Econ Exam 2

If the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the unemployment rate is A. 6.6 percent. B. 9.1 percent. C. 7.1 percent. D. 10 percent.

B. 9.1 percent

Which of the following are investment intermediaries (per class notes)? Life insurance companies Mutual funds Pension funds State and local government retirement funds

B. Mutual Funds

Which type of price index theory uses current year's quantities? A. Boskin's Index B. Paasche C. Laspeyres D. Fisher's Mean

B. Paasche

If the CPI basket of goods cost $200 in the reference base period and $450 in a later year, the CPI in the later year equals A. 450. B. 225. C. 250. D. 300.

B. 225

The legislation that began the ERA of Deregulation and phased out Regulation Q was (per class notes) Banking Act of 1980 (DIDMCA). banking Act of 1989 (FIRREA). Banking Act of 2000. Banking Acts of 2002 (Sarbanes Oxley) . Banking Act of 1999.

A. Banking Act of 1980 (DIDMCA)

The government sets a price floor for corn which is above the equilibrium price of corn. As a result, ________. A. a deadweight loss will be created. B. a shortage of corn will be created. C. the corn market will be efficient. D. None of the above answers is correct.

A. a deadweight loss will be created

Discouraged workers ________ counted as officially unemployed because they ________. A. are not; are not actively seeking work B. are; are not working C. are; are still in the labor force D. are not; are not qualified to work

A. are not; are not actively seeking work

The largest component of national income is A. compensation of employees. B. corporate profits. C. proprietors' income. D. rental income.

A. compensation of employees

Gross domestic product is a measure of the total value of all A. final goods and services produced in an economy over a period of time. B. capital accumulation in an economy over a period of time. C. sales in an economy over a period of time. D. consumer income in an economy over a period of time.

A. final goods and services produced in an economy over a period of time

The three types of unemployment are frictional, structural, and cyclical. voluntary, involuntary, and structural. frictional, part-time, and involuntary. voluntary, part-time, and cyclical.

A. frictional, structural, and cyclical

The ________ the expected profit, the greater is the ________. higher; investment demand lower; investment demand lower; capital stock None of the above answers is correct

A. higher; investment demand

The gap between real GDP per person in Africa and real GDP per person in the United States has been increasing. decreasing. there is no gap in real GDP per person between Africa and the United States. remaining fairly constant.

A. increasing

Because of the biases in calculating the CPI, actual inflation is A. less than the measured inflation rate by about 1 percent per year. B. more than the measured inflation rate by about 1 percent per year. C. more than the measured inflation rate by about 1 percent per month. D. accurately measured.

A. less than the measured inflation rate by about 1 percent per year.

The biases in the CPI include the A. new goods, quality change, and substitution biases. B. old goods, unemployment, and inflation biases. C. substitution, new goods, and old goods biases. D. old goods, new goods, and quality change biases.

A. new goods, quality change, and substitution biases

The term "business cycle" most closely refers to the alternating A.periods of expansions and recessions. B. fluctuating profits of firms. C. accounting period used by firms. D. fiscal year.

A. periods of expansions and recessions

Labor growth depends mainly on ________ and labor productivity growth depends on ________. population growth; technological advances growth in real GDP per person; growth rate of capital growth in real GDP per person; technological advances population growth; increases in real GDP

A. population growth; technological advances

If depreciation is less than gross investment, then net investment is A. positive. B. zero. C. negative. D. This situation could never occur because it is impossible for depreciation to be less than gross investment.

A. positive

Which of the following is NOT included in the Real GDP? A. production in the home B. production of services, such as the services of doctors C. production of goods that last more than one year, such as television sets D. production of goods that do not last more than one year, such as gasoline

A. production in the home

Which of the following items is NOT a part of gross private domestic investment? A. purchase of a share of IBM stock B. purchase of equipment for a new wing on a factory C. purchase of a new house D. net additions to inventory

A. purchase of a share of IBM stock

When the automobile replaced horse-drawn carriages as the principal means of transportation, firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby increasing A. structural unemployment. B. cyclical unemployment. C. frictional and cyclical unemployment. D. frictional unemployment.

A. structural employment

Structural unemployment is the result of A. technological change, absolute job skills, or foreign competition. B. normal labor market turnover. C. a slowdown in the rate of economic expansion. D. irresponsible workers with poor work habits.

A. technological change, absolute job skills, or foreign competition

Looking at inflation rates in the United States since the 1970s we see that A. the 1970s experienced the highest inflation rates. B. inflation fell the most during the 1970s productivity slowdown. C. the highest inflation rates were the double digits during the 1990s. D. the inflation rate increased with the increased growth of the 1990s.

A. the 1970s experienced the highest inflation rates

For a commercial bank, the term "reserves" refers to the cash in its vaults and its deposits at the Federal Reserve. a banker's concern ("reservation") in making loans to an individual without a job. the profit that the bank retains at the end of the year. the net interest that it earns on loans.

A. the cash in its vaults and its deposits at the Federal Reserve

If a rich country grows at a faster rate than a poor one, then the gap in their standard of living will widen over time. whether or not the living standards gap widens or closes over time depends on the absolute size of the relative growth rates. the gap in their standard of living will close over time. the difference in their living standards will not change over time.

A. the gap in their standard of living will widen over time

Potential GDP is A. the maximum amount of GDP that can be produced ceteris paribus assuming all resources are fully and effectively employed in the economy. B. always different from real GDP. C. the level of GDP not adjusted for price changes. D. another name for real GDP.

A. the maximum amount of GDP that can be produced ceteris paribus assuming all resources are fully and effectively employed in the economy

GDP declines during A. the movement from peak to trough. B. a decrease in unemployment. C. the movement from below potential GDP back to potential GDP. D. the movement from trough to peak.

A. the movement from peak to trough

When cyclical unemployment is zero, the unemployment rate equals the natural unemployment rate. structural unemployment is zero. frictional unemployment is zero. cyclical and frictional unemployment are zero.

A. the unemployment rate equals the natural unemployment rate

Potential GDP is A. the value of production when all the nation's resources are fully employed. B. a goal that can never be achieved by the economy. C. the level of GDP achieved during periods when 100 percent of the labor force is employed. D. the maximum GDP that an economy actually achieves throughout its entire history.

A. the value of production when all the nation's resources are fully employed.

Real Gross Domestic Product is A. the value of total production linked back to the prices of a single year. B. the most that can be produced when the economy's resources are fully employed. C. the amount of people unemployed divided by the total labor force. D. the productivity of labor.

A. the value of total production linked back to the prices of a single year

Money that has value simply because the government declares it so, is called: fiat money. representative commodity money. gold. commodity money.

A.fiat money

Suppose the Consumer Price Index is 143.6. What does that number mean? A. On average, goods cost $243.60. B. Prices rose 43.6 percent over the reference base period, on average. C. On average, goods cost $143.60. D. Prices rose 143.6 percent over the reference base period, on average.

B. Prices rose 43.6 percent over the reference base period, on average.

An example of "investment" in computing real GDP using the expenditure approach is the purchase of A. 100 shares of IBM stock. B. a new set of tools by an auto mechanic, for use in repairing cars. C. a 100 year old house by a married couple. D. computer chips by Dell to put in their personal computers.

B. a new set of tools by an auto mechanic, for use in repairing cars

Deflation represents A. an increase in the unemployment rate. B. a reduction in the aggregate price level. C. a reduction in output. D. a recession.

B. a reduction in the aggregate price level

The use of purchasing power parity prices A. weakens the validity of cross country comparisons of economic welfare. B. accounts for differences in the prices of the same goods in different countries when measuring real GDP. C. decreases the real GDP per person statistics published by the International Monetary Fund. D. increases the amount by which U.S. GDP is larger than that of any other nation.

B. accounts for differences in the prices of the same goods in different countries when measuring real GDP.

The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the ________. neoclassical growth theory classical growth theory modern theory of population growth new growth theory

B. classical growth theory

Deadweight or welfare loss is the decrease in ________ from producing an inefficient amount of a product. A. only producer surplus B. consumer surplus and producer surplus C. only consumer surplus D. profit

B. consumer surplus and producer surplus

The demand for loanable funds curve is constant at the maximum expected profit rate. downward sloping when plotted against the real interest rate. upward sloping when plotted against the real interest rate. vertical at the full employment level of investment.

B. downward sloping when plotting against the real interest rate

The business cycle refers to A. changes in the level of the stock market. B. fluctuations in the level of real GDP around potential GDP. C. changes in the level of nominal GDP. D. changes in the level of employment.

B. fluctuations in the level of real GDP around potential GDP

When a student finishes college and begins looking for work A. cyclical unemployment increases. B. frictional unemployment increases. C. frictional and cyclical unemployment increase. D. structural unemployment increases.

B. frictional unemployment

If a bank's net worth is negative, then the bank definitely is illiquid. insolvent. solvent. liquid.

B. insolvent

Marginally attached workers fall into which of the following population categories? A. unemployed B. not in the labor force C. employed D. labor force

B. not in the labor force

Price indexes can overstate inflation because they A. do not contain the prices of any used goods. B. omit some quality improvements. C. do not contain the prices of services. D. do not contain the prices of foreign goods.

B. omit some quality improvements

Full employment occurs A. only if unemployment is equal to structural unemployment plus cyclical unemployment. B. only if the unemployment rate is equal to the natural rate of unemployment. C. only if the unemployment rate is zero. D. None of the above answers are correct.

B. only if the unemployment rate is equal to the natural rate of unemployment

The unemployment rate measures the percentage of A. the working-age population who can't find a job. B. people in the labor force who can't find a job. C. people who want full-time jobs, but can't find them. D. the working age population that can't find a full-time job.

B. people in the labor force who can't find a job

An increase in the working-age population results in a rightward shift of demand for labor curve and an increase in potential GDP. rightward shift of the supply of labor curve and an increase in potential GDP. leftward shift of the supply of labor curve and a decrease in potential GDP. rightward shift of the demand for labor curve and no change in potential GDP.

B. rightward shift of the supply of labor curve and an increase in potential GDP

If the Fed wants to decrease the quantity of money, it can raise income tax rates. sell U.S. government securities. decrease the government budget deficit. purchase U.S. government securities.

B. sell U.S. government securities

Ms. Krupsky has shorthand and typing skills and still finds herself unemployed. In today's economy, Ms. Krupsky is an example of what type of unemployment? A. frictional unemployment B. structural unemployment C. cyclical unemployment D. None of the above answers is correct.

B. structural unemployment

Neoclassical growth theory attributes economic growth to increasing population growth. technological change. the law of diminishing returns. fiscal policy.

B. technological change

Two methods of measuring GDP are A. the income approach and the receipts approach. B. the income approach and the expenditure approach. C. the goods approach and the services approach. D. the saving approach and the investment approach.

B. the income approach and the expenditure approach

The employment-to-population ratio is defined as A. total employment divided by labor hours then multiplied by 100. B. total employment divided by the working-age population then multiplied by 100. C. the labor force divided by the working-age population then multiplied by 100. D. total employment divided by the labor force then multiplied by 100.

B. total employment divided by the working-age population then multiplied by 100

The ________ is calculated as the number of people ________ divided by the labor force multiplied by 100. A. employment rate; employed B. unemployment rate; unemployed C. employment-to-population ratio; unemployed D. employment-to-population ratio; in the working age population

B. unemployment rate; unemployed

The Consumer Price Index is a measure of the average of the prices paid by ________ for a fixed basket of consumer goods and services. A. urban wage earners and clerical workers B. urban consumers C. consumers living in cities with a population greater than 100,000 D. all consumers

B. urban consumers

U.S. investment is financed from private saving, government budget deficits, and borrowing from the rest of the world. private borrowing, government budget deficits, and lending to the rest of the world. private saving, government budget surpluses, and borrowing from the rest of the world. private saving and borrowing from the rest of the world only.

C private saving, government budget surpluses, and borrowing from the rest of the world

Using the Rule of 70, if the country of Flowerdom's current growth rate of real GDP per person was 7 percent a year, how long would it take the country's real GDP per person to double? 1 year 49 years 10 years 2 years

C. 10 years

In a country with a working-age population of 130 million, 90 million workers are employed and 10 million workers are unemployed. What is the unemployment rate? A. 7.1 percent B. 5.0 percent C. 10.0 percent D. 7.7 percent

C. 10.0 percent

Suppose there are currently 100 people unemployed, 1500 people employed, and 2000 people in the working age population. The labor force participation rate equals 100 times A. 100/1500. B. 100/1600. C. 1600/2000. D. 1500/2000.

C. 1600/2000

In our loanable funds model, households will choose to save more if current disposable income increases. income is expected to decrease in the future. Both answers A and B are correct. Neither answer A nor B is correct.

C. Both answers A and B are correct

The 3-6-3 rule: pay 3% on savings accounts be on he golf course by 3 pm charge 6% on loans all of he above are true. the ratio of assets, liabilities,and capital a bank is required to hold.

C. all of the above

Money is created by government taxation. banks paying for depositor's insurance. banks making loans. banks taking in deposits.

C. banks making loans

Which of the following expressions equals GDP? A. compensation of employees + gross investment + rental income + depreciation + corporate profits + indirect taxes - subsidies B. compensation of employees + net exports + depreciation + corporate profits C. compensation of employees + net interest + rental income + depreciation + corporate profits + proprietors' income + indirect taxes - subsidies D. compensation of employees + consumption + depreciation + net investment

C. compensation of employees + net interest + rental income + depreciation + corporate profits + proprietor's income + indirect taxes - subsidies

The underground economy exists for all of the following reasons EXCEPT the A. avoidance of government regulation. B. production of illegal goods. C. desire to maintain accurate records of economic transactions. D. avoidance of taxes.

C. desire to maintain accurate records of economic transactions

The decreasing slope of a production function reflects increasing aggregate demand. decreasing costs. diminishing returns. rising unemployment.

C. diminishing returns

U6 measure of unemployment is approximately _______ the U3 measure of unemployment. triple 75% double 150%

C. double

Because of a bank merger, Ms. Davis lost her position as Vice President and had to seek work with other banks. Ms. Davis has the skills necessary to find a new job, thus she is best considered as A. cyclically unemployed. B. structurally unemployed. C. frictionally unemployed. D. naturally unemployed.

C. frictionally unemployed

Members of the Federal Reserve system's Board of Governors are elected for life. are a special subcommittee of the Senate. hold 14-year staggered terms. are elected at large by district banks.

C. hold 14-year staggered terms

All of the following are indirect taxes EXCEPT A. cigarette sales taxes. B. liquor excise taxes. C. income taxes. D. taxes on utility bills.

C. income taxes

According to the new growth theory the concept of a labor market is not necessary. the rate of technological progress is determined by chance. knowledge is not subject to diminishing returns. the labor demand curve does not shift rightward over time.

C. knowledge is not subject to diminishing returns

In the equation, GDP = C + I + G + X - M, G refers to A. federal government expenditures plus all transfer payments. B. the taxes and expenditures of all government units. C. local, state, and federal government expenditure on goods and services, but does not include transfer payments. D. local, state, and federal government spending for all purposes.

C. local, state, and federal government expenditure on goods and services, but does not include transfer payments

Which of the following is true: Monetary base = currency in circulation plus savings accounts balances. Monetary base = currency in circulation plus bank checking deposits. Monetary base = currency in circulation plus bank reserves. None of the above.

C. monetary base+ currency in circulation plus bank reserves

Personal consumption expenditures include all of the following EXCEPT spending on A. consumer nondurable goods. B. consumer durable goods. C. new housing. D. consumer services.

C. new housing (cause housing is an investment not an expenditure)

In 2006, Ozzie purchased a 1999 Ford Escort from his neighbor for his son, purchased a 1999 "one owner" Camry from Larchmont Toyota for his wife, bought a 2006 new Ford for himself, and sold his 1993 Dodge Caravan to his teenage nephew. Which, if any, of these transactions will be included in GDP in 2004? A. the purchase of the Ford and the Caravan B. all four transactions C. only the purchase of the Ford D. all three purchases but not the sale

C. only the purchase of the Ford

Human capital is the saving done by human beings. the investment made in industries that make capital goods. people's knowledge and skills. a measure of the labor productivity of workers.

C. people's knowledge and skills

Factors that influence labor productivity include ________. the inflation rate, the real wage rate, and the exchange rate physical capital, the real wage rate, and technology physical capital, human capital, and technology the labor demand curve

C. physical capital, human capital, and technology

All of the following contribute to labor productivity growth EXCEPT technological advancements. human capital growth. population growth. physical capital growth.

C. population growth

Economists define investment as the A. purchase of raw land for later resale. B. purchase of stocks and bonds. C. purchase of equipment, plants, and inventories. D. difference between people's income and their spending.

C. purchase of equipment, plants, and inventories.

Greater optimism about the expected profits from investment projects causes a movement upward along the demand for loanable funds curve. shifts the demand for loanable funds curve leftward. shifts the demand for loanable funds curve rightward. causes a movement downward along the demand for loanable funds curve.

C. shifts the demand for loanable funds curve rightward

Substitution bias in the CPI refers to the fact that the CPI A. substitutes quality changes whenever they occur without taking account of the cost of the quality changes. B. substitutes relative prices for absolute prices of goods. C. takes no account of the substitution of goods by consumers when relative prices change. D. takes into account the substitution of goods by consumers when relative prices change.

C. takes no account of the substitution of goods by consumers when relative prices change

Monetary policy is controlled by Congress. the president. the Federal Reserve. the Treasury Department.

C. the Federal Reserves

The term "capital," as used in macroeconomics, refers to the sum of investment and government purchases of goods. investment. the plant, equipment, buildings, and inventories of raw materials and semi-finished goods. financial wealth.

C. the plant, equipment, buildings, and inventories of raw materials and semi-finished goods

Intermediate goods are excluded from GDP because A. their inclusion would understate GDP B. they represent goods that have never been purchased so they cannot be counted. C. their inclusion would involve double counting. D. the premise of the question is incorrect because intermediate goods are directly included in calculating GDP.

C. their inclusion would involve double counting

Intermediate goods are excluded from GDP because A. they represent goods that have never been purchased so they cannot be counted. B. their inclusion would understate GDP. C. their inclusion would involve double counting. D. the premise of the question is incorrect because intermediate goods are directly included in calculating GDP.

C. their inclusion would involve double counting.

Which of the following changes causes reported GDP to increase when, in fact, total production is unchanged? A. The legalization of previously illegal activities. B. A shift from household production to market production. C. Neither of the above will cause reported GDP to increase when total production does not change. D. Both answers A and B are correct.

D. Both answers A and B are correct.

Which type of price index theory uses base year's quantities? A. Paasche B. Boskin's Index C. Fisher's Mean D. Laspeyres

D. Laspeyres

If Nike, an American corporation, produces sneakers in Thailand this would A. count for both Thailand's GDP and U.S. GDP. B. add to neither U.S. GDP nor Thailand's GDP. C. count as part of U.S. GDP since it is a U.S. corporation. D. add to Thailand's GDP but not to U.S. GDP.

D. add to Thailand's GDP but not to U.S. GDP

Real GDP can be criticized as a measure of economic welfare because it A. does not take account of the degradation of environmental quality. B. does not include the value of products produced in the household. C. does not include leisure time available to a society. D. All of the answers in this question are correct.

D. all of the above

The definition of M2 includes savings deposits. time deposits. M1. all of the answers in this question.

D. all of the above

The consumer price index (CPI) A. is the ratio of the average price of a typical basket of goods to the cost of producing those goods. B. compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2. C. measures the increase in the prices of the goods included in GDP. D. compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.

D. compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period

Unemployment caused by the fluctuation of the business cycle is called ________ unemployment. A. frictional B. recession-related C. structural D. cyclical

D. cyclical

Depreciation is defined as the A. decrease in the stock of capital due to investment by firms. B. increase in the stock of capital due to investment by firms. C. increase in the stock of capital due to wear and tear. D. decrease in the stock of capital due to wear and tear.

D. decrease in the stock of the capital due to wear and tear

The difference between gross investment and net investment is A. initial capital. B. inflation. C. consumption. D. depreciation.

D. depreciation

The five categories of income used in the income approach to the measurement of GDP are A. consumption, saving, rental income, corporate profits, and investment. B. employee compensation, consumption, rental income, corporate profits, and proprietor's income. C. employee compensation, saving, rental income, corporate profits, and investment. D. employee compensation, net interest, rental income, corporate profits, and proprietor's income.

D. employee compensation, net interest, rental income, corporate profits, and proprietor's income

The three types of unemployment are A. voluntary, part-time, and cyclical. B. voluntary, involuntary, and structural. C. frictional, part-time, and involuntary. D. frictional, structural, and cyclical.

D. frictional, structural, and cyclical

Workers who pursue an education directly increase their financial capital. physical capital. saving. human capital.

D. human capital

Goods and services used as inputs by another firm are called A. value-added goods. B. final goods. C. national income goods. D. intermediate goods.

D. intermediate goods

Depository institutions earn profit according to how much the Federal Reserve pays them. earn money by charging the government for their services. earn zero profit but receive compensation by the government because their services are so valuable. make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans.

D. make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans

"Being careless with fire because you have fire insurance," is an example of: fraud. adverse selection. high profit banking. moral hazard.

D. moral hazard

During a recession, the ________. A. unemployment rate decreases B. employment-to-population ratio increases C. number of discouraged workers decreases D. number of marginally attached workers increases

D. number of marginally attached workers increases

The most important tool of the FED is: frowns. discount window. reserve requirement. open market operations.

D. open market operations

Labor growth depends mainly on ________ and labor productivity growth depends mainly on ________. population growth; increases in real GDP growth in real GDP per person; growth rate of capital growth in real GDP per person; technological advances population growth; technological advances

D. population growth; technological advances

In the computation of GDP, Social Security payments count as A. transfer payments and are included in GDP. B. government expenditure on goods and services and are not included in GDP. C. government expenditure on goods and services and are included in GDP. D. transfer payments and are not included in GDP.

D. transfer payments and are not included in GDP

Economies of scope is the economics of complexity, where a company offers multiple products under one firm or organization.

True

Producer surplus (for a single exchange) is defined as the exchange price minus the supply price.

True