ECON 2203 Test #1

Aggregate Behavior

The behavior of all households and firms together.

nominal GDP

Gross domestic product measured in current dollars.

disposable personal income or after-tax income

Personal income minus personal income taxes. The amount that households have to spend or save.

inflation

An increase in the overall price level.

If output is rising and unemployment is falling, the economy MUST be in a(n) A) contraction. B) expansion. C) depression. D) hyperinflationary period.

B

intermediate goods

Goods that are produced by one firm for use in further processing or for resale by another firm.

Nondurable goods

Goods that are used up fairly quickly, such as food and clothing

net investment

Gross investment minus depreciation.

Unemployment Rate

The percentage of the labor force that is unemployed.

labor force participation rate

The ratio of the labor force to the total population 16 years old or older. labor force participation rate= (labor force)/population

unemployment rate

The ratio of the number of people unemployed to the total number of people in the labor force. unemployment rate= unemployed/(employed + unemployed)

services

The things we buy that do not involve the production of physical things, such as legal and medical services and education

natural rate of unemployment

The unemployment rate that occurs as a normal part of the functioning of the economy. Sometimes taken as the sum of the frictional unemployment rate and the structural unemployment rate.

Which of the following statements is FALSE? A) The rate of change in economic activity is used to assess whether an economy is expanding or contracting. B) Short-term ups and downs in the economy are known as business cycles. C) During a recession, output and employment are falling. D) Business cycles are always symmetric—the length of an expansion is the same as the length of a contraction

D

gross national income (GNI)

GNP converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation.

durable goods

Goods that last a relatively long time, such as cars and household appliances

fiscal policy

Government policies concerning taxes and spending.

net national product (NNP)

Gross national product minus depreciation; a nation's total product minus what is required to maintain the value of its capital stock.

informal economy

The part of the economy in which transactions take place and in which income is generated that is unreported and therefore not counted in GDP.

A contraction, recession, or slump is

The period in the business cycle from a peak down to a trough during which output and employment fall.

An expansion or boom is

The period in the business cycle from a trough up to a peak during which output and employment grow.

structural unemployment

The portion of unemployment that is as a result of changes in the structure of the economy that result in a significant loss of jobs in certain industries.

frictional unemployment

The portion of unemployment that is as a result of the normal turnover in the labor market; used to denote short-run job/skill-matching problems.

monetary policy

The tools used by the Federal Reserve to control short-term interest rates.

national income

The total income earned by the factors of production owned by a country's citizens.

gross domestic product (GDP)

The total market value of all final goods and services produced within a given period by factors of production located within a country.

gross national product (GNP)

The total market value of all final goods and services produced within a given period by factors of production owned by a country's citizens, regardless of where the output is produced

Aggregate output

The total quantity of goods and services produced in an economy in a given period

gross investment

The total value of all newly produced capital goods (plant, equipment, housing, and inventory) produced in a given period

cyclical unemployment

Unemployment that is above frictional plus structural unemployment

base year

Use average of calculations with different fixed weights

chain-weighted

Use average of calculations with different fixed weights

There are three categories of unemployment:

1. Frictional unemployment 2. Structural unemployment 3. Cyclical unemployment

What are three major concerns of macroeconomics

1. Output Growth 2. Unemployment 3. Inflation and Deflation

A farmer buys a new tractor from John Deere to use on her cotton farm. This tractor is included in GDP as A) part of gross private domestic investment. B) a durable consumption good. C) a service. D) a nondurable consumption good.

A

Classifying discouraged workers as unemployed would A) increase the unemployment rate. B) decrease the unemployment rate. C) not change the unemployment rate. D) have an indeterminate impact on the unemployment rate.

A

Diane lost her job and immediately started looking for another job. As a result the A) unemployment rate increases. B) labor force increases. C) labor force decreases. D) unemployment rate remains constant.

A

If the GDP deflator is greater than 100, then A) nominal GDP is greater than real GDP. B) nominal GDP is lower than real GDP. C) nominal GDP equals real GDP. D) prices decreased by more than half between the current and the base years

A

If the inflation rate is smaller than the nominal interest rate, the real interest rate is A) positive. B) negative. C) zero. D) either positive or zero.

A

In the circular flow diagram, the different payments made by firms to households include A) wages and profits. B) interest and taxes. C) transfer payments and dividends. D) taxes and transfer payments.

A

The equation for GDP using the expenditure approach is A) GDP = C + I + G + EX - IM. B) GDP = C + I + G + (IM - EX). C) GDP = C + I + G + EX + IM. D) GDP = C + I + G - EX - IM.

A

The trend of the economy is A) the long run growth path of the economy. B) the long run inflation rate. C) the long run unemployment rate. D) the short run production capacity of an economy

A

Which of the following would NOT be counted in 2013's GDP? A) the value of a 2008 boat you purchase from your friend in 2013 B) the 2013 salary of a used motorcycle salesperson C) the commissions earned by a real estate agent in selling condominiums built prior to 2013 D) the value of a refrigerator manufactured in 2013 but not sold in 2013

A

deflation

A decrease in the overall price level

disinflation

A decrease in the rate of inflation

Calculating GDP: Income Approach

A method of computing GDP that measures the income—wages, rents, interest, and profits—received by all factors of production in producing final goods and services.

Calculating GDP: Expenditure Approach

A method of computing GDP that measures the total amount spent on all final goods and services during a given period. GDP = C + I + G + (EX − IM)

Recession

A period during which aggregate output declines. Conventionally, a period in which aggregate output declines for two consecutive quarters.

hyperinflation

A period of very rapid increases in the overall price level.

unemployed

A person 16 years old or older who is not working, is available for work, and has made specific efforts to find work during the previous 4 weeks.

consumer price index (CPI)

A price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the "market basket" purchased monthly by the typical urban consumer.

fixed-weight procedure

A procedure that uses weights from a given base year.

Depression is

A prolonged and deep recession.

Employed

Any person 16 years old or older (1) who works for pay, either for someone else or in his or her own business for 1 or more hours per week, (2) who works without pay for 15 or more hours per week in a family enterprise, or (3) who has a job but has been temporarily absent with or without pay.

Assume that an economy produces only two goods Good X and Good Y. If year 1 is the base year, the value for this economy's GDP deflator in year 1 is A) 1. B) 100. C) 110. D) 111.

B

Double counting can be avoided by A) including the value of intermediate goods in the current year. B) not counting the value of intermediate goods in GDP. C) including the value of intermediate goods in the GNP but not in the GDP. D) including the value of intermediate goods in the production year but not in the selling year of those goods.

B

In which of the following conditions is the inflation rate likely to fall and the unemployment rate likely to rise? A) hyperinflation B) recession C) boom D) stagflation

B

Macroeconomic policies became more influenced by Keynes' theories starting with, A) the period of high unemployment and high inflation in the 1970s. B) the Great Depression. C) the period of high inflation in the early 1980s. D) the OPEC recession.

B

Related to the Economics in Practice on p. 133: If a retiree's pension is tied to the CPI, her monthly pension check would tend to grow ________ if the pension is tied to the ________ CPI. A) slower; fixed-weight B) slower; chain-linked C) faster; chain-linked D) The check would grow at the same rate regardless of the type of CPI to which it is tied.

B

The total income of households is A) net national product. B) personal income. C) national income. D) production income.

B

When 100 people who were previously looking for jobs stop looking for jobs, the A) unemployment rate increases. B) size of the labor force decreases. C) labor-force participation rate does not change. D) unemployment rate does not change.

B

During recessions, the number of discouraged workers ________ and this ________ the unemployment rate. A) falls; reduces B) decreases; increases C) increases; reduces D) increases; increases

C

For the 1952-2012 period in the United States, output per worker hour A) increased at a constant rate. B) decreased during the 1960s. C) fluctuated around an upward trend. D) showed the largest increase during the 1980s.

C

If real GDP in 2012 using 2011 prices is lower than nominal GDP of 2012, then A) prices in 2012 are lower than prices in 2011. B) nominal GDP in 2012 equals nominal GDP in 2011. C) prices in 2012 are higher than prices in 2011. D) real GDP in 2012 is larger than real GDP in 2011

C

In the United States in 2015 on p. 126, the highest unemployment rate was for ________ and the lowest was for ________. A) African-American teenagers; white men B) white teenagers; white women C) African-American teenagers; white women D) African-American women; white men

C

Mike has just graduated from college and is now looking for a job, but has not yet found one. This causes the unemployment rate to ________ and the labor-force participation rate to ________. A) increase; decrease B) stay the same; stay the same C) increase; increase D) increase; stay the same

C

The largest income component of GDP is A) proprietors' income. B) rental income. C) compensation of employees. D) corporate profit.

C

The major lesson of the circular flow diagram is that A) saving must always be less than investment. B) taxes must always be greater than government expenditures. C) total income in the economy must always equal total spending. D) tax receipts must be equal to transfer payments.

C

The single largest expenditure component in GDP is A) government spending. B) investment. C) consumption. D) net exports.

C

The value of what KFC produces in Japan is included in the U.S. ________ and in the Japanese ________. A) GDP; GDP B) GNP; GNP C) GNP; GDP D) GDP; GNP

C

We can safely say that total output can increase if there is a(n) A) increase in the size of the labor force and a decrease in the productivity of workers. B) decrease in the size of capital and an increase in the productivity of machines. C) increase in the number of machines per worker. D) decrease in the number of workers per machine.

C

When the Fed slows the rate of growth of the money supply to slow down the economy, the unemployment type that will be directly affected is the A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) natural rate of unemployment.

C

Which of the following increases the real interest rate? A) a decrease in the nominal interest rate, holding the inflation rate constant B) an increase in both the nominal interest rate and the inflation rate by the same percentage points C) a decrease in the inflation rate, holding the nominal interest rate constant D) a decrease in both the nominal interest rate and the inflation rate by the same percentage points

C

Which of the following statements is FALSE? A) Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy. B) Inflation that is higher than expected benefits debtors, and inflation that is lower than expected benefits creditors. C) There are no costs or losses associated with anticipated inflation. D) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy increases.

C

All of the following explain the growth in output per worker hour during the 20th century EXCEPT A) the quality of labor improved during that period. B) the quantity of labor increased during that period. C) the quality of capital improved during that period. D) the worker capital ratio decreased during that period.

D

GDP is not a perfect measure of social welfare and the society's economic well-being because A) it does not say anything about the distribution of income. B) GDP accounting rules do not adjust for production that causes negative externalities. C) it does not include all economic activities in the economy. D) all of the above

D

Gross domestic product measures A) the total spending of everyone in the economy. B) the value of all output in the economy. C) the total income in the economy. D) all of the above

D

If the change in business inventories is zero, then final sales are A) zero. B) less than GDP. C) greater than GDP. D) equal to GDP.

D

The unemployment rate equals A) labor force/population. B) unemployed/employed. C) (employed - unemployed)/labor force. D) (labor force - employed)/labor force.

D

Which of the following is an example of a final good or service? A) wheat a bakery purchases to make bread B) coffee beans Starbucks purchases to make coffee C) lumber purchased by a construction company to be used in building houses D) a computer purchased by Federal Express to track shipments

D

statistical discrepancy

Data measurement error.

Macroeconomics is the study of

Deals with the economy as a whole. Macroeconomics focuses on the determinants of total national income, deals with aggregates such as aggregate consumption and investment, and looks at the overall level of prices instead of individual prices.

Microeconomics is the study of

Examines the functioning of individual industries and the behavior of individual decision-making units—firms and households.

producer price indexes (PPIs)

Measures of prices that producers receive for products at all stages in the production process.

corporate bonds

Promissory notes issued by corporations when they borrow money.

Treasury bonds, notes, or bills

Promissory notes issued by the federal government when it borrows money.

indirect taxes minus subsidies

Taxes such as sales taxes, customs duties, and license fees less subsidies that the government pays for which it receives no goods or services in return.

depreciation

The amount by which an asset's value falls in a given period.

change in business inventories

The amount by which firms' inventories change during a period. Inventories are the goods that firms produce now but intend to sell later. GDP = final sales + change in business inventories or CBI=GDP-Final Sales

current dollars

The current prices that we pay for goods and services.

Business Cycle

The cycle of short-term ups and downs in the economy.

discouraged-worker effect

The decline in the measured unemployment rate that results when people who want to work but cannot find jobs grow discouraged and stop looking, thus dropping out of the ranks of the unemployed and the labor force.

net exports (EX - IM)

The difference between exports (sales to foreigners of U.S.-produced goods and services) and imports (U.S. purchases of goods and services from abroad). The figure can be positive or negative

real interest rate

The difference between the interest rate on a loan and the inflation rate.

value added

The difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage.

per-capita output growth

The growth rate of output per person in the economy.

productivity growth

The growth rate of output per worker.

output growth

The growth rate of the output of the entire economy.

weight

The importance attached to an item within a group of items.

proprietors' income

The income of unincorporated businesses.

labor force

The number of people employed plus the number of unemployed. labor force = employed +unemployed population = labor force + not in labor force