ECON101 Lecture Notes - Lecture 16: Normal Good

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harlequindinosaur217

17 Oct 2016

School

University of Alberta

Department

Economics

Course

ECON101

Professor

Gordon Lee

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ECON101 Full Course Notes

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Bear markets - downward trend in stock prices. Bull markets - upward trend in stock prices. Reputation of the company and its management staff. Moral and ethical standards (what does your company produce and how do they produce it?) Interest rates on bonds - when interest rates on bonds go up, stocks go down. Technology - the knowledge that society has about how to turn inputs into outputs. Also includes the skill level and the education level of the workers. Variable inputs: quantity of the input can be changed within the time period. Quantity varies with the amount of output produced. Fixed inputs: quantity of the input cannot be changed within the time period. Short run - time period in which at least one input is fixed. Long run - time period in which all inputs are variable. The total amount produced during some time period.

Related Questions

Ques. 1 Read the following comprehension and answer the given questions . (2 x 2= 4 marks)

People often ask economists for predictions about the future of the macroeconomy. Forecasts about the economyâs future, even from experts, are not unlike a baseball writerâs prediction of who will play in the next World Series. The prediction can seem well-reasoned and logical, but it is hardly foolproof. Certain statistical series tend to move in similar ways through all business cycles. Knowledge of these series and their tendencies can provide some insight into future business cycle movements. The Conference Board, a not-for-profit organization, publishes monthly updates of what is called the âindex of leading economic indicators.â The index is a weighted average of 10 statistical series that usually lead, or begin turning upward and downward, before the overall economy does. Because not all the components of the index turn before the business cycle hits a peak or a trough, movements in the index are more reliable than the movement in any one of its components. Among the most reliable of the leading indicators is an index of prices for 500 common stocks. Investors want to buy stock shares when their prices are relatively low and sell shares when prices are relatively high. During a recession, stock prices fall due to sluggish sales and profits. Interest rates are relatively low during the last months of recessions because of reduced demand for investment. In choosing between buying bonds and stocks, investors will favor stocks when: (a) stock prices have fallen to a point where there is a strong possibility of future capital gains, and (b) the opportunity cost of buying stocksâthe interest rate on bondsâis low. Therefore, prices of common stocks will usually begin to rise during the late stages of a business cycle, before a business expansion begins. As the economy moves near full employment during an expansion, the situation is reversed. Strong demand for consumer goods and investment will drive prices and interest rates upward. At some point, investors sell stocks to realize capital gains and buy bonds, rather than stocks, to take advantage of high interest rates. The downward movement in stock prices will usually begin before a recession begins.

a. Scientists make accurate predictions of the movement of asteroids and comets. Why canât economists make accurate predictions of business cycle movements?

b. Assume that the U.S. economy is in a recession. Mild weather results in lower demand for energy and a reduction in the price of oil. Investors interpret this as positive news for firms because their costs of production will be lowered. An increase in stock prices results. Will an economic expansion follow?

erinherring531

1. The multiplier helps explain

A. why a decrease in taxes causes real Gross Domestic Product (GDP) to fall by more than the amount of the decrease in taxes.

B. why a fall in investment cause real Gross Domestic Product (GDP) to rise by more than the amount of the decrease in investment.

C. why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending.

D. why an increase in disposable income causes real Gross Domestic Product (GDP) to rise by less than the amount of the increase in disposable income.

2. If the marginal propensity to save (MPS) increases, the multiplier

A. decreases.

B. can either increase or decrease, depending on what happens to the marginal propensity to consume (MPC).

C. stays the same.

D. increases.

QUESTION 60

The investment function will shift when there is a change in

		A. the opportunity cost of retained earnings.
		B. firms' profit expectations.
		C. the cost of borrowing.
		D. the interest rate.

1.43 points

QUESTION 61

In the Keynesian model, whenever planned saving exceeds planned investment,

		A. there will be unplanned inventory accumulation.
		B. real GDP will not be influenced.
		C. the interest rate will remain unchanged.
		D. there will be unplanned inventory depletion.

1.43 points

QUESTION 62

In the Keynesian model, whenever planned saving is less than planned investment,

		A. there will be unplanned inventory depletion.
		B. the interest rate will remain unchanged.
		C. there will be unplanned inventory accumulation.
		D. real GDP will not be influenced.

1.43 points

QUESTION 63

Government purchases

		A. are determined by the political process.
		B. are determined by the public.
		C. are influenced by interest rates.
		D. are determined by suppliers.

1.43 points

QUESTION 64

If, at some level of output, total planned real expenditures are less than real Gross Domestic Product (GDP),

		A. real GDP will either fall or remain unchanged, depending on the MPC.
		B. real GDP will rise.
		C. real GDP remains unchanged.
		D. unplanned inventories will increase and real GDP will fall.

1.43 points

QUESTION 65

When the economy is operating at the equilibrium level of GDP, we know that

		A. total planned real expenditures equal real GDP.
		B. real net exports equal inventory changes.
		C. planned real investment spending equals real net exports of zero.
		D. total planned real consumption expenditures equal real GDP.

1.43 points

QUESTION 66

One divided by the marginal propensity to save (MPS) is the formula for

		A. the inverse of the multiplier.
		B. the multiplier.
		C. one minus the multiplier.
		D. autonomous consumption.

QUESTION 67

Thinking like an economist would, which is true of investment?

		A. Investment represents spending on capital goods.
		B. Investment is a stock concept.
		C. Investment is putting money into stocks and bonds.
		D. It is the portion of disposable income that is not used for consumption or saving.

QUESTION 68

Other things being equal, if input prices rise in a country, then there would be

		A. cost-push inflation.
		B. demand-pull inflation.
		C. cost-pull deflation.
		D. more production and a lower price level.

QUESTION 69

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

		A. existing capital equipment can be used more intensively.
		B. wage rates rise almost simultaneously with the price level.
		C. the unemployment rate usually rises dramatically along with the price level.
		D. workers can be switched from counted to uncounted production.

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ECON101 Lecture Notes - Lecture 16: Normal Good

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