Long-run Growth – Principles of Macroeconomics

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Long-run Growth, Growth Rate, Consumer Goods, Ratio, Capital Goods, – Test

The key terms in this Macroeconomics course include Long-run Growth, Growth Rate, Consumer Goods, Ratio, Capital Goods, Economy, Circular Flow Model, Scarcity, Limited Resources, Unlimited Wants, Short-Run Approach, Principles of Macroeconomics.


Examine the two figures below. Which of these figures will experience a higher long-run growth rate, assuming their ratio of consumer goods to capital goods produced is constant over time?


A

Long-run Growth - Principles of Macroeconomics


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B

Long-run Growth - Principles of Macroeconomics



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Economy A, because it produces more consumer goods relative to capital goods.

Economy B, because it produces more capital goods relative to consumer goods. – correct

Economy B, because its ratio of consumer goods to capital goods produced is higher than Economy A’s ratio of consumer goods to capital goods produced.

It is not possible to tell from the information in the figures.

Explanation: Societies that invest a relatively larger percentage of their production into capital goods, which are a type of investment in future production, experience higher growth rates. The economy in Figure A produces more consumer goods than capital goods while the economy in Figure B produces an equal proportion of consumer goods and capital goods. So, the ratio of capital to consumer goods produced is higher in economy B, and consequently economy B's growth rate will be higher.


What role does money play in the circular flow model?

It increases the efficiency of a market. – correct

It increases the need for a barter economy.

Allows the households to bribe the firms into giving them what they want.

It increases the chances of having a double coincidence of wants other than money.

Explanation: Instead of bartering for goods and services, people use money to make transactions more likely since goods can be exchanged for money rather than only other goods. Money acts as a medium of exchange, enabling the economy to avoid the double-coincidence-of-wants problem.

The concept of scarcity in economics refers to

limited resources and limited wants.

unlimited resources and limited wants.

the fact that resources can sometimes be limited.

Limited resources and unlimited wants. – correct
Explanation: Even the most abundant physical resources, like the water we drink and the air we breathe, are limited in their use. A particular cup of water, for example, can only be used for one purpose at a time. Scarcity refers to the limited nature of society's resources, given society's unlimited wants and needs.

Which of the following would be consistent with taking the short-run approach to decision-making?

Studying for an economics test instead of going to a party

Going to the gym instead of watching TV

Eating a salad for dinner when it is your goal to eat healthily

Buying a new leather jacket instead of saving for retirement – correct

Explanation: In the short run, the individual is valuing the present over the future. Purchasing a leather jacket instead of saving for retirement is valuing future consumption over the value of the initial savings and the return on that savings in the long run

Examine the two figures below. Which of these figures will experience a higher long-run growth rate, assuming their ratio of consumer goods to capital goods produced is constant over time?


A

Long-run Growth - Principles of Macroeconomics


Click to view larger image.


B

Limited Resources & Lower Production - Macroeconomics



Click to view larger image.

Economy A, because it produces more consumer goods relative to capital goods.

Economy B, because it produces more capital goods relative to consumer goods. – correct

Economy B, because its ratio of consumer goods to capital goods produced is higher than Economy A’s ratio of consumer goods to capital goods produced.

It is not possible to tell from the information in the figures.

Explanation: Societies that invest a relatively larger percentage of their production into capital goods, which are a type of investment in future production, experience higher growth rates. The economy in Figure A produces more consumer goods than capital goods while the economy in Figure B produces an equal proportion of consumer goods and capital goods. So, the ratio of capital to consumer goods produced is higher in economy B, and consequently economy B's growth rate will be higher.



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