Economics Chapter 4-8

How much (if any) does each of the following transactions raise GDP? The same individual purchases $3,000 worth of materials and builds himself a garage, which is worth $10,000. ______________

3000

The Bureau of Labor Statistics (BLS) reports unemployment rate numbers each month. Their preliminary reports for February of 2017 said that over 200,000 jobs had been added and the unemployment rate had dropped to 4.7%. What does this report signal about the economy? A The economy is improving. B The economy is doing too well because unemployment is too low. C The economy is doing worse than before.

A The economy is improving.

Unanticipated inflation helps some groups in the economy. A True B False

A True

In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are A excluded from the labor force B used to determine the size of the labor force C treated the same as part-time workers D included as part of the unemployed

A excluded from the labor force

A recession is defined as a 2 consecutive quarter A fall in real domestic output. B decline in nominal domestic output. C decline in cost-push inflation. D decline in demand-pull inflation.

A fall in real domestic output.

The business cycle graph depicts (check all that apply) Multiple answers: You can select more than one option A full employment. B actual RGDP. C equilibrium RGDP. D points on the production possibilities curve.

A full employment. B actual RGDP. C equilibrium RGDP.

If the actual rate of unemployment is above the natural rate of unemployment, then potential GDP is A greater than actual GDP B equal to actual GDP C equal to the GDP gap D less than actual GDP

A greater than actual GDP

When total spending is greater than GDP A inventories fall, production rises, and GDP rises to catch up to total spending. B inventories fall, and total spending falls back down to the level of GDP. C inventories rise, production rises, and GDP rises to catch up to total spending. D total spending can never be greater than GDP.

A inventories fall, production rises, and GDP rises to catch up to total spending.

Autonomous spending is defined as A spending not caused by a rise in income. B spending your own money, not someone else's. C spending caused by a rise in income D spending on luxury goods as opposed to necessities.

A spending not caused by a rise in income.

According to the Circular Flow diagram, leakages out of the spending stream could be A taxes. B investment. C government transfer payment. D none of the above are examples of leakages.

A taxes.

Nominal GDP is adjusted for price changes through the use of A the GDP price index. B exchange rates. C the Producer Price Index (PPI). D the Consumer Price Index (CPI).

A the GDP price index

Spending that is associated with an increase in income is called A autonomous spending. B induced spending. C consumer and investment spending D government spending

B induced spending

The presence of discouraged workers A increases the size of the labor force but does not affect the unemployment rate. B may cause the official unemployment rate to understate the true amount of unemployment. C may cause the official unemployment rate to overstate the true amount of unemployment. D reduces the size of the labor force but does not affect the unemployment rate.

B may cause the official unemployment rate to understate the true amount of unemployment.

A recession is a decline in A the inflation rate that lasts six months or longer B real GDP that lasts six months or longer C the unemployment rate that lasts six months or longer D potential RGDP that lasts six months or longer

B real GDP that lasts six months or longer

Real GDP is: A the nominal value of all goods and services produced in the economy. B the dollar value of all goods and services produced in the economy corrected for inflation or deflation. C that aggregate output that is produced when the economy is operating at full employment. D always greater than nominal GDP.

B the dollar value of all goods and services produced in the economy corrected for inflation or deflation.

According to the Circular Flow model, when total spending equals GDP A the economy is at full employment. B the economy is in equilibrium. C autonomous spending equals induced spending. D all of the above are true.

B the economy is in equilibrium.

If the unemployment rate increases A fewer people are working. B the labor force may have increased. C the economy is worse off. D the labor force decreased.

B the labor force may have increased.

When inflation occurs A each dollar of income will buy more output than before. B the purchasing power of money decreases. C the purchasing power of money increases. D all prices are rising.

B the purchasing power of money decreases.

If more people just start looking for work A the unemployment rate will rise and the economy will be worse off. B the unemployment rate will rise but the economy will be better off. C the unemployment rate will fall and the economy will be worse off. D the unemployment rate will fall and the economy will be better off.

B the unemployment rate will rise but the economy will be better off.

Indicate what category or categories the purchase of services of a U.S. lawyer in the U.S. by a Japanese citizen in Japan would fall under in regards to the U.S. GDP. A Consumption B Investment C Government D Exports

D Exports

"Full employment" refers to the situation when there is: A 100% employment of the labor force B 0% unemployment rate C No frictional or structural unemployment D No cyclical unemployment

D No cyclical unemployment

Of the measures discussed in this chapter, which is the best measure of the average individual's well-being. A Nominal GDP B Nominal GDP per capita C Real GDP D Real GDP per capita

D Real GDP per capita

Given an announcement of increased numbers of unemployed individuals, what must be happening to the unemployment rate? The unemployment rate: A Must be increasing because total unemployment is increasing B May not change due to weaknesses in our unemployment measures C Will decrease if employment does not increase D Will decrease if employment rises more rapidly than unemployment

D Will decrease if employment rises more rapidly than unemployment

A nation's GDP can be found by adding up the dollar value of the goods produced, the income earned, or the money spent because A the factors of production are land, labor, capital, and entrepreneurship. B the costs of production are equal to the factors of production. C price equals cost equals income earned equals money spent. D all of the above.

D all of the above.

The circular flow model shows that the economy in equilibrium when A total spending equals GDP. B leakages equal injections. C inventories are constant. D all of the above.

D all of the above.

Recurring upswings and downswings in an economy's real GDP over time are called A output yo-yos. B recessions. C total product oscillations. D business cycles.

D business cycles.

Rising per-unit production costs are most directly associated with A frictional unemployment. B structural unemployment. C demand-pull inflation. D cost-push inflation.

D cost-push inflation.

The full employment line A depicts zero unemployment. B depicts a point on the production possibilities curve. C depicts only cyclical unemployment of 5%. D depicts zero cyclical unemployment.

D depicts zero cyclical unemployment.

A person's real income will increase by 3% if her nominal income A increases by 2% while the price index falls by 5%. B increases by 5% while the price index falls by 2%. C increases by 2% while the price index rises by 5%. D increases by 5% while the price index rises by 2%.

D increases by 5% while the price index rises by 2%.

Equilibrium GDP is attained when A the economy is at full employment. B the trade deficit is zero. C either A or B may be true. D none of the above are true.

D none of the above are true.

Unanticipated inflation A hurts borrowers and helps lenders. B helps savers. C hurts people whose sole source of income is from Social Security benefits. D reduces the real burden of the public debt to the federal government.

D reduces the real burden of the public debt to the federal government

Okun's law A measures the trade-off between the rate of inflation and the rate of unemployment. B indicates the number of years it will take for a constant rate of inflation to double the price level. C quantifies the relationship between nominal and real incomes. D shows the relationship between the unemployment rate and the size of the negative GDP gap.

D shows the relationship between the unemployment rate and the size of the negative GDP gap.

What is the real interest rate paid on a credit-card loan bearing 18 percent nominal interest per year, if the rate of inflation is 20 percent?

-2% The nominal rate of interest is equal to the real interest rate plus the expected or actual inflation rate. If we know two of those numbers we can solve for the third.

How much (if any) does each of the following transactions raise GDP? The same individual goes to the woods, cuts down a tree, and uses the wood to build himself a garage that is worth $10,000. ______________

0

How much (if any) does each of the following transactions raise GDP? An individual pays a carpenter $10,000 to build a garage. ______________

10000

What is the real interest rate paid on a credit-card loan bearing 18 percent nominal interest per year, if the rate of inflation is 6 percent?

12% The nominal rate of interest is equal to the real interest rate plus the expected or actual inflation rate. If we know two of those numbers we can solve for the third.

How much (if any) does each of the following transactions raise GDP? The Jones family sells its old house to the Reynolds family for $130,000. The Jones family then buys a newly constructed house from a builder for $175,000. ______________

175000

If the Consumer Price Index for on year was 124.0 and for the next year was 130.7, what was the approximate rate of inflation? A 5.4% B 24.0% C 30.7% D 130.7%

A 5.4%

In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output? A Capital goods. B Agricultural commodities. C Military goods. D Textile products.

A Capital goods.

In the recent past, the government has attempted to stimulate the economy by sending tax refunds to individual people so that they will buy more products. What component of GDP is the government attempting to increase? A Consumption B Investment C Government spending

A Consumption

Which component of GDP is the largest in the U.S.? A Consumption B Investment C Government spending D Net exports

A Consumption

We have reached full employment when which of the following is true? A Cyclical unemployment is zero, but frictional and structural unemployment are positive. B Frictional unemployment is zero, but cyclical and structural unemployment are positive. C Structural unemployment is zero, but frictional and cyclical unemployment are positive. D Cyclical, frictional, and structural unemployment are all zero.

A Cyclical unemployment is zero, but frictional and structural unemployment are positive.

If the United States consumes $300,000 million worth of imports from Canada, how does it affect U.S. GDP? A Imports are not counted as a part of GDP. B Decreases GDP. C Increases GDP.

A Imports are not counted as a part of GDP.

The economy can be at equilibrium and in a recession at the same time. A True B False

A True

In what circumstances would lenders most benefit? A When there is an unanticipated decrease in inflation. B When there is an anticipated decrease in inflation C When there is an anticipated increase in inflation. D When there is an unanticipated increase in inflation.

A When there is an unanticipated decrease in inflation.

Does GDP include the purchase of a haircut? A Yes B No

A Yes

Inflation is undesirable because it A arbitrarily redistributes real income and wealth. B reduces everyone's standard of living. C invariably leads to hyperinflation. D usually is accompanied by declining real GDP.

A arbitrarily redistributes real income and wealth.

Currently the Federal Reserve Bank is raising interest rates because A it fears that inflation is possible. B it wants to increase employment which occurs when interest rates rise. C it wants to reduce government borrowing because of the size of the national debt. D all of the above are reasons why the Fed recently raised interest rates.

A it fears that inflation is possible.

Equilibrium GDP is attained when A leakages equal injections. B the economy is at full employment. C the trade deficit is zero. D all of the above.

A leakages equal injections

According to the Circular Flow model, injections into the spending stream include A net exports. B savings. C taxes. D none of the above.

A net exports.

Cost-push inflation A reduces real output. B increases real output. C reduces the unemployment rate. D raises the natural rate of unemployment.

A reduces real output.

Were inflation levels leading up to and into the first full year of the Great Recession below or above the typically targeted rate of around 2%? A Below B Above C At 2%

B Above

Who is least likely to be hurt by unanticipated inflation? A A secretary. B An owner of a small business. C A disabled laborer who is living off accumulated savings. D A pensioned steelworker.

B An owner of a small business.

Which answer best describe the annual growth rates during the Great Recession? A Real GDP growth stayed constant from the previous years. B Real GDP growth rates dipped below 0. C Real GDP growth rates were 0

B Real GDP growth rates dipped below 0.

The Paradox of Thrift highlights the idea that: A Saving more is good for the economy in the short run. B Saving more can be bad for the economy during a recession. C In spending more, households will end up saving less. D In spending more, workers may end up losing their jobs.

B Saving more can be bad for the economy during a recession.

Which definition is the best one for GDP? A The sum of all final goods and services consumed in a country in a given year. B The sum of all final goods and services produced in a country in a given year. C The sum of all final goods and services produced in a country minus the goods imported. D The sum of all final goods and services produced by citizens of a country in a given year.

B The sum of all final goods and services produced in a country in a given year.

In the depth of the Great Depression of 1929-1933, the unemployment rate in the United States was about A 33 percent. B 40 percent C 25 percent D 10 percent

C 25 percent

If the Consumer Price Index for a certain year is 103, this means that the average price of consumer items in that year was A 3% higher than the average price of the preceding year. B 103% higher than the average price in the base year. C 3% higher than the average price in the base year. D $103 higher per basket of consumer goods and services.

C 3% higher than the average price in the base year.

If a country is experiencing deflation: A Changes in real GDP are less than changes in nominal GDP. B Changes in real GDP are equal to changes in nominal GDP. C Changes in real GDP are greater than changes in nominal GDP.

C Changes in real GDP are greater than changes in nominal GDP.

GDP does not include which of the following activities? A Businesses installing anti-pollution equipment B Families eating out in restaurants C Couples remodeling their own homes D Households spending to enhance security of their neighborhoods

C Couples remodeling their own homes

There have been recent talks about increasing spending on highways and roads. What component of GDP would that affect? A Consumption (C) B Investment (I) C Government spending (G)

C Government spending (G)

Inflation is a rise in A Unemployment over time. B Real GDP over time. C The general level of prices over time. D The standard of living over time.

C The general level of prices over time.

GDP understates the amount of economic production in the United States because it excludes: A Spending for the U.S. military B Purchases of stocks and bonds C Work performed by people for their own benefit D Transfer payments

C Work performed by people for their own benefit

Cost-push inflation may be caused by A a decline in per unit production costs. B a decrease in wage rates. C a decrease in resource availability. D all of the above.

C a decrease in resource availability.

The GDP gap measures the difference between A net Domestic Product and Gross Domestic Product. B national Income and Personal Income. C actual RGDP and potential RGDP. D nominal GDP and real GDP.

C actual RGDP and potential RGDP.

The aggregate cost of unemployment can be measured by the: A excess of nominal GDP over real GDP. B amount by which actual GDP exceeds potential GDP. C amount by which potential GDP exceeds actual GDP. D excess of real GDP over nominal GDP.

C amount by which potential GDP exceeds actual GDP.

If the Consumer Price Index for one year was 150.0 and the rate of inflation from that year to the next was 10 percent, what would be the Consumer Price Index in the second year? A 110.0 B 140.0 C 160.0 D 165.0

D 165.0

In 1933, the worst year of the Great Depression, the unemployment rate in the United States was about A 40 percent B 33 percent C 15 percent D 25 percent

D 25 percent

Over the last 100 years on average the US economy grew at __ per year. A 2% B 7% C 5% D 3%

D 3%

Which of the following would be counted as unemployed? A A college student who is not working during the school year B A retired college professor C A teenager who is not working this summer D A lawyer who just resigned from her firm, and is looking for a new position

D A lawyer who just resigned from her firm, and is looking for a new position

Nominal gross domestic product: A Is not affected by the level of inflation B Changes only when there is a change in output C Changes only when there is a change in the price level D Can change when there is a change in either output or the price level

D Can change when there is a change in either output or the price level

When oil and energy prices rise, the economy tends to experience A Unanticipated inflation. B Natural inflation. C Demand-pull inflation. D Cost-push inflation.

D Cost-push inflation.

The annual rate of inflation can be found by subtracting A the real income from the nominal income. B last year's price index from this year's price index. C this year's price index from last year's price index and dividing the difference by this year's price index. D last year's price index from this year's price index and dividing the difference by last year's price index.

D last year's price index from this year's price index and dividing the difference by last year's price index.

"Full employment" refers to the situation when there is A 100% employment of the labor force. B 0% unemployment rate C no frictional or structural unemployment D no cyclical unemployment

D no cyclical unemployment

A country is officially in a recession when A equilibrium RGDP is less than full employment RGDP B total spending falls below RGDP C RGDP has fallen for 2 consecutive months D none of the above

D none of the above

The CPI and the inflation rate are calculated each month by A the bureau of economic analysis. B the national bureau of economic research. C the Federal Reserve Bank. D the bureau of labor statistics.

D the bureau of labor statistics.

Spending that is not caused by a change in income is called

autonomous spending

Full-time homemakers and retirees are classified in the BLS data as: A Employed. B Unemployed. C Not in the labor force. D Members of the labor force, but not working.

c

According to the Circular Flow diagram, when total spending is equal to GDP then the economy is said to be

in equilibrium

The inflation rate between any two years is calculated as (choose all that apply) Multiple answers: You can select more than one option A the percentage change in the CPI from one year to the next. B (CPI in year 2 - CPI in year 1) / CPI in the base year X 100. C (CPI in year 2 - CPI in year 1) / CPI in year 1 X 100. D (CPI in year 2 - CPI in the base year) / CPI in the base year X 100.

A the percentage change in the CPI from one year to the next. C (CPI in year 2 - CPI in year 1) / CPI in year 1 X 100. D (CPI in year 2 - CPI in the base year) / CPI in the base year X 100.

If the labor force and the unemployed go up by the same amount A the unemployment rate would rise. B the unemployment rate would fall. C the unemployment rate would stay the same. D there is not enough information to know for sure.

A the unemployment rate would rise.

The RGDP business cycle line swings up and down because of (check all that apply) Multiple answers: You can select more than one option A changes in autonomous spending. B changes in full employment. C shifts of the production possibilities line D changes in total spending

A and D

Inflation initiated by increases in wages or other resource prices is labeled A cost-pull inflation. B cost-push inflation. C demand-pull inflation. D demand-push inflation.

B cost-push inflation.

A price index that is used to measure inflation will do which of the following? A Hold prices constant B Hold quantities constant C Hold neither prices or quantities constant D Hold both prices and quantities constant

B Hold quantities constant A price index takes a given market basket and compares the price levels of goods and services in that market basket between two periods. In other words, it holds the quantities constant.

Indicate the effects of the following on the components of real GDP. An increase in the U.S. consumption of foreign-grown bananas as substitutes for U.S. grown oranges will cause: A An increase in consumption and an increase in imports B No change in consumption and an increase in imports C An increase in consumption and a decrease in exports D No change in consumption and an increase in net exports

B No change in consumption and an increase in imports

Which of the following is the correct way to calculate the unemployment rate? A [(unemployed)/(population)] X 100 B [(unemployed)/(labor force)] X 100 C [(labor force)/(population)] X 100 D [(labor force)/(unemployed)] X 100

B [(unemployed)/(labor force)] X 100

The start of a recession is known A as soon as GDP falls. B after two consecutive quarters of falling GDP. C after one month of falling GDP. D after one quarter of falling GDP. E none/all of the above.

B after two consecutive quarters of falling GDP.

Which of the following is a correct statement? A It is relatively easy to distinguish between cost-push and demand-pull inflation even if you don't know the source of the inflation B A supply shock will cause a variation of demand-pull inflation that can lead to hyperinflation C Demand-pull inflation will continue as long as there is excess total spending in the economy D Demand-pull inflation is usually accompanied by higher unemployment rates

C Demand-pull inflation will continue as long as there is excess total spending in the economy

Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then A Borrowers are hurt, but lenders benefit. B Both lenders and borrowers are hurt. C Lenders are hurt, but borrowers benefit. D Both lenders and borrowers benefit.

C Lenders are hurt, but borrowers benefit.

Which of the following government agencies estimates and compiles the U.S. GDP accounts? A The American Economic Association B The Federal Reserve System C The Bureau of Economic Analysis D The Bureau of Labor Statistics

C The Bureau of Economic Analysis

Which of the following best describes the true costs of inflation? A Real wages are lowered B Lenders are hurt C The economy produces less than it otherwise would D None of the above

C The economy produces less than it otherwise would

China has one of the largest real GDPs in the world. What does that measure not consider when determining the well-being of its citizens? A Inflation rates B The current exchange rate C The number of people in the country

C The number of people in the country

Why is the purchase of a share of stock not included in GDP? A Money is not being exchanged when a stock is purchased. B A company sells too many stocks for it to be included. C The purchase of a share of stock does not correspond to the production of a good or service.

C The purchase of a share of stock does not correspond to the production of a good or service.

The size ranking, biggest to smallest, of the four spending groups is A consumer, investment, net exports, government. B government, consumer, investment, net exports. C consumer, government, investment, net exports. D none of the above.

C consumer, government, investment, net exports.

The production of durable goods varies more than the production of non-durable goods because A producers of durable goods are highly competitive. B the producers of nondurable goods have monopoly power. C durable goods purchases are postponable. D durable goods purchases are non-postponable.

C durable goods purchases are postponable.

According to the Circular Flow diagram, when total spending is less than GDP A inventories rise, production falls, and total spending rises to catch up to GDP. B inventories fall, total spending falls back down to the level of GDP. C inventories rise, production falls, and GDP falls to meet total spending. D total spending can never be less than GDP.

C inventories rise, production falls, and GDP falls to meet total spending.

A lender need not be penalized by inflation if the A long-term rate of inflation is less than the short-term rate of inflation. B short-term rate of inflation is less than the long-term rate of inflation. C lender correctly anticipates inflation and increases the nominal interest rate accordingly. D inflation is unanticipated by both borrower and lender.

C lender correctly anticipates inflation and increases the nominal interest rate accordingly.

Demand-pull inflation A can be present even during an economic depression. B is also called "hyperinflation." C occurs when total spending in the economy is excessive. D none of the above.

C occurs when total spending in the economy is excessive.

Full-employment output could also be called: A zero-unemployment output. B equilibrium output. C potential output. D none of the above.

C potential output.

The three statistics that are the main focus for those measuring macroeconomic health are A nominal GDP, unemployment, and inflation. B real GDP, nominal GDP, and inflation. C real GDP, inflation, and unemployment. D real GDP, nominal GDP, and unemployment.

C real GDP, inflation, and unemployment.

Business cycle fluctuations typically arise because A the actual supply of goods and services ends up being more or less than what consumers were expecting. B prices tend to be flexible in the short run. C the actual demand for goods and services ends up being more or less than what firms were expecting. D all of the above.

C the actual demand for goods and services ends up being more or less than what firms were expecting.

If the labor force increases and the number of employed workers stays the same A the unemployment rate will not change. B the unemployment rate will fall. C the unemployment rate will rise D it's not possible to determine.

C the unemployment rate will rise

8) All of the following are synonyms of GDP except A income B output C total spending D the level of economic activity

C total spending