incomes pay a larger portion of their income than people w/ lower incomes do
Marginal Tax Rate: Tax rate paid on an individual’s next dollar of income (based on your bracket)
The Average Tax Rate: is the total tax paid divided by the amount of taxable income (15%)