EC 111 Exam 2

If the natural rate of unemployment is 4.7 percent and the actual rate of unemployment is 5.5 percent, then by definition there is

4.7/5.5 = .8 cyclical unemployment amounting to 0.8 percent of the labor force

Micheal, a U.S. citizen, travels to Jamaica and buys a newly manufactured motorcycle made there. His purchase is included in

Jamaica's GDP, but it is not included in U.S. GDP

A company sells steel to a scooter company for $150. The scooter company uses the steel to produce a scooter, which it sells for $290. Taken together, these two transactions contribute

$290 to GDP

If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced

11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent?

Public saving

Which of the following is correct? The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers

Suppose private saving in a closed economy is $21b and investment is $8b. National saving must equal $21b. Public saving must equal $13b. The government budget surplus must equal $13b. The government budget deficit must equal $13b.

The government budget deficit must equal $13b

Which of the following is included in the calculation of GDP? The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country. The purchase of a new edition of a foreign textbook that was produced in a different nation. The purchase of ink and paper supplies by a textbook company for the production of new textbooks. The purchase of a used textbook from a friend who took the same class last year.

The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

The real interest rate is the nominal interest rate minus the rate of inflation

What would happen, all else equal, in the market for loanable funds if the government were to decrease the tax rate on interest income?

There would be an increase in the equilibrium quantity of loanable funds

Who of the following is not included in the Bureau of Labor Statistics' "employed" category?

Those waiting to be recalled to a job from which they had been laid off

If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals

[(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100

Suppose that a large number of people who used to work or seek work no longer do either. Other things the same, this makes

both the number of people unemployed and in the labor force fall.

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the

consumer price index rises much more than does the GDP deflator

The unemployment rate is computed as the number of unemployed

divided by the labor force, all times 100.

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

fails to account for the introduction of new goods.

Providing training for unemployed individuals is primarily intended to reduce

frictional unemployment

Sandy has graduated from college and is devoting her time to searching for a job. She has seen plenty of openings but has not yet been offered one that best suits her tastes and skills. Sandy is

frictionally unemployed. Frictional unemployment can exist even in the long run.

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

highest rate ---> lowest rate Corporate bond, U.S. government bond, municipal bond

A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As a result, U.S. GDP

increases by $220

Suppose that the Bureau of Labor Statistics reported that there were 62 million people over age 25 whose highest level of education was some college or an associate degree. Of these, 45.3 million were employed and 3.6 million were unemployed. What were the labor-force participation rate and the unemployment rate for this group?

labor force participation rate = labor force/adult population unemployment rate = unemployed/total # in labor force 78.9% and 7.4%

Which of the following correctly orders U.S. income measures from largest to smallest?

largest income ---> smallest income Gross national product, net national product, national income, personal income, disposable personal income

Gross domestic product includes all

legal final goods and services, but it excludes illegal final goods and services

Other things the same, when the interest rate rises, people would want to lend

more, making the quantity of loanable funds supplied increase

The residents of Ireland earn $250 million of income from abroad. Residents of other countries earn $120 million in Ireland. Therefore, Ireland's net factor payments from abroad are

positive, and its GDP is lower than its GNP

Long-term bonds are

riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Given that Sarah's income exceeds her expenditures, Sarah is best described as a

saver or as a supplier of funds

Most spells of unemployment are

short, but most unemployment observed at any given time is long term

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, there is a

shortage and the interest rate is below the equilibrium level

What basket of goods and services is used to construct the CPI?

the goods and services that are typically bought by consumers as determined by government surveys

Which of the following items is the one type of household expenditure that is categorized as investment rather than consumption? Spending on education The purchase of stocks and bonds The purchase of a new house The purchase of durable goods such as stoves and washing machines

the purchase of a new house