Econ chapter 7-8 Study Guide

Prices dropped because a financial crisis decreased demand

What happened to gas prices in 2008?

how much people have to spend after paying their taxes

What is disposable personal income?

When there is no cyclical unemployment

What is full employment?

It is when companies relocate facilities to countries where costs are lower which means relocating jobs

What is offshoring and why is it a cause of structural unemployment in the United States?

globalization

What is one factor that led to the decline of manufacturing jobs for people with less education?

There are not enough jobs

What is one reason for the high poverty rate in rural areas?

GDP does not include income earned outside the U.S. by U.S. firms and citizens and GNP does

What is one way that gross domestic product differs from gross national product?

the money that individuals save

What is the largest source of capital available for businesses to invest?

innovations in farming technologies and practices

What is the most likely explanation for the trend shown on the graph?

to reduce the tax burden on low-income families

What is the purpose of the Earned Income Tax Credit?

progressive

What is the tax structure of the federal individual income tax?

Prices are much higher than they were when he was a young man

What observation is the man in this comic making?

Consumers should be cautious about credit card use

What point is the cartoon making about credit cards?

historically low interest rates

What prevented the economy from slipping back into a recession after slow growth ended the long recession in November of 2001?

distortions caused by changes in prices over time

What problem is solved by using real GDP?

high consumer interest rates

What set off the economic slump of the early 1980s?

Many people lost jobs during the severe recession of 2008

What situation did the passage of the Emergency Unemployment Compensation program address?

frictional, seasonal, and structural unemployment

What will most likely still occur when the economy has achieved full employment?

Goods would be more difficult to afford

What would be the result of a combination of inflation and flat wages?

aggregate supply

External shocks can alter business cycles because they affect

an increase in supply

Which of the following is not included in aggregate demand?

Population growth adds new people to the workforce at about that rate.

"It takes about two and a half percent growth just to keep unemployment stable."—Ben Bernanke, Chairman of the Federal Reserve, December 5, 2010. Which explains the reason unemployment doesn't decrease when economic growth is two and a half percent?

government should do more to help the poor

"The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little."—Franklin Roosevelt. Based on this quote, you could assume that Roosevelt believed

structural unemployment

"We know there are a lot of people in the unemployment pool that do not match up in their skill set for what jobs are going to be created, and that's an area we've got to keep pressing on." —Austan Goolsbee, economics professor at the University of Chicago Booth School of Business, January 10, 2012. In this quote, Professor Goolsbee is discussing

gross domestic product

Which of the following is the primary measure of a nation's income and output?

structural unemployment

A person who manages a shoe store may be out of a job as more customers order shoes online instead of shopping in stores. The manager would then be an example of

underemployed

A person with a graduate degree in psychology who works a part-time job in a coffee shop is

to pay the nation's debts and provide for its defense and welfare

According to the Constitution, for what purpose can government collect taxes?

It leads to more output and higher wages

According to the graphic, why does capital deepening create overall economic growth?

demands for higher wages in many industries

According to this infographic, increased wages for workers in a fertilizer plant could result in

educational attainment has probably contributed to economic growth

Based on the graph and your knowledge of the United States economy, you can conclude that

Real median household income for all races was lower in 2012 than in 2000

Based on the graph, which of the following statements is true?

The business cycle should have been allowed to run its course

Based on this quote, what could you assume Mellon believed?-"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. . . . It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people." —Andrew Mellon, Treasury Secretary under President Herbert Hoover (1929-1933)

Unemployment rates increase during a contraction and decrease during an expansion

Choose the answer that best describes the correlation between phases of the business cycle and the unemployment rate.

Americans did not feel confident about the economy

Consumer sentiment is a measure of attitudes about the economy in general and individual financial prospects. How would you say Americans felt about the economy in 2008?

His purchasing power is decreasing

Describe the purchasing power of a person who hasn't received a raise in three years and whose savings earns 0.5 percent while the inflation rate is 2 percent.

effects on purchasing power

Devin's family decided to see a movie at the discount cinema on a Tuesday rather than at the larger cinema on a Friday. Their decision might have been the result of which effect of inflation?

GDP rises faster than the population

GDP per capita will grow when

Divide the number of people who are unemployed by the total labor force, and then multiply by 100

How do we figure out the unemployment rate?

It increases labor productivity and output

How does an investment in physical capital generally affect labor productivity and output?

Businesses use the money invested to hire people and buy more equipment

How does capital investment lead to economic growth?

It reduces it

How does inflation influence purchasing power?

Low unemployment leads to an increase in wages

How does low unemployment lead to higher inflation?

Nominal GDP is based on current prices and real GDP is based on constant prices

How does nominal GDP differ from real GDP?

High GDP per capita usually indicates better nutrition, housing, education, and job opportunities

How is high GDP per capita linked to quality of life?

Saving provides money for investment in human and physical capital

How is saving linked to capital formation?

updated cost divided by base-period cost and then multiplied by 100

How is the Consumer Price Index calculated?

A hurricane damages the Gulf Coast

Identify a circumstance outside the economy that can cause unemployment.

Real GDP rises

If aggregate demand increases, what happens to real GDP?

a recession

If real GDP falls for two consecutive quarters, the economy is said to be in __________.

cyclical

If someone loses his or her job during a recession, what type of unemployment is that?

grant

Organizations and individuals that want to provide social services to people can apply to the government for a(n)

criticisms of government antipoverty programs

The Earned Income Tax Credit program began as a response to

how income is distributed in the economy

The Lorenz Curve shows us

white non-Hispanics in a two-parent household

Statistically, people are least likely to suffer from poverty if they fall into which of the following groups?

225

Suppose the CPI market basket cost $800 during the base period and $1,800 today. What is the CPI for today?

in-kind benefit

The food stamp program is an example of a(n)

It lowered rates to encourage business investment and economic growth

What did the Federal Reserve do to interest rates in 2008, and why?

produce more output with more efficient computer chips

The smart watches in this picture contribute to economic growth because they

improved infrastructure and capital deepening

The tax dollars being spent in this photo will result in

the aggregate supply

The total amount of goods and services in the economy available at all possible price levels is

everything gets cut back.

This cartoon is making the point that during a recession

structural unemployment

Unemployment that occurs when workers' skills do not match the jobs that are available is called

scientific research, innovation, scale of the market, education and experience, and natural resource use

What are the main factors in technological progress?

They spiked because the economy was suffering from the impact of a financial crisis

What can you conclude about unemployment claims in 2009?

The top 40 percent of the country's population earns more than 70 percent of the income

What can you conclude from this chart?

peak

When real GDP stops rising, the economy has reached a __________.

invest in new equipment

When the economy is expanding, which of the following is a business MOST likely to do?

Higher tax rates increase investment if the revenue is used to improve infrastructure

Which answer best describes the effect of higher tax rates on investment?

Head Start

Which anti-poverty program helps young children from low-income households prepare for school?

Increased wages lead to increased prices, which lead to a demand for higher wages

Which best describes a wage-price spiral?

cleaning your house

Which is an example of a nonmarket activity?

the Personal Responsibility and Work Opportunity Reconciliation Act

Which law did Bill Clinton sign in 1996 to encourage welfare recipients to enter the workforce?

It is not always possible to forecast a business cycle

Which of the following did John J. Raskob prove?

a stable money supply

Which of the following factors does not affect inflation?

hotel and airline

Which of the following industries were especially hard hit following the terrorist attacks of September 11, 2001?

investment

Which of the following is NOT a part of the business cycle?

Reduced value of savings

Which of the following is a possible effect of inflation?

a destructive earthquake

Which of the following is an example of an external shock?

An agricultural worker has no work from November to March one year.

Which of the following is an example of seasonal unemployment?

a poor tomato crop

Which of the following is another reason producers might raise prices that could lead to a wage-price spiral?

more scientific research

Which of the following is most likely to lead to technological progress?

The GDP fell because of a major recession.

Which of the following statements best describes what happened to the GDP in 2008?

a rise in gross domestic product

Which of the following usually results from high consumer confidence?

purchasing more efficient machines

Which of the following would lead to capital deepening and economic growth?

Deb, a single mother who works part-time at minimum wage

Which person is most likely to be described as "working poor"?

an interest rate of 4 percent and an inflation rate of 1 percent

Which scenario gives the saver the greatest purchasing power?

Families whose income level does not support their household

Who does the government consider to be poor?

They are produced outside the country

Why are imports not included in gross domestic product?

to avoid counting them twice in GDP

Why are intermediate goods not included in GDP?

The government spent money to lift the economy out of the Great Depression

Why did government spending increase in the 1930s?

The combined methods provide a more accurate measure of GDP

Why do economists calculate GDP by both the expenditure approach and the income approach?

They lack transportation to higher wage jobs

Why do many inner-city residents earn less than residents outside the inner city?

to encourage borrowing to stimulate economic activity

Why do you think the Federal Reserve Bank sometimes lowers interest rates on loans to commercial banks?

The rising price of tomatoes affects prices of many foods that families buy

Why does an increase in the price of tomato products lead people to demand higher pay?

Greater skill increases workers' output

Why does capital deepening work with human capital?

because the prices of goods and services change

Why does purchasing power change over time?

To better show long term effects on inflation.

Why is the core inflation rate calculated separately from the inflation rate?

a program that requires work in exchange for temporary help from the government

Workfare is

underemployment

Working at a job for which one is over-qualified, or working part-time when full-time work is desired is called