Acheive
Place each of the following transactions in the proper category of expenditure used to calculate GDP. - Apple sells a computer to Paris Hilton - Apple sells a computer to a public school in Paris, Kentucky - Apple sells a computer to an accounting firm in Paris, Illinois - Apple builds a computer to be sold next year - Apple sells a computer to a bakery in Paris, France
Consumption: - Apple sells a computer to Paris Hilton Government purchases: - Apple sells a computer to a public school in Paris, Kentucky Investment: - Apple sells a computer to an accounting firm in Paris, Illinois - Apple builds a computer to be sold next year Exports: - Apple sells a computer to a bakery in Paris, France
If 7 million workers are unemployed, 143 million workers are employed, and the adult population equals 200 million, then the unemployment rate equals approximately _____ percent.
4.7%
Assume that the consumption function is given by C = 150 + 0.85 (Y - T), the tax function is given by T = t0 + t1Y, and Yis 5,000. If t1 decreases from 0.3 to 0.2, then consumption increases by:
425
If Y = A(K^0.5)(L^0.5) and A, K, and L are all 100, the marginal product of capital is:
50
Congress passes new environmental laws that prohibit firms from using production methods that emit large quantities of pollution. Real GDP will __________; the well-being of the average person will ____________
Decrease; increase
Public Saving Equation
T-G
Abby consumes only apples. In year 1, red apples cost $1 each, green apples cost $2 each, and Abby buys 10 red apples. In year 2, red apples cost $2 each, green apples cost $1 each, and Abby buys 10 green apples. Assume that year 1 is the base year in which the consumer basket is fixed. Compute the CPI for apples for each year. Assume that year 1 is the base year in which the consumer basket is fixed. How does your index change from year 1 to year 2?
The CPI for year 1 is: 1 The CPI for year 2 is: 2 CPI has doubled
A farmer grows a bushel of wheat and sells it to a miller for $1. The miller turns the wheat into flour and then sells the flour to a baker for $3. The baker uses the flour to make bread and sells the bread to an engineer for $6. When the engineer eats the bread, what is the value added by each person? What is the bread's contribution to GDP?
The farmer's added value is $1 The miller's added value is $2 The baker's added value is $3 The bread's contribution to GDP is $6
According to the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 2.3 percent in the first quarter of 2018. This contrasts with the fourth quarter of 2017, when real GDP increased by 2.9 percent. According to the Bureau of Labor Statistics (BLS), the consumer price index (CPI) increased by 2.1 percent in 2017. This is the same as the rate of price inflation observed in 2016. The BLS also reports that the unemployment rate for April of 2018 fell to 3.9%, which is the lowest rate of unemployment since December of 2000. Use these data about the recent performance of the U.S. economy to classify each of the following statements as true or false a) The prices of all domestic products and services rose in 2017 b) In early 2018, real output in the economy rose, while unemployment declined c) Growth of real output slowed between the last quarter of 2017 and the first quarter of 2018 d) The low unemployment rate of early 2018 could have resulted from many discouraged workers leaving the labor force
True: b, c, d False: a
It is January 2008 and you're working as a management consultant. One of your clients emails you for your take on the latest employment numbers. She notes that employment only rose by 11,000 workers this month and wants to know whether she should be preparing for a recession. Without any knowledge of the future, what is your most accurate response? Remember, this is a client and bad advice could lead to a souring of your professional relationship.
While the small increase in employment may seem troubling, based on this observation alone, it isn't possible to tell whether the economy is or isn't entering a recession. We'll have to wait for a few more months of data to trickle in before we can really be sure.
The national income accounts identity for an open economy is:
Y = C + I + G + NX
national saving equation
Y-C-G
Private Saving Equation
Y-T-C
General Motors sells a car to Avis, the car rental company, out of its inventory. Show affect on US GDP and its 4 components
Y: does not change. C: does not change. I: does not change. G: does not change. NX: does not change
The federal government gives the Jackson family a tax cut, the proceeds from which the Jacksons save to buy a car in the future. Show affect on US GDP and its 4 components
Y: does not change. C: does not change. I: does not change. G: does not change. NX: does not change
General Motors sells a car to the Kim family out of its inventory Show affect on US GDP and its 4 components
Y: does not change. C: increases. I: decreases. G: does not change. NX: does not change
Volvo, the Swedish car company, makes a car and sells it to an American family. Show affect on US GDP and its 4 components
Y: does not change. C: increases. I: does not change. G: does not change. NX: decreases
General Motors(US) makes a car and sells it to Avis(US), the car rental company. Show affect on US GDP and its 4 components
Y: increases C: does not change. I: increases. G:does not change. NX: does not change
General Motors makes a car and sells it to a family in Mexico. Show affect on US GDP and its 4 components
Y: increases. C: does not change. I: does not change. G: does not change. NX: increases
General Motors(US) makes a car and sells it to the Baltimore police department. Show affect on US GDP and its 4 components
Y: increases. C: does not change. I: does not change. G: increases. NX: does not change
General Motors(US) makes a car and sells it to the Garcia family(US). Show affect on US GDP and its 4 components
Y: increases. C: increases. I: does not change. G: does not change. NX: does not change
Cobb-Douglas production function
Y=A(K^a)(L^1-a)
Macroeconomics can be considered a science because it... a) constitutes a systematized body of knowledge based on observed facts. b) uses real-world data to test and confirm predictions. c) produces conclusions that are used to justify political and legal actions
a and b a) constitutes a systematized body of knowledge based on observed facts. b) uses real-world data to test and confirm predictions.
Other things equal, an increase in the interest rate leads to:
a decrease in the quantity of investment goods demanded.
An increase in the price of goods bought by firms and the government will show up in: a) the consumer price index (CPI) but not in the gross domestic product (GDP) deflator. b) the GDP deflator but not in the CPI. c) both the CPI and the GDP deflator. d) neither the CPI nor the GDP deflator.
b) the GDP deflator but not in the CPI.
An example of increasing returns to scale is when capital and labor inputs:
both increase 5 percent and output increases 10 percent.
If a central bank wants to increase the money supply, it can _________ bonds in open-market operations or __________ reserve requirements.
buy; decrease
If nominal gross domestic product (GDP) in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator? a) 0.79 b) 1.03 d) 1.27 c) 3.2
c) 1.27
A typical trend during a recession is that: a) the unemployment rate falls. b) the popularity of the incumbent president rises. c) incomes fall. d) the inflation rate rises
c) incomes fall
Macroeconomic models: a) assume that all wages and prices are sticky. b) assume that all wages and prices are flexible. c) make different assumptions to explain different aspects of the macroeconomy. d) focus primarily on the optimizing behavior of households and firms
c) make different assumptions to explain different aspects of the macroeconomy.
Which of the following is not part of the money supply? a) the metal coins in your pocket b) the funds in your checking account c) the balances in your retirement account d) the paper currency in your wallet
c) the balances in your retirement account
If labor's share of income is approximately constant, the real wage...
closely tracks labor productivity.
Real gross domestic product (GDP) means the value of goods and services is measured in _____ prices
constant
If an increase of an equal percentage in all factors of production increases output of the same percentage, then a production function has the property called:
constant returns to scale.
The largest component of GDP is...
consumption
The Ford Motor Company makes a car in 2020 and sells it to the Jones family in 2021. Use this information to complete the statement below. This event increases...
consumption in 2021 and GDP in 2020
Public saving: a) is always positive. b) is the overall level of household wealth held in government bonds. c) is decided by the Federal Reserve. d) depends on the government's tax collections relative to its expenditures.
d) depends on the government's tax collections relative to its expenditures.
The market‐clearing model is useful in describing the market for haircuts because... a) haircut prices adjust almost instantly in response to changes in production costs and shifts in consumer demand. b) haircut prices adjust almost instantly, and they move in an unpredictable manner that minimizes profits in the market. c) haircut prices are slow to adjust in response to changes in production costs and shifting consumer demand, leading to "sticky prices." d) even though haircut prices are slow to change, they consistently adjust toward the market‐clearing equilibrium price over time
d) even though haircut prices are slow to change, they consistently adjust toward the market‐clearing equilibrium price over time
In an economic model: a) exogenous variables and endogenous variables are both determined outside the model. b) endogenous variables and exogenous variables are both determined within the model. c) endogenous variables affect exogenous variables. d) exogenous variables affect endogenous variables.
d) exogenous variables affect endogenous variables.
An economy has the Cobb-Douglas production function Y = 10 K^(1/3) L^(2/3). If the economy's stock of capital doubles, the share of total income paid to the owners of capital will... a) increase by 10 percent. b) increase by two-thirds. c) increase by one-third. d) stay the same.
d) stay the same.
All of these are flow variables EXCEPT: a) the number of new automobile purchases. b) the number of people losing their jobs. c) business expenditures on plant and equipment. d) the government debt.
d) the government debt.
Two equivalent ways to view gross domestic product (GDP) are as the: a) total payments made to all workers in the economy or the total profits of all firms and businesses in the economy. b) total expenditures on all goods produced in the economy or the total income earned from producing all services in the economy. c) total profits of all firms and businesses in the economy or the total consumption of goods and services by all households in the economy. d) total income of everyone in the economy or the total expenditure on the economy's output of goods and services.
d) total income of everyone in the economy or the total expenditure on the economy's output of goods and services.
A hurricane in Florida forces Disney World to shut down for a month. Real GDP will ____________; the well-being of those in the area will ___________
decrease; decrease
Firms throughout the economy experience falling demand, causing them to lay off workers. Real GDP will __________; the well-being of the average person will ___________
decrease; decrease
Increased hostility between unions and management sparks a rash of strikes. Real GDP will ________; the well-being of those in the area will _________.
decrease; decrease
A decrease in government purchases of goods and services, holding taxes constant, will ___________ the equilibrium real interest rate and ___________ investment.
decrease; increase
Assume that production follows a Cobb-Douglas production function. A wave of immigration increases the labor force. The real wage will __________, and the real rental price of capital will __________
decrease; increase
Assume that production follows a Cobb-Douglas production function. An earthquake destroy some of the capital stock.The the real wage will __________, and the real rental price of capital will _________
decrease; increase
Fathers around the country reduce their work weeks to spend more time with their children. Real GDP will _________; the well-being of the average person will _________
decrease; increase
Assume immigration increases the labor force in an economy described by a Cobb-Douglas production function. Please complete the following statement. The wage _____________ and the rental price of capital___________
decreases; increases
Suppose a woman marries her butler. After they are married, her husband continues to wait on her as before, and she continues to support him as before (but as a husband rather than an employee). Consider how this marriage impacts how output in the economy is calculated. When the butler stops receiving a wage after the marriage, the value of GDP__________ However, if GDP is meant to reflect the value of all domestically produced goods and services, then perhaps GDP should ________________ because the butler's services continue to be provided.
decreases; remain unchanged
How does it shift the curve? A hurricane destroys the grape crop, driving up the price of grape jelly, a complement to peanut butter in peanut butter and jelly sandwiches
demand curve shifts left
How does it shift the curve? A pandemic in the cow population drives up the price of cheese, a key ingredient of grilled cheese sandwiches, a substitute for peanut butter and jelly sandwiches.
demand curve shifts right
The investment function slopes _____ because there are _____ investment projects that are profitable as the interest rate decreases.
downward; more
If a person quits his job to become at a stay-at-home parent. Please complete the statement below. The labor-force participation rate ________, and the unemployment rate_________
falls; rises
Nominal GDP measures the value of the economy's output at current prices and is a ____________
flow variable.
According to the model developed in Chapter 3, when government spending increases but taxes stay the same, interest rates:
increase
Assume that production follows a Cobb-Douglas production function. A tchnological advance improves the production function. The real wage will ___________, and the real rental price of capital will ___________
increase; increase
The discovery of a new, easy-to-grow strain of wheat increases farm harvests. Real GDP will _________; the well-being of the average person will _________
increase; increase
When the Federal Reserve reduces the interest rate it pays on reserves, this tends to ___________ the money multiplier and _________ the money supply.
increase; increase
In a system of fractional-reserve banking, bank lending increases the...
money supply
A manager of a perfectly competitive firm observes that the marginal product of labor is 5 units per hour, the marginal product of capital is 40 units per machine, the wage is $20 per hour, the rental price of capital is $120 per machine, and the price of output is $5 per unit. Please complete the following statement. To maximize profit, the manager should hire ________ labor and rent _________ capital
more; more
real wage formula
nominal wage/price level
An economy's factors of production and its production function determine the economy's:
output of goods and services.
A competitive, profit-maximizing firm hires labor until the:
price of output multiplied by the marginal product of labor equals the wage.
An increase in the ________ interest rate ______________ investment.
real; decreases
Assume that production follows a Cobb-Douglas production function. High inflation doubles the prices of all factors and outputs in the economy. The real wage will ___________, and the real rental price of capital will _____________
remain unchanged; remain unchanged
Suppose that an increase in consumer confidence raises consumers' expectations about their future income and thus increases the amount they want to consume today. This might be interpreted as an upward shift in the consumption function. As a result of the change in consumer expectations, the interest rate _________, and investment ________
rises; falls
What happens if the government cuts taxes, holding other factors constant?
savings decrease
How does it shift the curve? A drought drives up the price of peanuts, an ingredient of peanut butter.
supply curve shifts left
How does it shift the curves? The invention of a new peanut grinding machine reduces the cost of producing peanut butter.
supply curve shifts right
marginal product of labor= real wage
the change in output from hiring one additional unit of labor (take derivative of labor)
In the national income accounts, government purchases are goods and services purchased by:
the federal, state, and local governments
marginal product of capital= rental price
the increase in output caused by the addition of one more unit of capital. (take derivative of capital)
The factor that makes national saving equal investment, in equilibrium, is:
the interest rate
equilibrium interest rate (r)
the interest rate at which the quantity of loanable funds supplied equals the quantity of loanable funds demanded
In a Cobb-Douglas production function, the marginal product of capital will increase if:
the quantity of labor increases.
Labor Share equation
wage x (L/Y)
Assume that a rancher sells McDonald's a quarter-pound of meat for $1 and that McDonald's sells you a hamburger made from that meat for $2. In this case, gross domestic product (GDP) increases by:
$2
Assume an economy has a national income of $1,200. Consumption is $600, taxes are $200, and government purchases are $300. Answer the following question. In this economy, national saving is...
$300
Suppose the government increases both taxes (T) and government purchases (G) by equal amounts. Assuming income (Y) is fixed by the factors of production, the change in national saving (ΔS) will be... The larger is the MPC (the closer it is to 1), the _________ will be the decline in investment, and the ____________ will be the increase in the interest rate.
(MPC-1) × ΔT. smaller; smaller
CPI equation
100 x (cost of basket in current year/cost of basket in base year)
Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be:
12 percent
Abby consumes only apples. In year 1, red apples cost $1 each, green apples cost $2 each, and Abby buys 10 red apples. In year 2, red apples cost $2 each, green apples cost $1 each, and Abby buys 10 green apples. Assume that year 1 is the base year in which the consumer basket is fixed. Defining the implicit price deflator as nominal spending divided by real spending, compute the deflator for each year. How does the deflator change from year 1 to year 2?
Deflator in year 1: 1 Deflator in year 2: 0.5 the deflator has fallen by half
Increasing or decreasing returns to scale? Scenario A: A small economy has many unemployed workers and much unused capital. However, unemployed workers have less work experience and education than those currently working. An increase in consumer demand causes all firms in the economy to hire 10% more workers and lease 10% more capital. Scenario B: A developing national economy currently employs a small percentage of its available labor force and capital. Increased global demand for the nation's output requires its firms to employ 10% more labor and 10% more capital. This change allows firms to try new and novel combinations of labor and capital in their production processes. Scenario C: A small island nation's economy consists solely of commercial fishing firms. These firms currently employ modest boats manned by small crews to efficiently harvest all of the 10-mile offshore perimeter of the nation's sovereign ocean waters. Each day, these boats go out to sea and return to the island to deliver their catch to buyers. A new treaty expands this legal fishing area to a 20-mile offshore perimeter. The firms respond by employing 10% more boats and 10% more crews to exploit this new opportunity.
Increasing: B Decreasing: A, C
Micro or Macro - Amazon now has a 40% share of all e-commerce revenues - tuition at the local university increased 11% from last year - congress recently passed the Tax Cuts and Jobs Act of 2017 - The US unemployment rate fell below 4% in 2018
Micro: - Amazon now has a 40% share of all e-commerce revenues - tuition at the local university increased 11% from last year Macro: - congress recently passed the Tax Cuts and Jobs Act of 2017 - The US unemployment rate fell below 4% in 2018
GDP deflator
Nominal GDP/Real GDP x 100
Abby consumes only apples. In year 1, red apples cost $1 each, green apples cost $2 each, and Abby buys 10 red apples. In year 2, red apples cost $2 each, green apples cost $1 each, and Abby buys 10 green apples. Assume that year 1 is the base year in which the consumer basket is fixed. Compute Abby's nominal spending on apples in each year. How does it change from year 1 to year 2?
Nominal spending in year 1: $10 Nominal spending in year 2: $10 Nominal spending stayed the same
An economy has 100 people working full-time, 20 people working half-time, 40 people looking for work, and 20 people who would like to work but have given up looking for a job after an unsuccessful search, 20 retirees, and 30 children. calculate labor statistics
Number of employed: 120 Number of unemployed: 40 labor force: 160 unemployment rate: 25% Labor force participation rate: 80%
Real GDP equation
Price of Base Year x Quantity of current year
Nominal GDP equation
Price x Quantity
Abby consumes only apples. In year 1, red apples cost $1 each, green apples cost $2 each, and Abby buys 10 red apples. In year 2, red apples cost $2 each, green apples cost $1 each, and Abby buys 10 green apples. Assume that year 1 is the base year in which the consumer basket is fixed. Using year 1 as the base year, compute Abby's real spending on apples in each year. How does it change from year 1 to year 2?
Real spending in year 1: $10 Real spending in year 2: $20 Real spending has doubled
A closed economy has income Y of 1200, consumption C of 800, government purchases G of 200, and taxes T of 150. Investment is determined by the equation I = 300 − 20r. a. Calculate national saving. b. Calculate public saving. c. Calculate private saving. d. Calculate equilibrium interest rate. e. If the government increases its purchases to 240, what is the new equilibrium interest rate?
a) National saving = $200 b) public saving = $-50 c) private saving = $250 d) equilibrium interest rate = 5 e) new equilibrium interest rate = 7
The total income of everyone in the economy is exactly equal to the total: a) expenditure on the economy's output of goods and services. b) consumption expenditures of everyone in the economy. c) expenditures of all businesses in the economy. d) government expenditures.
a) expenditure on the economy's output of goods and services.
If nominal GDP and real GDP both rise by 10 percent, then the GDP deflator a) is unchanged. b) rises by about 20 percent. c) also rises by 10 percent. d) falls by 10 percent.
a) is unchanged.
When the government subsidizes investment, such as with an investment tax credit, the subsidy often applies to only some types of investment. This question asks you to consider the effect of such a change. Suppose there are two types of investment in the economy: business investment and residential investment. The interest rate adjusts to equilibrate national saving and total investment, which is the sum of business investment and residential investment. Now suppose that the government institutes an investment tax credit only for business investment. a. How does this policy affect the demand curve for business investment? The demand curve for business investment______________ b. How does this policy affect the demand curve for residential investment? The demand curve for residential investment____________
a) shifts to the right b) remains unchanged
how does each scenario effect interest rate and loanable funds graph: a. The president signs a tax cut into law. b. An engineering advance induces many firms to upgrade their computer systems. c. Congress repeals an investment tax credit and uses the revenue to reduce other taxes. d. A flu pandemic induces consumers to stay at home rather than go shopping.
a) supply curve shifts to the left b) demand curve shifts to the right c) demand curve shifts to the left d) supply curve shifts to the right
All of these transactions that took place in 2009 would be included in gross domestic product (GDP) for 2009 EXCEPT the purchase of a: a) book titled The Year 3000 that was printed in 2009. b) 2001 Jeep Cherokee. c) year 2010 calendar printed in 2009. d) ticket to see the movie 2001.
b) 2001 Jeep Cherokee.
Which of the following events would affect the CPI but not the GDP deflator? a) Kellogg's, the American cereal maker, cuts the price of a box of corn flakes. b) Volvo, the Swedish auto maker, raises the prices of the cars it sells in the United States. c) Boeing, the American airplane manufacturer, raises the price it charges the U.S. Air Force for fighter jets. d) Barbers around the country raise the prices they charge for haircuts.
b) Volvo, the Swedish auto maker, raises the prices of the cars it sells in the United States.
Endogenous variables are: a) fixed at the moment they enter the model. b) determined within the model. c) the inputs of the model. d) from outside the model.
b) determined within the model.
