Econ test 1

If you have trouble finding a job because of a slowdown in the overall economy, we would say that you are

cyclically unemployed

After the recession of 2007-2009, the unemployment rate peaked at 10.0 percent in October 2009. Eighteen months later, it had

declined by only 1 percentage point.

If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.

fallen; fallen

The labor force participation rate is defined as

the percentage of the working-age population in the labor force.

Suppose that nominal GDP in 2013 was less than real GDP in 2013. Given this information, we know for certain that

the price level in 2013 was less than the price level in the base year.

The average price of goods and services in the economy is also known as

the price level.

Value added equals the market price of the firm's product minus

the price of all factors of production

When deflation occurs,

the real interest rate is greater than the nominal interest rate.

Consider the following data for Tyrovia, a country that produces only two products: guns and butter. Nominal GDP for Tyrovia for 2013, using 2005 as the base year, equals

$1,140

Looking at the table above, real average hourly earnings in 2011 were

$10.

The average period of unemployment was ________ following the 2007-2009 recession as following any other recession since the end of World War II.

. twice as high

If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is

-3%.

Consider the following data for Tyrovia, a country that produces only two products: guns and butter. Real GDP for Tyrovia for 2013, using 2005 as the base year, equals

$690

Refer to Table 9-14. The real average hourly earnings for 1965 in 1982-1984 dollars equal

$8.28.

In a small economy, consumption spending in 2013 is $6,000, government spending is $1,200, gross investment is $1,500, exports are $2,000, and imports are $1,000. What is gross domestic product in 2013?

$9,700

Product Quantity Price Sweatshirts 50 $35.00 Dental examinations 40 $75.00 Coffee Drinks 1,000 $4.00 Coffee Beans 2,000 $0.50 Refer to the table above. Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals

$9,750

Looking at the table above, real average hourly earnings were equal to ________ in 2012.

$9.52

The labor force participation rate equals the

(labor force divided by working-age population) × 100.

The labor force participation rate equals the

(number of employed divided by the labor force) × 100.

If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is

125

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

3 percent

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?

3.5%

Assume the average annual CPI values for 2012 and 2013 were 207.3 and 215.3, respectively. What was the percent increase in the CPI between these two years?

3.86

If the number of unemployed workers is 200 million, and the number in the labor force is 500 million, what is the unemployment rate?

40%

If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?

5%

The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is

5% higher in year 2 than in year 1

If the number of unemployed workers is 19 million, the number in the working-age population is 500 million, and the unemployment rate is 4%, what is the labor force participation rate?

95%

Which of the following is an example of a worker experiencing frictional unemployment?

A worker quits his job at the Post Office to find more interesting work.

Which of the following explains why many European countries have unemployment rates that are higher than in the United States?

European countries offer higher unemployment benefits than the United States.

Efficiency wage is another name for the minimum wage.

False

Nominal income is equal to real income if the CPI is less than 100. True

False

Paying efficiency wages are a way for a company to cut costs and become more efficient, and are therefore lower than market wages.

False

Real GDP per capita is calculated by dividing the value of real GDP for a country by the countryʹs adult population.

False

The full-employment rate of unemployment is zero.

False

To obtain real average hourly earnings, nominal average hourly earnings are multiplied by the CPI.

False

Which of the following statements is true?

GDP accounting rules do not adjust for production that pollutes the economy.

GDP is not a perfect measure of well-being because

GDP is not adjusted for pollution

Which of the following is not directly counted in GDP?

Intermediate Goods

Which of the following is not a true statement about the impact of World War II on the U.S. economy?

More than 40% of the labor force was in the military or producing war goods.

Between 2013 and 2014, if an economyʹs exports rise by $8 billion and its imports fall by $8 billion, by how much will GDP change between the two years, all else equal?

Net exports will increase GDP by $16 billion

Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarah experiencing?

Sarah is not experiencing unemployment of any kind, because she is not currently part of the labor force.

Which of the following could cause nominal GDP to decrease, but real GDP to increase?

The price level falls and the quantity of final goods and services produced rises.

Based on the graph of the labor market above, if a minimum wage of $8 per hour is imposed, which of the following will result?

The quantity of labor demanded by firms will fall

If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy.

True

The unemployment rate tends to be higher in the European Union as compared to the United States.

True

Which of the following transactions represents the purchase of a final good?

You buy a new John Deere riding lawn mower.

An example of a seasonally unemployed worker would be

a ski lift operator who loses his job when the snow melts in the spring.

Labor unions cause unemployment because the union contract wage is set

above the market wage, causing a surplus of labor.

Which of the following would increase the unemployment rate?

an increase in unemployment insurance payments

The consumer price index is the

average of the prices of the goods and services purchased by a typical urban family of four

Macroeconomics, as opposed to microeconomics, includes the study of what determines the

average price levels of goods and services in the economy.

Investment, as defined by economists, would not include which of the following? Ford Motor Company

buys US government bonds

Which of the following is not a durable good?

clothing

Which of the following price indices comes closest to measuring the cost of living of the typical household?

consumer price index

Which of the following would be the best measure of the cost of living?

consumer price index

Most of the unemployment that occurred during the Great Depression was

cyclical unemployment.

If the BLS counted persons that are on active military service in the totals for employment, the labor force, or the working-age population, this would

decrease the measured unemployment rate.

The real wage equals the nominal wage ________ the CPI, all times 100.

divided by

Macroeconomics seeks to understand

economic growth, business cycles, and inflation

Macroeconomics seeks to understand**

economic growth, business cycles, and inflation

The labor force is the sum of

employed workers and unemployed workers.

Macroeconomics, as opposed to microeconomics, includes the study of what determines the level of

employment in the economy

Macroeconomics, as opposed to microeconomics, includes the study of what determines the level of

employment in the economy.

The natural rate of unemployment is the amount of unemployment

equal to frictional plus structural unemployment.

In the circular flow model, the value of total income for an economy __________ the value of total production.

equals

Jack just told his boss that he thinks his boss is an idiot. It is likely that Jack will be experiencing ________ unemployment in the near future.

frictional

The natural rate of unemployment is made up of

frictional and structural unemployment.

The short-term unemployment arising from the process of matching workers with jobs is called

frictional unemployment.

ʺHousehold productionʺ refers to

goods and services people produce for themselves

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called

government aid to retrain unemployed workers

Gross domestic product understates the total production of final goods and services because of the omission of

household production

An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment.

increase; frictional

The U.S. unemployment insurance program

increases the amount of time the unemployed spend searching for a job.

During a business cycle expansion, total production __________ and total employment __________.

increases; increases

The percent increase in the CPI from one year to the next is a measure of the

inflation rate.

An efficiency wage

is higher than the market wage and tends to increase productivity.

The Philippines and Vietnam have roughly the same size population. Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion. You should conclude

it is not possible to make a good comparison of the economic well being of a typical individual in the 2 countries without additional information.

The unemployment rate equals the number of unemployed divided by the ________, all times 100.

labor force

Which of the following labor market statistics best indicates the amount of labor that is available to the economy from a given working-age population?

labor force participation rate

The real interest rate equals the nominal interest rate ________ the inflation rate.

minus

If firms pay what are called "efficiency wages," they pay wages that

motivate workers to increase their productivity

The "new product bias" in the consumer price index refers to the idea that

new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

The stated interest rate on a loan is the

nominal interest rate.

A full-time student who is not working is categorized as unemployed.

not in the labor force.

Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as

not in the labor force.

Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about

one-half to one percentage point.

Discouraged workers are classified by the BLS as

out of the labor force.

The GDP deflator is the

ratio of nominal GDP to real GDP multiplied by 100

Legalizing all forms of illegal activities

reduces GDP and the size of the underground economy.

The drawback to calculating real GDP using base-year prices is that

relative prices change over time and these are not reflected in base-year prices, and this distorts GDP.

The advice to "retrain" would be most appropriate for which of the following types of unemployment?

structural unemployment

By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce

structural unemployment.

The broadest measure of the price level that includes all final goods and services is

the GDP deflator.

The most widely used measure of inflation is based on which of the following price indices?

the consumer price index

If the federal government implements programs so that the unemployed are more quickly matched with jobs, then

the natural rate of unemployment will decrease.

Frictional unemployment is the result of

the search process of matching workers with jobs.

Gross domestic product is calculated by summing up

the total market value of final goods and services produced in the economy during a period of time

Suppose in 2014, you purchase a house built in 2003. Which of the following would be included in the gross domestic product for 2014?

the value of the services of the real estate agent.

Deflation occurs when

there is a decline in the price level.

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness?

unemployed persons falsely report themselves to be actively looking for a job

To reduce the bias in the consumer price index, the Bureau of Labor Statistics

updates the market basket every two years, rather than every 10 years.

Nominal GDP is GDP in a given year

valued in the prices of that year.

Real GDP is GDP in a given year

valued in the prices of the base year.