Chapter 21-24 Econ 2013
Formula to calculate quarter GDP
(Last quarter-First Quarter)/ First quarter multiply by 100
The nominal interest rate is 3 percent a year and the real interest rate is 3 percent a year. What is the inflation rate?
0 nominal interest rate - real interest rate = inflation rate
Juanita worked hard all year so that she could go to nursing school the following year. She put her savings into a mutual fund that paid a nominal interest rate of 4 percent a year. The CPI was 180 at the beginning of the year and 185 at the end of the year. What was the real interest rate that Juanita earned?
1.2%
The labor force participation rate of women increased most during the _______.
1970s
The labor force participation rate of men decreased most during the _______
2000s
Suppose the CPI in 2016 is 180 and the CPI in 2017 is 192.6 What is the inflation rate in 2017? The inflation rate in 2017 ______.
7% might be higher, lower, or the same as in 2016
A south sea island produces only coconuts. In 2010, the price of a coconut is $2.50 and the quantity produced is 200 In 2015, the price of a coconut is $3.50 and the quantity produced is 300. 2010 is the base year. Real GDP in 2015 is _____.
750 300*2.50
Consider the business cycle, and then choose the statement that is correct.
A business cycle is periodic but irregular.
Consider the nominal wage rate and the real wage rate, and then choose the correct statement.
A change in the real wage rate measures the change in the quantity of goods and services that an hour's work can buy. A change in the nominal wage rate measures a combination of a change in the quantity of goods and services that an hour's work can buy and a change in the price level.
Classify each of the following items as a final good or service or an intermediate good or service, and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services. A. A new limousine for the president B. A new apartment building C. Packing boxes bought by Amazon D. Banking services bought by a student
A is a final good that is government expenditure B is a final good that is investment C is an intermediate good D is a final service that is a consumption expenditure
Which of the following events increases the amount of job-rationing unemployment?
An increase in the efficiency wage rate
______ good is used as a component of a final good. We ______ add the value of intermediate goods produced to the value of final goods to measure GDP.
An intermediate; do not
Despite some optimism about the seeds of recovery, the Congressional Budget Office (CBO) sees joblessness rising. The CBO sees unemployment peaking at 10.4% next year from an average of 9.3% this year, before it falls to 9.1% in 2011. Source: Fortune, August 25, 2009 Why does unemployment continue to rise as an expansion begins?
As an expansion begins, previously marginally attached workers look for jobs, exceeding the number of people hired.
On Coral Island in 2014, the labor force is 12,000, the unemployment rate is 10 percent, and the labor force participation rate is 60 percent. During 2015, 200 unemployed people found jobs and the working-age population increased by 1,000. The total number of people in the labor force did not change. Calculate the working-age population, the unemployment rate, and the labor force participation rate at the end of 2015.
At the end of 2015, the working-age population is 21000 At the end of 2015, the unemployment rate is 8.3 At the end of 2015, the labor force participation rate is 57.1
Choose the statement that is correct about U.S. unemployment.
At the height of the Great Depression, one in four people who wanted jobs couldn't find them.
The U.S. unemployment rate ______.
Averaged 5.8% between 1948 and 2016
Why did real GDP have the faster growth rate?
Because prices decreased
In Brazil, the reference base period for the CPI is 2000. By 2005, prices had risen by 51 percent since the base period. The inflation rate in Brazil in 2006 was 10 percent, and in 2007, the inflation rate was 9 percent. Calculate the CPI in Brazil in 2006 and 2007. Brazil's CPI in 2008 was 173. Did Brazil's inflation rate increase or decrease in 2008?
CPI 2006 = CPI 2005 * 1.10 = 151.1 *1.10 = 166.1 CPI 2007 = CPI 2006 * 1.09 = 181.2 Brazil's Inflation rate decreased in 2008
A Consumer Expenditure Survey in the city of Firestorm shows that people buy only firecrackers and bandages. A Consumer Expenditure Survey in 2016 shows that the average household spent $195 on firecrackers and $66 on bandages. In 2016, the reference base year, the price of a firecracker was $33, and the price of bandages was $22 a pack. In the current year, 2017, firecrackers are $66 each and bandages are $11 a pack. Calculate the CPI market basket and the percentage of a household's budget spent on firecrackers in the base year.
CPI Market basket is 65 firecrackers and 3 packages of bandages % of household's budget spent on firecrackers is 97% (195+6) = 201 195/201 = 97
The CPI in April 2013 was 233 and 0.4% lower than the March. In April, food prices rose 0.2% while energy prices fell 4.3%. Source: USA Today, June 15, 2011 Distinguish between the price level and the inflation rate and explain why the CPI fell by only 0.4 percent when energy fell by 4.3 percent. The ______ is the price level and the ______ is the inflation rate. Because the CPI fell by only 0.4 percent when energy prices fell 4.3 percent, then _______.
CPI; percentage change in the CPI other prices must have risen by more than 0.4 percent
The Commerce Department reported that in December 2015, retail sales rose by 0.2, net exports decreased, inventories held by businesses rose by 0.1 percent, and total sales by businesses fell by 0.6 percent. Source: Commerce Department, February 2016 Which component of GDP changed because retail sales increased? Which component of GDP changed because business inventories increased?
Consumption expenditure; Investment
Which of the events in the table increase the equilibrium quantity of labor and which decrease the equilibrium quantity of labor? Event 1. Dell introduces a new supercomputer that everyone can afford. 2. A major hurricane hits Florida. 3. More high school graduates go to college. 4. The CPI rises. 5. An economic slump in the rest of the world decreases U.S. exports. An increase in the equilibrium quantity of labor is a result of ______. A decrease in the equilibrium quantity of labor is a result of ______.
Event 1 Events 2 and 3
Where do items in the news clip appear in the U.S. National Income and Product Accounts and the circular flow of expenditure and income?
Expenditure on goods purchased at garage sales does not appear in the U.S. National Income and Product Accounts and does not appear as a flow in the circular flow of expenditure and income.
Students who leave school in the spring and look for work are one source of _______
Frictional unemployment
Which of the following is included in the measure of U.S. GDP?
Hershey's Kiss produced and sold in the US
Classify each of the following items as a final good or an intermediate good, and classify the expenditure on each final good as consumption expenditure or investment: Item 1. The ringtone you bought today Item 2. New computers bought by PepsiCo Item 3. New Kitchen equipment bought by Burger King Item 4. Aluminum cans bought by CocaCola
Item 1 is a final good that is a consumption expenditure Item 2 is a final good that is an investment Item 3 is a final good that is investment Item 4 is an intermediate good
Classify each of the following items as a final good or an intermediate good, and classify the expenditure on each final good as consumption expenditure or investment: Item 1. A new apartment building Item 2. New aircraft bought by Southwest Airlines Item 3. Aluminum cans bought by CocaCola Aluminum Item 4. A haircut bought by a student
Item 1 is a final good that is an investment Item 2 is a final good that is an investment Item 3 is an intermediate good Item 4 is a final good that is consumption expenditure
Choose the correct statement
Market Prices and factor cost diverge because of indirect taxes and subsidies
One of the reasons why this decrease occurred was that _____.
More younger men decided to remain in full time education More older men decided to retire early
Which of the following are included in the expenditure approach to measuring GDP?
Net exports of goods and services; investment; government expenditure on goods and services
An economy produces only robots, pens, and pizza. The table gives the quantities produced and prices in 2016 and 2017. The base year is 2016. What is nominal GDP in 2016 and in 2017?
Nominal GDP 2016 = 14 Nominal GDP 2017 = 132 Add up each separate year
If the base year is 201, calculate the economy's nominal GDP and real GDP in 2016
Nominal: (60*.50)+(80*.25)=50 Real: (60*1.00)+(80*2.00)=220
Which of the following are included in the income approach to measuring GDP?
Profit, interest, indirect taxes less subsidies
Which had the faster growth rate, nominal GDP or real GDP?
Real GDP
The unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the location of jobs is ______
Structural unemployment
Consider unemployment in the industrialized world. Choose the correct statement.
The Eurozone has a higher average unemployment rate than the United States.
Consider the GDP price index and the CPI, and then choose the correct answer.
The GDP price index is not an alternative to the CPI as a measure of the cost of living.
Hawaiian Airlines will hire more workers as it expands its fleet. The new hirings are a welcome sign for Hawaii's economy, which lost jobs during the year to May 2009 as the state's unemployment rate rose from 4% to 7%. Source: USA Today, August 18, 2009 The labor force was 602,000 in May 2009 and 622,600 in May 2008. Calculate the change in the number unemployed between May 2008 and May 2009.
The number unemployed in May 2008 is 24904 (622600*.04) The number unemployed in May 2009 is 42140
Bureau of Economic Analysis data show that with base year 2005 = 100, the GDP price index was 109.7 in the second quarter of 2009. In that same quarter, the PCEPI was 108.8. Given the further information that the prices of capital goods (investment) and foreign traded goods (exports and imports) increased at a slower pace than the prices of consumption goods and services, how would you explain the difference in the GDP price index and PCEPI measures of inflation? Choose the correct statement.
The prices of government goods and services increased at a faster pace than the prices of consumption goods.
Which of the following is an example of investment?
The purchase of a new assembly line by Ford The purchase of a new espresso machine by Starbucks
Which of the following is an example of government expenditure on goods and services?
The purchase of airline tickets by Congress to send members to visit overseas troops Secret service protection for the president
The Commerce Department reported that retail sales increased 1.3 percent in June. Net exports were up 0.8 percent in the first quarter and inventories held by businesses rose by 0.3 percent in June. Total sales by businesses rose 0.3 percent. Source: Commerce Department, 2013 Does the statement that total sales by businesses were up 0.3 percent mean that GDP increased by 0.3 percent? Explain your answer
The statement that total sales by businesses were up 0.3 percent means that GDP ______ because ______. did not change by 0.3 percent; GDP measures production of all final goods and services and "total sales by businesses" includes final and intermediate goods and services
Consider what is included in the measurement of GDP, and then choose the correct statement.
The underground economy, which is not included in GDP is the part of the economy that is hidden from the view of the government.
What is a characteristic of an economy at full employment?
The unemployment rate equals the natural unemployment rate
Consider U.S. unemployment and choose the correct statement.
There is always someone without a job who is searching for one, so there is always some unemployment.
The United Nations Human Development Report gives the following data for real GDP per person in 2002: China, $4,580; Russia, $8,230; Canada, $29,480; United States, $35,750. Life expectancy at birth is 79.3 in Canada, 77.0 in the United States, 70.5 in China, and 66.7 in Russia. Freedom House rates political freedom each year, and its ratings are as follows: Canada and the United States, 1.1 (1.0 is the most free); Russia, 4.5; and China, 7.6 (ratings in the 7+ range are the least free). How do life expectancy at birth and political freedom change the relative ranking of living standards that real GDP per person indicate?
They don't change the relative ranking because they rank countries in a similar way as real GDP per person ranks them.
A BLS labor market survey interviewer recorded the facts about the 10 people on the four households shown in the table. Calculate the unemployment rate and the labor force participation rate for these ten people. How do the rates compare to the rates in the United States? The unemployment rate in this community is _______ the unemployment rate in the United States in 2016. The labor force participation rate in this community is _______ the labor force participation rate in the United States in 2016.
Unemployment is 16.7 percent Labor force participation is 60 percent greater than; less than
GDP in the United States increased between 2016 and 2017. Which of the following could NOT account for this increase?
We paid lower prices for our goods and services and production remained constant.
One of the reasons why this rapid increase occurred during this decade was that ______.
Women had more time for paid employment
______ is an example of U.S. consumption expenditure.
Your purchase of a tire for your car
Cough medicine bought by Tracy who has a cold is an example of _______. Your checking account is an example of _______
a final good neither an intermediate nor a final good
Suppose that the United States cracks down on illegal immigrants and returns millions of workers to their home countries. Draw a labor supply curve and a labor demand curve for Mexico. Label the curves LS0 and LD0. Draw a point to show the equilibrium quantity of labor and the equilibrium real wage rate. Label it 1. Now suppose the United States returns millions of illegal immigrant workers to their home countries. Draw a curve that shows the effect of this return of workers in Mexico. Label it. Draw a point to show the new equilibrium quantity of labor and the equilibrium real wage rate. Label it 2. The effect of the United States returning millions of workers to their home countries is _____ Mexico's production function and _____ in potential GDP.
a movement up along; an increase
In the United States, the CPI basket consists of items that ______. ______ has the greatest weight in the CPI basket.
an average urban household buys; Housing
An economy produces only fun and food. The table shows the prices and the quantities of fun and food produced in 2016 and 2017. The base year is 2016. Potential GDP in 2016 is $270 and it grew by 1 percent in 2017. The economy is in ______ because ______ between 2016 and 2017.
an expansion; real GDP is increasing
To make comparisons of real GDP between two countries we must ______.
convert the real GDP of one country into the same currency units as the real GDP of the other country, and use the same prices to value the goods and services in the countries being compared
The type of unemployment that fluctuates over a business cycle is ____
cyclical unemployment
National income less retained profits plus transfer payments less personal income taxes equals ______.
disposable personal income
CPI bias is a problem because it ______.
distorts wage agreements linked to the CPI
Real GDP ______.
does not include a measure of leisure time, environmental quality, political freedom, or social justice
A marginally attached worker is a person who _______.
doesn't work, is available and willing to work, but hasn't looked for a job recently
The United States _______ have the highest HDI in part because _______.
does not; Americans do not have access to universal healthcare
Net exports of goods and services increase when ______
exports of goods and services decrease but imports of goods and services decrease by more than exports decrease
The items that firms in the United States produce and sell to the rest of the world are ______. The items that households, firms, and governments in the United States buy from the rest of the world are ______.
exports of goods and services; imports of goods and services
U.S. gross domestic product is the market value of all the ______ produced ______ in a given time period.
final goods and services; within the United States
Last month, the interest rate on a money fund averaged 0.08% a year and on 5-year CDs it was 2.6% a year. The inflation rate was 0.1% a year. To maintain these real interest rates in the coming months, how will these nominal rates change if the inflation rate increases to 0.2 percent a year?
increase on both assets by 0.1 percent
The U.S. labor force participation rate ______.
increased from 59% in 1960 to 67% in 1999
Between 1960 and 1999, the labor force participation rate ______.
increased mainly because the number of women who entered the labor force increased
A discouraged worker ______.
is a marginally attached worker who has not made specific efforts to find a job within the previous four weeks because previous unsuccessful attempts were discouraging
When the unemployment rate ______ the natural unemployment rate, real GDP ______ potential GDP.
is greater than; is less than
The natural unemployment rate ______.
is the unemployment rate at full employment
he U.S. Department of Labor reported that Michigan's unemployment rate in June 2009 rose to 15.2%, becoming the first state in 25 years to suffer an unemployment rate exceeding 15%. Michigan has been battered by the collapse of the auto industry and the housing crisis and has had the highest unemployment rate in the nation for the past 12 months. Source: CNNMoney, July 17, 2009 Why is the reality of the unemployment problem in Michigan actually worse than the unemployment rate statistic of 15.2 percent?
it does not include marginally attached and discouraged workers and part-time workers who want full-time jobs
When the unemployment rate is ______ than the natural unemployment rate, cyclical unemployment is _______.
less; negative
A structural boom ______.
lowers the natural unemployment rate because new jobs are found quickly
The value of exports of goods and services minus the value of imports of goods and services is _______.
net exports of goods and services
Imagine that you are given $1,000 to spend and told that you must spend it all buying items from a Sears catalog. But you do have a choice of catalog. You may select from the 1903 catalog or from Sears.com today. You will pay the prices quoted in the catalog that you choose. The ______ bias in the CPI is relevant to your choice of catalog.
new goods bias and the quality change
Total expenditure in the United States is equal to consumption expenditure plus investment ______.
plus government expenditure on goods and services plus net exports
Robert Kennedy, when seeking the Democratic presidential nomination in 1968, remarked that GDP measures everything except that which makes life worthwhile. Source: The New York Times, September 1, 2008 Which items did Robert Kennedy probably think were missing?
political freedom and social justice
At a business cycle trough, cyclical unemployment is ______ and at a business cycle peak, cyclical unemployment is ______.
positive; negative
The CPI tells us the ______ in the reference base period. The CPI in the reference base period is by definition equal to ______.
price level in a given period expressed as a percentage of the price level; 100
Adding _______ to the current HDI index would not create a better standard of living index.
real GDP
NITC bridge project Canada is the United States' largest trading partner and 25 percent of the goods trade crosses the Detroit River. The NITC bridge, costing $1 billion, will increase capacity, reduce traffic bottlenecks and improve opportunities for businesses in both countries by providing a state-of-the-art, publicly operated border crossing. Source: CNN, June 28, 2013 Explain how this huge project will influence potential GDP in Canada and the United States. This huge project will ______.
shift Canada`s production function upward, create a movement up along the production function as the full-employment quantity of labor increases, and increase potential GDP shift the U.S. production function upward, create a movement up along the production function as the full-employment quantity of labor increases, and increase potential GDP
The labor force participation rate in the United States _______. Between 1960 and 2016, the labor force participation rate of men ______, and that of women ______.
shows an upward trend between 1960 and 1999, and a downward trend that began in 2000 decreased because more men chose to not work, increased because more women chose to work
The Z-Pop ratio ________.
shows an upward trend since 2000 but by 2016 it does not reach the pre-recession level
GDP calculated by the expenditure approach minus GDP calculated by the income approach equals ______
statistical discrepancy
The economy is at full employment when all unemployment is _______.
structural and frictional
Suppose that the number of jobs in the fishing industry decreases but the number of jobs in the travel industry increases. Initially _______.
structural unemployment increases
When unemployment benefits increase, the ______.
supply of labor decreases, and potential GDP decreases as a movement occurs down along the production function
A minimum wage ______.
that is above the equilibrium wage rate creates unemployment from job rationing
Gross national product is _____
the market value of all the final goods and services produced anywhere in the world in a given time period by the factors of production supplied by the residents of that country
When cyclical unemployment increases and other things remain the same, ______.
the natural unemployment rate does not change
The BLS reported that the CPI in July 2010 was 226. This news tells you that _______.
the prices of consumption goods and services have risen, on average, by 126 percent since the base year
The demand for labor curve shows the relationship between _______.
the quantity of labor businesses are willing to hire and the real wage rate
Full employment is defined as a situation in which _______.
the unemployment rate equals the natural unemployment rate
The CPI market basket consists of items that ______ buy and ______.
urban households; the Consumer Expenditure Survey is used to update it frequently
Joe is a college student taking a full course load. He works at McDonald's for 20 hours a week to help meet his expenses. Joe is ______.
working part-time for noneconomic reasons
Once a month, the Bureau of ______ Statistics calculates the Consumer Price Index, which is a measure of the ______ consumers for a fixed basket of consumer goods and services.
Labor; average of the prices paid by urban
Close to 100 percent of Canada's unemployed receive generous benefits compared to 38 percent in the United States. If the United States adopted the level of unemployment benefits that Canada has, we would expect the U.S. natural unemployment rate to ______ and U.S. potential GDP to ______.
increase; decrease
The bias in the CPI leads to ______ in government outlays and to ______ in taxes.
increases; decreases
Korea has a lower real wage rate per hour and greater hours per worker per week than the United States because Korea's labor is ______ productive and Korea's supply of labor (per worker) is ______ than the United States.
less; greater
