Economics Test- 2

What example correctly describes an individual who is frictionally unemployed?

A new college graduate is looking for their first job

Suppose that personal income is $3,500 billion, personal taxes are $1,000 billion, and depreciation is $500 billion. Disposable income is equal to which of the following?

$2,5000 billion

The Frank-Heggood Corporation began 2018 with $50 million in capital. In 2018, the Frank Heggood Company spent $400 million on inventory, $200 million on new capital, and experienced 10% depreciation of its capital. Based on this information, what is the Frank Heggood Company's contribution to gross domestic product (GDP) in 2018, and in what category is that contribution counted? (a) $600 million is counted in consumption. (b) $195 million is counted in investment, and $400 million is counted in consumption. (c) $600 million is counted in investment. (d) $200 million is counted in investment. (e) $595 million is counted in consumption.

(c) $600 million is counted in investment.

The circular flow of economic activity between consumers and producers includes which of the following? 1. Households buy factor services from firms. 2. Households sell factor services to firms. 3. Households buy outputs from firms. 4. Households sell outputs to firms.

2. & 3.

What is the correct interpretation of an unemployment rate of 4%?

4% of the labor force is unemployed and looking for a job.

Which of the following is most likely to benefit from unexpected inflation? A. Lenders of fixed interest rate loans will be better off. B. Borrowers of fixed interest rate loans will be worse off. C. A lender collecting fixed interest payments on loans. D. A retiree with a fixed income. E. A saver who owns a certificate of deposit

B. Correct. Borrowers paying fixed interest payments benefit because the money they pay back is worth less than the money they borrowed.

Who are the winners and losers from unexpected inflation?

Borrowers WIN, lenders LOSE

In the circular flow diagram of a market economy, which of the following supplies the factors of production? A. Business sector B. The government C. The household sector D. Financial sector E. The foreign sector

C.

Which of the following transactions will be included in the calculation of Country X's Gross Domestic Product (GDP) in 2020? A. The sale of corporate stocks B. The exchange of a used automobile for a used boat C. The purchase of new construction equipment D. Social Security checks received by retirees E. Carrots grown in a household's backyard and consumed by the family

C. The purchase of new construction equipment

Which of the following is true according to the circular flow model? A. Firms are suppliers in both the product and factor markets. B. Firms are demanders in the product markets and suppliers in the factor markets. C. Households are demanders in both the product and factor markets. D. Households are demanders in the product markets and suppliers in the factor markets. E. The government is a demander in the product market only.

D.

Which of the following groups would most likely gain from unanticipated inflation? A. Landlords who own apartments in cities with rent controls B. Individuals who have fixed retirement incomes C. Individuals who earn high incomes D. Individuals who have borrowed money at fixed interest rates E. Banks that have loaned all excess reserves at a fixed interest rate

D. Individuals who have borrowed money at fixed interest rates

Which of the following best explains why GDP is an imperfect measure of wellbeing?

DP was never intended to measure wellbeing.

During the Prohibition era in the United States, the production and sale of alcoholic beverages was illegal. Despite this, widespread illegal production and sales of alcohol continued. The 21st Amendment to the U.S. Consitution repealed this law in 1933, meaning that it was once again legal to produce and sell alcohol. Which of the following criticisms of GDP would explain why we might expect to see a sudden jump in real GDP in 1933?

GDP calculations only include goods that are produced and sold legally in markets.

Which of the following is a limitation of gross domestic product (GDP) that causes GDP to understate production in an economy?

GDP doesn't include nonmarket transactions. (Goods that are produced but not traded/ sold in the market aren't counted in GDP).

Which of the following best describes the role of households and firms in the circular flow model of the economy?

Households supply the factors of production to firms in exchange for money; firms supply goods and services to households in exchange for money.

In Fitlandia a $100 million dollar skyscraper is constructed over two years. In year 1, $60 million is spent on its construction, and in year two $40 million is spent. How will the construction of these skyscrapers impact Fitlandia's gross domestic product (GDP) in year 111and year 222?

Increases by $60 million in year 1; increases by $40 million in year 22

When using the expenditures approach, which category of gross domestic product (GDP) changes when domestic firms anticipate that a recession will occur soon?

Investment (Investment includes spending by firms, such as spending on inventory and capital. If firms think that a recession is coming, they reduce spending on inventory and don't expand. So, they don't spend as much on capital spending.)

In an economy, the price index in 2006 was 100 and the real gross domestic product (GDP) was $1,000. In 2010, the price index was 110 and the nominal GDP was $2,200. Based on that information, which of the following can be inferred about the economy's nominal GDP in 2006and real GDP in 2010 ?

Nominal GDP in 2006=$1,000; Real GDP in 2010=$2,000 Correct. Price index = (nominal GDP/real GDP) ×100; thus, nominal GDP in 2006=(price index × real GDP)/100= (100×$1,000)/100=$1,000. And real GDP in 2010= (nominal GDP/price index) ×100= ($2,200/110) ×100=$2,000.

In 2017 Sabrina earned an annual salary of $100,000 as an engineer. In 2018, her income rose to $105,000. The inflation rate in 2018 was 2%. How did Sabrina's nominal income and real income change in 2018 compared to 2017?

Nominal income increased and real income increased.

Laurens quit his job as a scientist to study full time to be a lawyer. Which of the following best describes Laurens' employment status?

Not in the labor force

Which calculation correctly determines the unemployment rate?

Not working but seeking employment/ (employed + unemployed) X 100

Price Index

Price index = (nominal GDP/real GDP) ×100

Which of the following best describes the relationship between a worker's real wage and nominal wage when there is no inflation?

Real wage and nominal wage are the same.

The table below shows the cost of the same representative basket of goods in the base year 2012 and in 2013, and the average weekly nominal wage rate in 2012 and 2013.

The CPI in year 2013 is 120. Correct. The cost of the given basket of goods increased by 20%=[(12,000−10,000)/10,000×100], so with a CPI=100 in the base year, the CPI in 2013 is 120.

Which of the following is an alternate measure of wellbeing currently used that incorporates GDP, but which does not rely exclusively on income as a measure of well-being?

The Human Development Index (HDI) (HDI is a measure of well being that includes health (measured with life expectancy), wealth (measured with GDP per capita), and education (measured with an education index), that can be used to compare countries' social and economic development, as well as track this development over time.)

CPI (Consumer Price Index)

The change in prices that a consumer would have to pay for a fixed set of goods as a percentage of the same goods in a base year

What does the labor force participation rate measure?

The percentage of the eligible population that is either employed or out of work and searching for work.

Tyrion has managed to save up $1,000$1,000dollar sign, 1, comma, 000 which he has deposited in a Westeros Bank account that pays 4%4%4, percentinterest. Which of the following will be true if the actual inflation rate is lower than the expected inflation rate?

Tyrion would benefit, he bank would be worse off.

If a worker's nominal wage rate increases from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker's real wage has

approximately increased by 10%

The consumer price index (CPI) is designed to measure changes in the

cost of a select market basket of goods and services

A continuous increase in the consumer price index (CPI) is

inflation