Econ Midterm 1

In 1986, the United States recorded real GDP growth of 3.5% and nominal GDP growth of 5.5%. What was the inflation rate in 1945?

2 % (Inflation rate = nominal - real)

How do you calculate the unemployment rate?

# of unemployed/labor force x 100

You open an investment account that earns a nominal interest rate of 4.2% a year. The current consumer price index is 108. In one year, the consumer price index is expected to go to 106. What is your expected real rate of return?

(106-108)/108 * 100 = 1.85 ish 1.85 +4.2 = 6.05 Added bc it's a liquid asset and there is deflation, less money means its worth more

In 1979, when the consumer price index was 72.58, men earned a median income of $11,779 per year. If the consumer price index in 2015 was 236.99, how much was $11,779 in 2015 dollars?

(new CPI/old CPI) * old price (236.99/72.58) * 11,779 = 38461

In 2007, a U.S. forever stamp cost $0.41. In 2019, a U.S. forever stamp cost $0.55. In January 2007, the consumer price index was 207.34. If in January 2019, the consumer price index was 251.1, what is the approximate price of the 2007 forever stamp in 2019 dollars?

(new CPI/old CPI) * old price (251.1/207.34) * 0.41 = 0.50

What is the equilibrium rate of unemployment?

frictional + structural unemployment

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. Holding all else equal, what is the profit made by the furniture factory?

8400-1900-950 = 5550

How do you calculate real GDP per capita

Adjust GDP for inflation if possible and then divide by the number of people in the country

You run a factory that makes leather shoes. You opt to pay your workers twice the going wage in order to reduce tardiness and shirking and to increase workers' morale and effort. This scenario is an example of:

An efficiency wage

What is an example of consumption spending?

Buying a movie ticket for Valentine's day

How do you calculate total spending/GDP?

Consumer spending + Investment spending + Gov't spending + Net exports

Which of following people can be classified as structurally unemployed?

Cyrus, who is finding it difficult to get a job in his field because businesses are not hiring due to high unionized wages

____ is a measure of how much your decision has _____ your well-being.

Economic surplus, increased

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. Holding all else equal, what is the profit made by the lumberyard?

1,000-600 = 400

What CPI represents the base number

100

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. What is the labor share of GDP?

1850/8400 = 22%

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. Holding all else equal, what is the profit made by the wood processing factory?

1900-1000-300 = 600

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. What is total GDP, according to the income approach?

5,500 + 600 + 400 + 1850 = 8400 (wages + income of all firms)

Consider the following basket of goods: 50 hamburgers, 10 textbooks, eight T-shirts, and 100 bottles of water. Suppose that in 2015, each hamburger was $3.50, each textbook was $89.99, each T-shirt was $14, and each bottle of water was $1.50. In 2016, each hamburger was $3.60, each textbook was $95, each T-shirt was $13, and each bottle of water was $1.65. What was the approximate value of the basket in 2015?

50(3.5) + 10(89.99) + 8(14) +100(1.50) = 1,337

Consider the following basket of goods: 50 hamburgers, 10 textbooks, eight T-shirts, and 100 bottles of water. Suppose that in 2015, each hamburger was $3.50, each textbook was $89.99, each T-shirt was $14, and each bottle of water was $1.50. In 2016, each hamburger was $3.60, each textbook was $95, each T-shirt was $13, and each bottle of water was $1.65. What was the approximate inflation rate in 2016?

50(3.60) + 10(95) + 8(13) + 100(1.65) = 1399 (1399-1337)/1337 * 100 = 4.63 or 4.7%

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. What is the sum of all the wages in this example?

600 + 300 + 950 = 1850

Sarah Sandoval is a coffee farmer trying to decide how many tons of coffee to produce. She can sell each ton of coffee for $1,500. The cost of producing her first ton of coffee is $300, and the second ton costs $500. Each additional ton of coffee costs $200 more to produce. How many tons of coffee should Sarah produce, and what is the total cost of her coffee production?

7 tons for $6,300 (firms keep producing until MC = MB)

What is Costa Rica's GDP deflator if its nominal GDP is $60.13 billion (in current US$) and the real GDP is $49.17 billion?

GDP deflator = (nominal/real)*100 = 60.13/49.17 * 100 = 122.3

What is the relationship between CPI and the inflation rate

Higher CPI means more inflation

Consumption spending is:`

Household spending on final goods and services

What are the two economic costs of unemployment?

Hysteresis and unemployed people accept lower wages

How does the production function shift with technological advancement?

It shifts upwards

What is the difference between microeconomics and macroeconomics?

Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole.

Consider the production functions shown here, which show the output of a bakery over time. Suppose that the bakery experiences significant wear and tear of its ovens and that this leads some of the ovens to break down. Which of the movements reflects this scenario?

Move left on the same production function curve

What are the 4 basic macroeconomic principles?

Opportunity cost principle Cost-benefit principle Interdependence principle Marginal principle

Who counts in the working age population?

People 16 years or older who are not institutionalized or in the military

Who counts as unemployed?

People in the working age population who are looking for a job

What are two main ways in which governments can create incentives for and encourage innovation in an economy?

Subsidizing Research and Development and instituting intellectual property laws

The government passes a new initiative to provide a tax credit on research and innovation by firms. What is the impact on the production function, and what is the effect on economic growth in the country?

Technological advancement occurs, and economic growth occurs.

Which of the scenarios below represents a macroeconomic decision? - Marios is making a decision on which university to attend. - You are deciding whether to buy a used textbook or rent a textbook for the semester. - Your school is making a decision on whether to hire a new professor. - The president of Uzbekistan is deciding whether to boost spending on the tourism sector.

The president of Uzbekistan is deciding whether to boost spending on the tourism sector. (macroeconomy = effects the economy as a whole ig?)

What are 4 shortcomings of GDP?

The shadow economy is missing. Nonmarket activities are excluded. GDP ignores income distribution. Environmental degradation is not counted.

What is the relationship between consumption and income?

They are positively related

When do we know there is a decreased standard of living in a country?

When GDP falls

An increasing return to scale production function is one where increasing all inputs by a certain proportion leads to output rising by:

a larger proportion

New farming techniques now use unmanned aerial vehicles (UAVs) to create precise maps of farms and ensure optimal application of fertilizers and watering of crops. This allows farmers to ensure their crops are healthy and increases crop yield. This scenario illustrates:

a technological innovation that shifts the production function up.

WinSun, a Chinese firm, began producing 3-D printed houses in late 2013. These houses were produced in a fraction of the time it would take to produce a house in the regular way and at a much lower cost. This is an example of:

an advance in technology leading to a rise in productivity.

When a U.S. consumer buys Canadian maple syrup at the grocery store, this purchase is:

an import

The rational rule summarizes the marginal principle. It says that if something is worth doing, keep doing it until your marginal

benefits equal your marginal costs

Diane Jacobs is a student studying economics and is currently working on her class schedule for next semester. She considers the fact that a popular class may fill up if she does not act quickly, she is acknowledging the dependencies that exist

between people and businesses within the same market

In January 2008, you purchased a financial instrument with a nominal interest rate of 2.75% per year. At the time, the consumer price index was 212.17. By January 2009, the consumer price index went to 211.93. What was your real rate of interest?

change in real interest rates = [(new-old)/old]*100 change = [(211.93-212.17)/212.17]*100 = 0.11 deflation means less money so interest is worth more 2.75 + .11 = 2.86%

When your household buys goods and services, this is called

consumption

The "market value" of a good or service refers to the:

current dollar value of that good or service.

West Virginia experiences an economic boom. We would expect:

cyclical unemployment to fall.

The circular flow of income shows that total spending is _____ total income.

equal to

A "final" good or service is one that is

finished and ready for the final user.

The marginal propensity to consume is the:

fraction of each dollar of extra income that households spend on consumption.

Which of the following is a scaled number? - the country's national debt - total tax revenues in the economy - government budget deficit as a percentage of GDP - the sum of all incomes earned in the economy

gov't budget as a percent of GDP (scaled == compared to something I think)

A carpenter's shop doubles in size, buys twice the wood, hires a second carpenter, buys a second lathe, and then manages to produce 230% more furniture than it did before. The carpenter's shop is experiencing:

increasing returns to scale.

If the local construction company buys an industrial 3D printer, this expenditure is:

investment

The consumption function is a plot of the:

level of consumption associated with each level of income.

Ron is buying jeans online and has to decide how many to buy. He should buy an additional pair if the

marginal benefit of the next pair is at least as high as the price of the jeans

Following the rational rule, the economic surplus is maximized when

marginal benefits equal marginal costs

The slope of the consumption function is the:

marginal propensity to consume

The rational rule suggests you should continue with an activity until your _____ benefit _____ your marginal cost.

marginal, equals

Estimating willingness to pay quantifies _____ costs or benefits associated with a choice.

nonfinancial

What is one way to calculate economic growth of a nation

percent change in GDP

The Producer Price Index is an index that tracks the:

price that businesses pay over time for the inputs used in the production process.

How do you calculate nominal GDP

price*quantity not adjusted for inflation

You open a savings account that earns a nominal interest rate of 1.3% interest a year. The current consumer price index is 117. In one year, the consumer price index is expected to go to 120. What is your expected real rate of return?

real interest rate = nominal - inflation inflation = (new CPI- old CPI/old CPI) 120-117/117 = 2.56 1.3-2.56 = -1.26

GDP is defined as

the market value of all final goods and services produced within a country in a given year

Rose Riley's parents have booked and paid for a family trip to Aspen, Colorado, during her spring break. Rose's friends recently decided to drive to Destin, Florida, for spring break. Rose needs to decide whether to join her parents in Aspen or drive to the beach with her friends. The opportunity costs of joining her friends on the trip to Destin include each of the following EXCEPT her parents' anger if she skips the family trip to Aspen. the ski lift ticket her parents have already purchased for her. the hotel costs she will split with her friends in Destin. her contribution to gas money for the drive to Destin.

the ski life ticket her parents already purchased