Econ exam 2

If the CPI index value for 2010 is 210 ; and your nominal income is $42,000 for 2018 , then your real income in base years prices is:

$20,000

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.

Greater labor force participation for households at higher real wage rate is one reason that

the supply of labor curve is upward sloping.

When cyclical unemployment is zero

the unemployment rate equals the natural unemployment rate.

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

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

) In 2010, of the following ________ had the highest real GDP per person.

united states

The labor force is defined as A) people with full time jobs. B) all people capable of work. C) workers with jobs and unemployed workers. D) All of the above answers are correct.

workers with jobs and unemployed workers.

Which type of price index theory averages the base year and current yearʹs quantities? A) Fisherʹs Mean B) Paasche C) Laspeyres D) Boskinʹs Index

Fishers mean

Which type of price index theory uses base yearʹs quantities? A) Laspeyres B) Paasche C) Fisherʹs Mean D) Boskinʹs Index

Laspeyres

Which type of price index uses base year quantities (i.e. the quantities before the price change) which typically overstates inflation?

Laspeyres

Which type of price index theory uses current periodʹs yearʹs quantities (after the price change)? A) Laspeyres B) Paasche C) Boskinʹs Index D) Fisherʹs Mean

Paasche

Which type of price index theory uses current yearʹs quantities? A) Boskinʹs Index B) Paasche C) Laspeyres D) Fisherʹs Mean

Paasche

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

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

Which of the following is consistent with classical growth theory?

Real GDP per person will never permanently increase.

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

add to Thailandʹs GDP but not to U.S. GDP.

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) takes no account of the substitution of goods by consumers when relative prices change. C) takes into account the substitution of goods by consumers when relative prices change. D) substitutes relative prices for absolute prices of goods.

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

Testgen questions still do not copy to other applications.Which of the following means that the CPI overstates the actual inflation rate? quality change bias outlet substitution bias new goods bias All of the above cause the CPI to overstate inflation

all of the above

Which of the following is a price index commonly used by economists and policy makers? A) Consumer Price Index B) GDP Deflator C) Personal Consumption Expenditure (PCE) D) CORE Inflation E) all of these answers

all of the above

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

are not; are not actively seeking work

The growth rate of real GDP per person in the United States has

averaged approximately 2 percent per year over the past century

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.

both answers A and B are correct

All of the following are included in gross private domestic investment expenditure EXCEPT a A) businessʹs purchase of another companyʹs stock. B) a retail storeʹs purchase of shoes to add to its inventory. C) businessʹs purchase of a fleet of cars. D) householdʹs purchase of a new house.

businessʹs purchase of another companyʹs stock.

) Moving along the aggregate production function shows the relationship between ________, holding all else constant.

labor input and real Gdp

According to the law of diminishing returns, an additional unit of

labor produces less output than the previous unit

The real wage rate will fall if the

labor supply curve shifts rightward and the labor demand curve does not shift.

A higher savings rate that leads to an increase in the capital stock

leads to an increase in labor productivity

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

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

An increase in the working-age population results in a

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

) If new capital increases labor productivity, the supply of labor ________ and the demand for labor ________.

stays the same; increases

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

the income approach and the expenditure approach

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

the movement from peak to trough

When calculating GDP, underground economic activity is A) an aspect of the quality of life, such as health and life expectancy. B) the production of goods and services in the home. C) the part of the economy purposely hidden. D) that portion of the time when we are enjoying leisure activities and not producing marketable goods.

the part of the economy purposely hidden.

The term ʺcapital,ʺ as used in macroeconomics, refers to

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

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

their inclusion would involve double counting.

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

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

governments often intervene in agricultural markets by

granting subsidies

Price indexes can overstate inflation because they

omit quality improvements of goods and services.

Labor productivity is

real GDP per hour of labor or real GDP per worker

A price floor results in

results in a surplus if the floor price is higher than the equilibrium price

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.

) All of the answers in this question are correct.

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.

) desire to maintain accurate records of economic transactions.

Gross domestic product is the total ________ produced within a country in a given time period.

) market value of all final goods and services

Using the Rule of 70, if the country of Flowerdomʹs current growth rate of real GDP per person was 7 percent a year, how long would it take the countryʹs real GDP per person to double?

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) 5.0 percent B) 10.0 percent C) 7.7 percent D) 7.1 percent

10.0 %

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) 100/1600. B) 1600/2000. C) 100/1500. D) 1500/2000.

1600/2000

If the CPI index value for 2010 is 210 ; and for 2018 is 250, then the cumilatove inflation rate

19%

Over the last 100 years, the average U.S. growth rate in real GDP per person was about

2 percent per year

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.

225

If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate?

5%

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) 7.1 percent. B) 9.1 percent. C) 10 percent. D) 6.6 percent

9.1%

Suppose the CPI last year is 121 and the CPI this year is 137. The correct method to calculate the inflation rate is A) 137 × 121 = 258. B) (137/121) × 100 = 113.2. C) (137 - 121)/100 = 0.16. D) [(137 - 121)/121] × 100 = 13.2.

D) [(137 - 121)/121] × 100 = 13.2.

Which of the following statements is INCORRECT? A) The labor-force participation rate is the labor force divided by the working-age population then times 100. B) The labor force is equal to the number of people employed plus the number of people unemployed. C) The unemployment rate is the number of persons who are unemployed divided by the labor force then times 100. D) The working age population includes everyone over the age of 16.

The working age population includes everyone over the age of 16

Cyclical unemployment occurs when A) individuals with skills no longer valued in the labor market cannot find employment. B) individuals enter into the labor market making the rounds of potential employers. C) a business cycle recession decreases employment. D) individuals give up the search for employment.

a business cycle recession decreases employment.

the government sets a price floor for corn which is above the equilibrium price of corn. as a results

a deadweight loss will be created

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

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

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

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) decreases the real GDP per person statistics published by the International Monetary Fund. C) increases the amount by which U.S. GDP is larger than that of any other nation. D) accounts for differences in the prices of the same goods in different countries when measuring real GDP.

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

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

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

Purchasing power parity prices are used to: A) adjust for differences in population. B) do not omit the underground economy. C) is a proper measure of economic welfare. D) can be used to make more valid per capita GDP comparisons between one country and another.

can be used to make more valid per capita GDP comparisons between one country and another.

Economic growth is measured by

changes in real GDP

The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the _____

classical growth theory

) The consumer price index (CPI) A) 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. B) measures the increase in the prices of the goods included in GDP. C) 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. D) is the ratio of the average price of a typical basket of goods to the cost of producing those goods

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.

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

compensation of employees.

dead weight or welfare loss is the decrease in _________ from producing an inefficient amount of a product

consumer surplus and producer surplus

Goods that are produced this year, stored in inventories, and then sold to consumers next year A) count in both this yearʹs and next yearʹs GDP. B) are not counted as a part of GDP. C) count in next yearʹs GDP. D) count in this yearʹs GDP.

count in this years GDP

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

cyclical

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

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

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

depreciation

Economists distinguish real GDP from nominal GDP to A) measure the change in nominal interest rates. B) determine whether economic welfare has changed. C) determine whether the government sector is growing. D) determine whether real production has changed.

determine whether real production has changed.

The decreasing slope of a production function reflects

diminishing returns

U6 measure of unemployment is approximately _______ the U3 measure of unemployment.

double

Net exports of goods and services equal the A) imports of goods and services minus the exports of goods and services. B) exports of goods and services divided by the imports of goods and services. C) exports of goods and services minus the imports of goods and services. D) exports of goods and services plus the imports of goods and services.

exports of goods and services minus the imports of goods and services.

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

false

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

fluctuations in the level of real GDP around potential GDP.

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

frictional unemployment increases.

The three types of unemployment are

frictional, structural, and cyclical.

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

frictional, structural, and cyclical.

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) structurally unemployed. B) naturally unemployed. C) frictionally unemployed. D) cyclically unemployed.

frictionally employed

Net investment equals A) the total quantity of plant, equipment and buildings. B) gross investment minus depreciation. C) capital stock minus depreciation. D) gross investment/depreciation

gross investment minus depreciation

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

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

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

he movement from peak to trough.

We are interested in long-term growth primarily because it brings

higher standards of living.

Workers who pursue an education directly increase their

human capital

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

income taxes

) An increase in saving that leads to more capital accumulation ________ labor productivity.

increases

If the population increases, then potential GDP ________ and employment ________.

increases; increases

The gap between real GDP per person in Africa and real GDP per person in the United States has been

increasing

The nominal interest rate minus the real interest rate approximately equals the

inflation rate

In the national income accounts, the purchase of a new house counts as A) a transfer. B) an addition to inventory. C) consumption expenditure. D) investment.

investment

Which of the following items is NOT a component of the income approach to measuring U.S. GDP? A) interest earned on savings deposits B) income earned by businesses that export goods C) profits made by businesses D) investment

investment

As currently calculated, the CPI tends to overstate the true inflation rate because A) it fails to correctly measure quality changes for some products. B) the market basket selected is inappropriate. C) we cannot know what the true inflation rate is. D) the market basket fails to weigh housing costs sufficiently.

it fails to correctly measure quality changes for some products.

According to the new growth theory

knowledge is not subject to diminishing returns.

The labor force participation rate is calculated as the A) labor force divided by the number of persons employed then multiplied by 100. B) labor force divided by the unemployment rate then multiplied by 100. C) number of persons unemployed divided by the labor force then multiplied by 100. D) labor force divided by the working age population then multiplied by 100.

labor force divided by the working age population then multiplied by 100.

When using the income approach to measure GDP, the largest share of GDP generally consists of: A) capital income. B) interest income. C) indirect taxes. D) labor income. E) profits.

labor income

In the equation, GDP = C + I + G + X - M, G refers to A) federal government expenditures plus all transfer payments. B) 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. D) the taxes and expenditures of all government units.

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

an example of a price floor is a

minimum wage

Depreciation is subtracted from gross domestic product to determine directly A) net domestic product. B) national income. C) consumption expenditures plus investment expenditures plus government expenditure plus net exports. D) disposable income.

net domestic product

Which of the following is NOT part of the expenditure approach to measuring GDP? A) personal consumption expenditures B) gross private domestic investment C) net interest D) net exports of goods and services

net interest

Which of the following is NOT part of the expenditure approach to measuring GDP? A) personal consumption expenditures B) net interest C) net exports of goods and services D) gross private domestic investment

net interest

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

new goods, quality change, and substitution biases.

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

new housing

Frictional unemployment comes about because of A) a general economic slowdown. B) friction between labor and management. C) normal labor market turnover. D) a mismatch between skills and available jobs.

normal labor market turnover.

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

not in the labor force

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

number of marginally attached workers increases

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

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.

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

According to the Boskin Commission, the CPI:

overstates inflation by 1.1 percentage points per year.

The unemployment rate measures the percentage of A) people who want full-time jobs, but canʹt find them. B) the working age population that canʹt find a full-time job. C) the working-age population who canʹt find a job. D) people in the labor force who canʹt find a job.

people in the labor force who canʹt find a job.

Human capital is

peoples knowledge and skills

The productivity growth slowdown refers to the A) period during the 1970s and for some years afterwards. B) situation in foreign nations but not in the United States. C) years during the 1990s. D) years following the 1930s depression.

period during the 1970s and for some years afterwards.

In the expenditure approach to GDP, the largest component is A) net exports. B) government expenditure on goods and services. C) personal consumption expenditures. D) gross private domestic investment.

personal consumption expenditures

The largest component of GDP in the expenditures approach is A) government expenditure on goods and services. B) gross private domestic investment. C) personal consumption expenditures. D) net exports.

personal consumption expenditures

) Factors that influence labor productivity include ________.

physical capital, human capital, and technology

All of the following contribute to labor productivity growth EXCEPT:

population growth

Ongoing economic growth in real GDP per person requires all of the following EXCEPT ________.

population growth

Labor growth depends mainly on ________ and labor productivity growth depends on ________.

population growth; technological advances

) Labor growth depends mainly on ________ and labor productivity growth depends mainly on ________.

populations growth; technological advances

U.S. investment is financed from

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

) The currently used method for calculating the CPI A) accounts for people increasing consumption of a good that falls in relative price. B) has no effect on government expenditures. C) probably overstates inflation by about 1 percentage point. D) None of the above answers are correct.

probably overstates inflation by about 1 percentage point.

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

production in the home

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

production when all the nationʹs resources are fully employed.

All of the following household expenditures are included in consumption expenditure EXCEPT A) purchase of a new purse. B) payment to a dentist for filling a tooth. C) purchase of hair styling. D) purchase of corporate stock.

purchase of corporate stock.

In the labor market, an increase in labor productivity ________ the real wage rate and ________ the level of employment.

raises; increases

Ms. Krupsky has shorthand and typing skills and still finds herself unemployed. In todayʹs 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.

structural unemployment

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) frictional and cyclical unemployment. B) structural unemployment. C) cyclical unemployment. D) frictional unemployment.

structural unemployment

If net taxes exceed government expenditures, the government sector has a budget ________ and government saving is ________.

surplus; positive

Neoclassical growth theory attributes economic growth to

technological change

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

technological change, absolute job skills, or foreign competition.

The Industrial Revolution in England in large was the result of

technological innovations encouraged by the market system

Pollution is a by-product of some production processes, so on this count real GDP as measured A) is adjusted downward to take into account the pollution. B) tends to overstate economic welfare. C) is adjusted upward to take into account the expenditures that will be made in the future to clean up the pollution. D) tends to understate economic welfare.

tends to overstate economic welfare

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

the 1970s experienced the highest inflation rates.

The labor demand curve slopes downward because

the firm maximizes profits by hiring more labor when the real wage rate falls.

) 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

) Other things remaining the same, the greater the expected profit,

the greater the amount of investment.

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

transfer payments and are not included in GDP.

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

true

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; in the working age population D) employment-to-population ratio; unemployed

unemployment rate; unemployed

) The supply of labor curve is

upward sloping

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) consumers living in cities with a population greater than 100,000 B) urban consumers C) urban wage earners and clerical workers D) all consumers

urban consumers