Econ 2020- Exam 1
After the recession of 2007-2009, the unemployment rate peaked at 10.0 percent in October 2009. Eighteen months later, it had
declined by only 1 percentage point.
If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.
fallen; fallen
The supply curve for umbrellas
shows the relationship between the price of umbrellas and the quantity of umbrellas supplied.
Suppose that nominal GDP in 2013 was less than real GDP in 2013. Given this information, we know for certain that
the price level in 2013 was less than the price level in the base year.
When deflation occurs,
the real interest rate is greater than the nominal interest rate.
If the number of unemployed workers is 200 million, the number of employed workers is 300 million, and the working-age population is 800 million, what is the labor force participation rate?
62.5%
Year Guns Produced Price of Guns ButterProduced Price of Butter 2005 80 $5 40 $4 2013 90 $6 60 $10 Nominal GDP for Tyrovia for 2013 using 2005 as the base year, equals
$1,140
Which of the following will not shift the demand curve for a good?
an increase in the price of the good
If the price of pork rinds falls, the substitution effect due to the price change will cause
an increase in the quantity of pork rinds demanded.
Which of the following would increase the unemployment rate? - a law making it illegal to work more than 35 hours per week - an increase in unemployment insurance payments - a cut in unemployment compensation - a decrease in the minimum wage
an increase in unemployment insurance payments
If a decrease in income leads to an increase in the demand for macaroni, then macaroni is
an inferior good.
Macroeconomics, as opposed to microeconomics, includes the study of what determines the
average price levels of goods and services in the economy.
The market for smartwatches is becoming very competitive. The increase in competition in this market is an example of how the market responds to
changes in consumer tastes.
Macroeconomics, as opposed to microeconomics, includes the study of what determines the level of
employment in the economy
Jack just told his boss that he thinks his boss is an idiot. It is likely that Jack will be experiencing ________ unemployment in the near future.
frictional
The natural rate of unemployment is made up of
frictional and structural unemployment.
The short-term unemployment arising from the process of matching workers with jobs is called
frictional unemployment.
"Household production" refers to
goods and services people produce for themselves
Which of the following would decrease the unemployment rate?
government aid to retrain unemployed workers
Legalizing all forms of illegal activities
increases GDP and reduces the size of the underground economy.
During a business cycle expansion, total production __________ and total employment __________.
increases; increases
A supply curve
is a curve that shows the relationship between the price of a product and the quantity of the product supplied.
The Philippines and Vietnam have roughly the same size population. Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion. You should conclude
it is not possible to make a good comparison of the economic well being of a typical individual in the 2 countries without additional information.
The unemployment rate equals the number of unemployed divided by the ________, all times 100.
labor force
The real interest rate equals the nominal interest rate ________ the inflation rate.
minus
Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about
one-half to one percentage point.
The Bureau of Labor Statistics would categorize a retiree who is not working as
out of the labor force.
The producer price index measures the prices that firms
receive for the goods and services they use at all stages of production.
The drawback to calculating real GDP using base-year prices is that
relative prices change over time and these are not reflected in base-year prices, and this distorts GDP.
The advice to "retrain" would be most appropriate for which of the following types of unemployment? - frictional unemployment - structural unemployment - cyclical unemployment - core unemployment
structural unemployment
The most widely used measure of inflation is based on which of the following price indices?
the consumer price index
The CPI is also referred to as
the cost-of-living index.
Assume that the price for lawn care has fallen and sales of lawn care services have also fallen. One can conclude that
the demand for lawn care service has decreased.
If the price of propane-fueled gas grills was to decrease, then
the demand for propane would increase.
We say that the economy is at full employment if the unemployment rate is equal to
the natural rate of unemployment.
The average price of goods and services in the economy is also known as
the price level.
A demand curve shows the relationship between
the price of a product and the quantity of the product demanded.
Deflation occurs when
there is a decline in the price level.
Refer to Figure 3-5. At a price of $5,
there is a shortage of 4 units.
If the number of unemployed workers is 19 million, the number in the working-age population is 500 million, and the unemployment rate is 4%, how many workers are in the labor force?
475 million
If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?
5%
If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is
-3%.
Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?
3 percent
Refer to Figure 3-2. An increase in the price of the product would be represented by a movement from
A to B.
Which of the following is an example of a worker experiencing frictional unemployment?
A worker quits his job at the Post Office to find more interesting work.
Assume that in recent years the cost of producing microbrew beer in the U.S. has decreased largely due to technological improvements. At the same time, more and more Americans prefer microbrew beer over wine. Which of the following best explains the effect of these events in the microbrew beer market?
Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
Investment, as defined by economists, would not include with of the following? Ford Motor Company - Buys a new robotic machine to assemble cars - Builds another assembly plant in the U.S. - Buys US government bonds - Adds 1,000 new cars to inventories
Buys US government bonds
Refer to Figure 3-1. If the product represented is an inferior good, a decrease in income would be represented by a movement from
D1 to D2.
(Check picture 3-1) Refer to Figure 3-1. A decrease in the expected future price of the product would be represented by a movement from
D2 to D1.
Nominal income is equal to real income if the CPI is less than 100. (T/F)
False
Which of the following statements is true? - GDP growth distributes income equally to people in the economy - Household production is counted in GDP as it amounts to real production. - A decrease in the crime rate increases GDP as people will spend more money on security. - GDP accounting rules do not adjust for production that pollutes the economy.
GDP accounting rules do not adjust for production that pollutes the economy.
Gross domestic product understates the total production of final goods and services because of the omission of
Household Production
Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and supply curves for frozen yogurt. Which panel describes what happens in the market for frozen yogurt when the price of ice cream, a substitute product, increases?
Panel (c)
If the price of gasoline increases, what will be the impact in the market for public transportation?
The demand curve for public transportation shifts to the right.
Which of the following is not a true statement about the impact of World War II on the U.S. economy? - U.S. GDP increased dramatically from 1941 to 1945. - More than 40% of the labor force was in the military or producing war goods. - Increased production of tanks, ships, planes, and munitions accounted for most of the increase in GDP. - The war time years were a period of prosperity for U.S. consumers.
The war time years were a period of prosperity for U.S. consumers.
Competitive market equilibrium is a market equilibrium with many buyers and sellers. (T/F)
True
If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy. (T/F)
True
What of the following transactions represents the purchase of a final good? - Delta buys a new airbus jetliner - Apple buys new computer processors from Intel - Starbucks purchases coffee beans - You buy a new John Deere riding lawn mower
You buy a new John Deere Riding Lawn Mower
Minimum wage laws cause unemployment because the legal minimum wage is set
above the market wage, causing labor demand to be less than labor supply.
Labor unions cause unemployment because the union contract wage is set
above the market wage, causing a surplus of labor.
Farmers can raise either goats or ostriches on their land. Which of the following would cause the supply of goats to decrease?
an increase in the price of ostriches
Investment, as defined by economists, would not include which of the following? Ford Motor Company
buys US government bonds
The real wage equals the nominal wage ________ the CPI, all times 100.
divided by
Macroeconomics seeks to understand
economic growth, business cycles, and inflation.
The Bureau of Labor Statistics would categorize a person as ________ if they were temporarily away from their job because they were ill.
employed
The labor force is the sum of
employed workers and unemployed workers.
Efficiency wages cause unemployment because
firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.
The ________ effect of a price change refers to the impact of a change in the price of a good on a consumer's purchasing power.
income
An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment.
increase; frictional
An efficiency wage
is higher than the market wage and tends to increase productivity.
If firms pay what are called "efficiency wages," they pay wages that
motivate workers to increase their productivity.
The income effect of a price change results in a
movement along the demand curve due to a change in purchasing power brought about by the price change.
The "new product bias" in the consumer price index refers to the idea that
new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.
The stated interest rate on a loan is the
nominal interest rate.
The PPI is the
producer price index.
At market equilibrium,
quantity demanded equals quantity supplied.
The GDP deflator is the
ratio of nominal GDP to real GDP multiplied by 100.
The broadest measure of the price level that includes all final goods and services is
the GDP deflator.
Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf coast states. In the market for gasoline,
the supply curve shifted to the left resulting in an increase in the equilibrium price.
Gross domestic product is calculated by summing up
the total market value of final goods and services produced in the economy during a period of time
Gross domestic product understates the total production of final goods and services because of the omission of
the underground economy.
Real GDP is GDP in a given year
valued in the prices of the base year.
(Check picture 3-2) Refer to Figure 3-2. A decrease in the price of inputs would be represented by a movement from
S1 to S2.
Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarah experiencing?
Sarah is not experiencing unemployment of any kind, because she is not currently part of the labor force.
Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D2 and S1 (point C). If the price of motorcycle side cars (a complement to motorcycles) decreases, and the wages of motorcycle workers increase, how will the equilibrium point change?
The equilibrium point will move from C to B.
Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D2 and S2 (point E). If the technology to produce motorcycles improves and the number of buyers increases, how will the equilibrium point change?
The equilibrium point will move from E to A.
Which of the following could cause nominal GDP to decrease, but real GDP to increase? - The price level rises and the quantity of final goods and services produced falls. - The price level falls and the quantity of final goods and services produced rises. - The price level rises and the quantity of final goods and services produced rises. - The price level falls and the quantity of final goods and services produced falls.
The price level falls and the quantity of final goods and services produced rises.
