ECON Exam 1 (CH. 7,8,9)
Suppose Harry's Pizza uses $0.25 worth of pizza flour; $0.01 worth of pizza sauce; $0.80 worth of pepperoni, sausage, and spices; and $0.50 worth of mozzarella cheese to make one pizza. If it sells a pizza for $3, then the total value added for one pizza is:
$1.44
Suppose a country had $3.5 billion of net exports and bought $6.8 billion of goods and services from foreign countries. This country would have
$10.3 billion of exports and $6.8 billion of imports
If the GDP deflator of a country increased from 100 in 2005 to 150 in 2015 and the nominal GDP of the country in 2015 was $7,000, then the country's real GDP for 2015 in terms of 2005 dollars was approximately equal to:
$4,666.70
Cromption Inc. produces motorbike helmets and is a major supplier of helmets in South Watermala. It uses raw materials worth $48,500 and pays wages and salaries worth $58,800. If the total revenue of the firm is $100,000, then the value added by Cromption Inc. to the gross domestic product (GDP) of South Watermala equals:
$51,500
In Radisova, the labor force participation rate is 30 percent. Suppose the total civilian population aged 16 years and above is 100 million and the number of employed workers is 20 million. The number of unemployed people in the country is:
10 million Explanation: The labor force participation rate is the number of people in the civilian labor force 16 years of age or older who are either employed or actively seeking employment as a percentage of the total civilian population 16 years of age and over.
In the country of Corinthia, 100 million people aged 16 years and above are either employed or unemployed. The number of people searching for a job is 20 million. The unemployment rate in Corinthia is:
20 percent Explanation: The unemployment rate is equal to the number of people unemployed divided by the number of people in the labor force.
In Vanadia, 120 million people aged 16 years and above are either employed or unemployed. The number of people working is 90 million. The number of unemployed people is:
30 Million
If the GDP deflator in 2015 was 134.1 and 100 in 2014, the annual rate of inflation in 2015 was:
34.1 percent
Suppose the population aged 16 years and above who are either employed or unemployed in a country is 100 million. Of this population, 95 million are working. The unemployment rate of the country is:
5 percent. Explanation: The unemployment rate is equal to the number of people who are unemployed divided by the number of people in the labor force.
In a country, the total population aged 16 years and above is 300 million. The number of people who are working is 120 million, and the number of people who are out of work but are actively looking for work is 30 million. The labor force participation rate is:
50 percent
Suppose the population (aged 16 and older) of a hypothetical country is 150 million. Of this population, 120 million people are employed as civilians. The employment/population ratio is:
80 percent.
Suppose the population aged 16 years and above of a hypothetical country is 120 million. Out of 120 million, 75 million people work and 10 million people are looking for work in the country. The total labor force of the country is:
85 Million
Suppose most businesses in Erbia are operating at full capacity and the real gross domestic product of the economy is also increasing rapidly. Erbia is experiencing:
A boom Explanation: When most businesses are operating at full capacity and real GDP is growing rapidly, an economy is said to experience a business peak or boom.
Which of the following transactions is most likely to be included in the U.S. gross domestic product (GDP)?
A stock broker's commission on the sale of U.S. securities
Which of the following is likely to cause an increase in structural unemployment in an economy?
A.) An increase in the demand for labor. B.) A business downturn in the economy. C.) Decreasing unemployment benefits. D.) The introduction of products using new technology. Correct Answer: D
In the country of Argonia, the population (aged 16 and above) is 200 million. Of this population, 150 million are employed and 30 million are unemployed. Which of the following statements is true?
A.) Argonia's employment/population ratio is 80 percent. B.) Argonia's labor force is 180 million. C.)Argonia's labor force participation rate is 70 percent. D.)Argonia's unemployment rate is 15 percent. Correct Answer: B Explanation: The labor force of an economy is calculated by adding the number of employed and unemployed people in the economy.
Which of the following is true of unanticipated inflation?
A.) Funds flow into speculative-type investments instead of more productive ones B.) The allocation of resources in the economy becomes efficient. C.) Gains from trade and market efficiency increase. D.) The risks of investing in a long-term project decrease. Correct Answer: A Explanation: Failing to anticipate accurately the inflation rate can have a substantial effect on one's wealth. Speculative market practices will occur as people try to outguess one another about the future direction of prices. As a result, funds will flow into speculative-type investments instead of more productive ones that increase output.
Who among the following would be included in the civilian labor force?
A.) Kate, who works as a librarian in a public library. B.) Victor, who is yet to complete his studies and will be looking for jobs soon after. C.) Alec, who retired voluntarily last month and is not actively looking for a paid job. D.) Roger, a 12-year-old who works at his parents' restaurant Correct Answer: A
Who among the following is unemployed?
A.) Steve, who is currently not working but has been searching for a job for the past three weeks. B.) Izzie, who is currently not working and has given up her job search for personal reasons. C.) Greg, who is currently not working because he has gone on vacation D.) Susan, who is currently not working because of an accident. Correct Answer: A
Which of the following would be the best choice for a government that wishes to reduce the natural rate of unemployment?
Adopting measures that encourage new businesses to start and expand. Explanation: When public policy makes it more costly to employ workers and/or less costly for people to remain unemployed, it increases the natural rate of unemployment. Policies that increase the flexibility of labor markets reduce the natural rate of unemployment.
Which of the following is most likely to increase Japan's gross domestic product (GDP)?
An American firm outsourcing some of its production facilities to Japan
Which of the following is included in the gross national product of the U.S.?
An American photographer receiving a paycheck for exhibiting his photographs in Singapore
Which of the following transactions is most likely to increase the U.S. gross domestic product (GDP)?
An American selling a pizza to a Mexican in the U.S
Which of the following is likely to increase a country's gross domestic product (GDP)?
An individual receiving an annual performance bonus of $5,000
Which of the following is most likely to have added to the U.S. gross domestic product (GDP) in 2020?
Chevrolet's production increasing by 30,000 cars in 2020
Identify the correct statement about net investment
Countries with a large net investment rate will tend to grow more rapidly than those with a low rate of net investment
Which of the following is included in the calculation of real gross domestic product of an economy?
Final goods and services
Identify the correct equation for the gross national product (GNP) of a nation.
GNP = National income + Depreciation + Indirect business taxes
Which of the following is likely to increase the nominal value of the gross domestic product (GDP) of a country?
Higher prices
Full employment is defined as the level of employment in an economy that results when:
The rate of unemployment is "normal," considering both frictional and structural factors. Explanation: Full employment is defined as the level of employment that results from the efficient use of the labor force taking into account the normal (natural) rate of unemployment due to information costs, dynamic changes, and the structural conditions of the economy.
Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?
The real figures will reflect changes in the quantity of output and not changes in the general level of prices
Which of the following will most likely occur during the contractionary phase of a business cycle?
The sales of most businesses decline, and the unemployment rate rises.
Suppose the population (age 16 and over) of Indonesia is 200 million; 9 million are unemployed, and 111 million hold jobs. Indicate the rate of unemployment and the employment/population ratio of Indonesia.
The unemployment rate is 7.5 percent, and the employment/population ratio is 55.5 percent. Explanation: The unemployment rate is equal to the number of people who are unemployed divided by the number of people in the labor force. The employment/population rate is equal to the number of people who are employed divided by the number of people age 16 and older.
Which of the following is true of government purchases?
They are counted at their cost to taxpayers
Identify the correct statement about government expenditures.
They overstate the value derived from an item when the value of the item to citizens is low relative to the tax cost of providing it
Unanticipated inflation in an economy causes:
a distortion in relative prices in the economy. Explanation: Prices communicate important information concerning the relative scarcity of goods and resources in an economy. Some prices respond quickly to inflation, whereas others change more slowly. An unanticipated change in the rate of inflation will change relative prices as well as the general price level. These distorted relative prices will be a less reliable indicator of relative scarcity.
When a country experiences recession, the:
actual gross domestic product of the country is less than its potential gross domestic product. Explanation: During the boom phase of a business cycle, actual output expands rapidly and may temporarily exceed the economy's long-run potential output. In contrast, recessions are characterized by an actual real gross domestic product that is less than potential output.
Which of the following will most likely reduce the natural rate of unemployment?
an increase in the proportion of prime-age workers (35-54) as a share of the labor force
The prices used to weight the goods and services included in the gross domestic product reflect:
both the market value of the output and the income generated by the resources
Recessionary business conditions and inadequate labor demand in an economy lead to:
cyclical unemployment in the economy. Explanation: Unemployment that arises because of recessionary business conditions and inadequate labor demand is called cyclical unemployment.
Suppose workers at a local steel factory are laid off because of an economic downturn and, as a result, the demand for products made of steel has decreased. This would be an example of:
cyclical unemployment.
Caren, a professional photographer for a magazine, loses her job during a recession in the economy. This is an example of:
cyclical unemployment. Explanation: When there is a general downturn in business activity, cyclical unemployment arises. Employers lay off workers and cut back employment because fewer goods are being produced.
Inflation results in a(n):
decrease in the purchasing power of consumers Explanation: Inflation results in a decline in the value or the purchasing power of money.
Net investment is the:
difference between gross investment and depreciation
Frictional unemployment occurs in an economy because:
employers are not aware of all available workers and their qualifications.
Many social networks provide information about job openings for workers with various skill sets and in different occupations. At the same time, employees also provide information about their education, skills, and experience in these social networks. Such interactions are likely to reduce:
frictional unemployment in an economy. Explanation: Electronic job search processes reduce information costs and make it possible for both employers and employees to consider quickly a wide range of alternatives. This tends to reduce both search time and frictional unemployment in an economy.
Maylin was being treated unfairly by her boss, so she stormed off the job and two days later found another position. For two days, Maylin experienced
frictional unemployment. Explanation: Unemployment that is caused by constant changes in the labor market is called frictional unemployment. It occurs because (1) employers are not fully aware of all available workers and their job qualifications and (2) available workers are not fully aware of the jobs being offered by employers.
Clark was fired from his job due to a conflict with his boss. He immediately started looking for a job, but could find one only after 6 months. It can be said that Clark was:
frictionally unemployed for six months.
The main cause of frictional unemployment in an economy is:
imperfect information between employees and employers.
A decrease in the sales of Lumina Technology's widgets increases its unsold stock of inventory at the end of the year. This is most likely to:
increase the firm's contribution to the gross domestic product of the country
The gross domestic product reflects the:
market value of all final goods and services produced within a country during a specific period
Current per capita real GDP may be an overstatement of per capita real GDP relative to earlier periods because:
more output is now produced in the market sector and less in the household sector
Depreciation is:
not a direct payment to a resource owner
Based on the expenditure approach, the major components of gross domestic product (GDP) are:
personal consumption expenditures, gross private domestic investment, government consumption and gross investment, and net exports to foreigners
An increase in the net investment in an economy results in a(n):
rightward shift of the economy's production possibility frontier
Using the resource cost-income approach, indirect business taxes have to be added to get gross domestic product because the
selling price of a product includes these taxes, which are income to the government
Corporate profits are earned by:
stockholders
Last year, a report published by the Environment Protection Committee showed that, across the fictitious country of Palladia, 40,000 deaths a year could be attributed to air pollution. As a result, the government implemented environmental regulations designed to improve air quality. These regulations led to a reduction in the demand for coal, causing many coal miners to lose their jobs. Unfortunately, many people who lost their jobs had skills that were ill-suited for employment in other industries. This implementation of environmental regulations led to:
structural unemployment in Palladia. Explanation: Structural unemployment occurs when there are shifts in the priorities of the public sector in an economy.
The unemployment rate in an economy is:
the percentage of unemployed people in the labor force.
National income is:
the sum of employee compensation, proprietors' income, rents, corporate profits, and interest income
Structural unemployment occurs in an economy because:
there are changes in the demand for certain skills.
GDP is a measure of the value of the goods and services that were purchased by households, investors, governments, and foreigners during a year. These goods and services are usually purchased because the buyers:
value the goods and services more than the purchase price
The natural rate of unemployment is the unemployment rate that occurs:
when an economy is operating at a sustainable rate of output.
Identify the correct statement about job search.
A.) The average cost of a job search declines with the time spent searching for a job. B.) The average social benefit derived from a job search declines with the time spent searching for a job. C.) The marginal benefit derived from a job search declines with the time spent searching for a job. D.) The marginal cost of a job search declines with the time spent searching for a job. Correct Answer: C Explanation: As a job seeker finds out about more and more potential job opportunities, it becomes less likely that additional searching will uncover a more attractive option. Therefore, the marginal benefit derived from a job search declines with the time spent searching for a job because it becomes less likely that it will lead to a better position.
Which of the following is true of the civilian labor force?
A.) The civilian labor force of an economy includes people aged 16 years and older who have given up seeking employment because of the unavailability of jobs. B.) The civilian labor force of an economy measures the ratio of the number of people employed to the total population of the economy. C.) The civilian labor force of an economy measures the ratio of the number of people employed to the number of people who are unemployed. D.) The civilian labor force of an economy includes people aged 16 years and older who are either employed or seeking employment. Correct Answer: D Explanation: The civilian labor force is defined as the number of people aged 16 years and older who are either employed or seeking employment.
Which of the following is true of the labor force participation rate?
A.) The labor force participation rate is measured as the number of people aged 16 years or older who are employed as a percentage of the number of people who are actively seeking employment. B.) The labor force participation rate is measured as the number of people aged 18 years or older who are actively seeking employment as a percentage of the number of people in the civilian labor force 18 years of age or older who are employed. C.) The labor force participation rate is measured as the number of people aged 16 years or older who are not actively seeking employment as a percentage of the total civilian population 16 years of age and over. D.) The labor force participation rate is measured as the number of people aged 16 years or older who are either employed or actively seeking employment as a percentage of the total civilian population 16 years of age and over. Correct Answer: D
Regarding inflation, which of the following is true?
A.) When the inflation rate is high and variable, decision makers will generally be able to anticipate year-to-year changes in inflation quite accurately. B.) Inflation will tend to increase the nominal values of both prices and wages. C.) Unanticipated inflation is a change in the price level that is widely expected. D.) Anticipated inflation is an increase in the price level that comes as a surprise, at least to most individuals. Correct Answer: B Explanation: Inflation will tend to increase the nominal values of both prices and wages.
Which one of the following would be classified as employed?
A.) a 21-year-old full-time college student B.) a 17-year-old high school student who works a newspaper route six hours per week C.) an construction worker vacationing in Florida who is on layoff due to bad weather conditions in his home state D.) a parent who works 50 to 60 hours per week caring for family members Correct Answer: B
An economic recession is characterized by:
A.) a decrease in the average price level and an increase in real gross domestic product. B.) a fall in the level of unemployment and an increase in the purchasing power of money. C.) a rise in exports and a fall in imports. D.) a rise in the level of unemployment and a decline in real gross domestic product. Correct Answer: D
Unanticipated inflation refers to:
A.) an increase in the general level of prices that is accompanied by high unemployment and stagnant demand. B.) An increase in the general level of prices that was expected by most decision-makers. C.)a rapid increase in the general level of prices in an economy due to the unrestricted printing of fiat money. D.) an increase in the general level of prices in an economy that was not expected by most decision-makers. Correct Answer: D Explanation: Unanticipated inflation is an increase in the price level that comes as a surprise to most individuals.
The natural rate of unemployment may increase when a country:
A.) experiences a decrease in the number of young workers. B.) implements regulations to increase the flexibility of the labor market. C.) lowers its mandated minimum wage rate. D.) increases its unemployment benefits. Correct Answer: D Explanation: When public policy makes it more costly to employ workers and/or less costly for people to remain unemployed, the natural rate of unemployment increases.
Potential output is the:
A.) maximum output level an economy can produce when there is zero unemployment. B.) maximum output level of an economy when there is zero inflation. C.) maximum sustainable output level consistent with the full employment of resources currently available in an economy. D.) maximum sustainable output level that an economy can produce over a period of five years. Correct Answer: C. Explanation: Potential output refers to the level of output that can be achieved and sustained in the future, given the size of the labor force, its expected productivity, and the natural rate of unemployment consistent with the efficient operation of the labor market.
A consequence of unanticipated inflation in an economy is that:
A.) the level of productive activities in the economy increases. B.) the allocation of resources in the economy becomes efficient. C.) the rate of economic growth reaches a maximum. D.) The risks of investing in a business increase. Correct Answer: D Explanation: Unanticipated inflation alters the outcomes of long-term projects, such as the purchase of a machine or an investment in a business. It increases the risks and decreases the level of productive activities.
The business cycle refers to the:
A.) variations in the adult population of an economy. B.) deviation of unemployment from the natural rate of unemployment in an economy. C.) fluctuations in the exchange rate of an economy. D.) fluctuations in the rate of output of an economy. Correct Answer: D Explanation: The business cycle refers to the fluctuations in the general level of economic activity as measured by variables such as the rate of unemployment and changes in real GDP.
Cyclical unemployment occurs when a(n):
A.)accountant loses his job as his skills have become obsolete in the current labor market. B.) government employee retires early. C.) salesperson loses her job after Christmas. D.) engineer is laid off from his job because of a recession.
Which of the following is not an example of indirect business taxes?
Income Tax
Which of the following is a shortcoming of gross domestic product (GDP) as a measure of current output and income?
It does not count nonmarket productive activities produced by households in an economy
Which of the following statements is true of a GDP deflator?
It generally provides a slightly lower estimate for the annual rate of inflation than the traditional consumer price index
Which of the following is true of the U.S. government's total expenditure?
It is substantially higher than the U.S. government's total consumption and investment expenditures
Which of the following is true of a decline in a firm's inventories?
It occurs when the firm's sales of goods and services exceed its current production
Which of the following is most likely to be included in the gross domestic product (GDP) calculations of a country?
Kayla buying more grocery items following an increase in welfare payments
Camila is a homemaker. Last week, she was busy with her normal household activities. How would the Bureau of Labor Statistics classify her?
Not a member of the labor force. Explanation: People who are retired, who are below the age of 16, who are working in their own households, or who are attending school are not included in the labor force.
Identify the correct statement about a country's gross domestic product (GDP).
Only final goods and services are counted in a country's GDP
In Agraria, employment in corn manufacturing industries had fallen from over 5,000 workers in 2015 to about 1,500 in 2020. This change came about because of the adoption of new technologies, like tractors and ploughing machines, that replaced manual labor. These unemployed workers, whose skills were limited to this industry, found themselves in a position where their unemployment would be permanent unless they could develop new job skills. This is an example of:
Structural unemployment. Explanation: Structural unemployment occurs because of the introduction of new products and production technologies. These alter the relative demand for workers with various skills. Changes of this type can affect the job opportunities of even highly skilled workers, particularly if their skills are not easily transferable to other industries and occupations.
Which of the following best explains why the chained consumer price index generally results in a lower rate of inflation than the regular consumer price index (CPI)?
The chained index makes allowance each month for shifts away from goods that have become relatively more expensive; the regular CPI does not adjust for this factor
The net income of foreigners is equal to:
the income foreigners earn in the United States minus the income that Americans earn abroad
Which of the following is included in the national income of the U.S.?
The income earned by an American professional dancer performing in a concert in Toronto
Which of the following is most likely to be included in the U.S. gross domestic product (GDP)?
The income of a Canadian engineer working in the U.S
Which of the following is included in a country's gross domestic product when it is derived using the resource cost-income approach?
The net income earned by foreigners
Suppose a photographic film manufacturing company experiences a decrease in demand after the advent of digital cameras. After incurring a loss for several years, the company decides to shut down. The workers find themselves in a situation where their skills are obsolete in the current market. The only way these workers can find employment is if they develop new skills. This is an example of:
structural unemployment. Explanation: Structural unemployment occurs because of the introduction of new products and production technologies. These alter the relative demand for workers with various skills. Changes of this type can affect the job opportunities of even highly skilled workers, particularly if their skills are not easily transferable to other industries and occupations.
Net exports are:
the difference between total exports and total imports
The natural rate of unemployment in an economy is the sum of:
the frictional and structural rates of unemployment in the economy. Explanation: The natural rate of unemployment occurs because of structural and frictional changes in the labor market.
An increase in investment in an economy is most likely to increase the future income of the economy if:
the funds invested are channeled into wealth-creating projects
The consumer price index (CPI) is designed to measure:
the impact of price changes on the cost of the typical bundle of goods purchased by households