Macro Exam 1 (chapters 6-9)

rate of inflation CPI formula

(cpi2-cpi1)/cpi1

Real average hourly wage

(nominal average hourly wage / CPI) x 100

National income is defined as

net national production less indirect sales taxes

Consumption expenditures do not include household purchases of

new houses

transfer payment

payment for which the government receives neither goods nor services in return

________ is/are the payment for the factor of production ________.

profit, entrepreneurship

What are indirect business taxes?

sales tax

Rapid increases in the price level during periods of recession or high unemployment are known as

stagflation

supply-side economics

states that increasing the supply of goods translates to economic growth

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are

sticky prices

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

Suppose the government reduced corporate profit taxes to encourage investment. This policy is in line with

supply-side growth economics

A cut in the tax rate designed to encourage investment is an example of

supply-side policy

The economic policy that is designed to increase the productivity of workers is known as

supply-side policy

When President Reagan proposed tax rates cuts to promote investment and increase productivity, he was proposing a change in

supply-side policy

congress decreases taxes on business, it is using

supply-side policy

if government regulations imposed on businesses that reduce productivity are eliminated, the government is attempting to use

supply-side policy

Which of the following is counted in GDP? A) the value of do-it-yourself work B) the value of goods and services produced in the underground economy C) the cost of a speed boat purchased by drug smugglers D) the value of leisure

the cost of a speed boat purchased by drug smugglers

In which of the following markets are funds demanded and supplied?

the money market

We say that the economy is at full employment if the unemployment rate is equal

the natural rate of unemployment.

During a deflationary period,

the nominal interest rate is less than the real interest rate

When prices are rising, which of the following will be true? A) The real interest rate will be higher than the nominal interest rate. B) The nominal interest rate will be negative. C) The real interest rate will be negative. D) The real interest rate will be lower than the nominal interest rate.

the nominal interest rate will be negative

a dividend is

the portion of a corporation's profits that the firm pays out each period to its shareholders.

The nominal interest rate will be less than the real interest rate when

the rate of inflation is positive but decreasing.

Total income in an economy is equal to

the sum of the wages, interest, rent, and profit

When Lucent reduced its labor force in 2001,

total employment in the United States was also falling.

The major lesson of the circular flow diagram is that

total income in the economy must always equal total spending.

which of the following is an assumption used by Classical economists?

wages adjust upward but not downward

which is a durable good A) food B) clothing C) a washing machine D) medical care

washing machine

To get the economy out of a slump, Keynes believed that the government should

decrease taxes and/or increase government spending

Economists have found that there has been an increasing share of men in the working-age population with no disabilities who are choosing not to work and are not looking for work. In 2006, Jay Stewart of the Bureau of Labor Statistics found that these men were typically spending their time

engaging in leisure

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

For the last few decades, the labor force participation rates of men have ________, and the labor force participation rates of women have ________.

fallen, risen

True or False: the aggregate supply curve is based on the assumption of fixed prices

false

If Congress increases government spending, it is using

fiscal policy

Keynesian economics

Says economic slumps are caused by inadequate spending, and they can be mitigated by government intervention

Which of the following equations correctly measures GDP in an economy?

GDP =C + I + G + NX

GDP is nota perfect measure of well-being because

GDP is not adjusted for pollution.

The U.S. unemployment insurance program

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

An efficiency wage

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

The PPI is the

producer price index.

If prices are rising on average, then

real GDP will be greater than nominal GDP in the years before the base year.

In periods when prices are falling, on average,

real GDP will grow faster than nominal GDP.

Workers in Canada are eligible for unemployment benefits for about twice as long a period of time as workers in the United States. As a result,

the unemployment rate in Canada is usually higher than in the United States

Stagflation occurs when the economy's inflation rate is high and

the unemployment rate is high

To calculate GDP using the value-added method, one would add up

the value added by each firm involved in the production of final goods and services.

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

-3%

Most economists believe that biases cause changes in the CPI to overstate the inflation rate by

0.5%

CPI formula

100 x (cost of basket in current year/cost of basket in base year)

In a small economy, gross investment in 2008 is $1,500, consumption spending is $6,000, net investment is $200, government spending is $1,500, exports are $2,000 and imports are $1,000. What is GDP for this economy in 2008?

10000

it has become conventional to classify an economic downturn as a recession when aggregate output declines for

2 consecutive quarters

Which of the following would increase gross private domestic investment in an economy? A) an increase in the number of highway construction projects the government is funding B) an increase in the level of Apple's inventory C) an increase in the shares of Apple stock households own D) an increase in the number of workers Apple hires

B, an increase in the level of apples inventory

Which of the following describes the accuracy of the Consumer Price Index? A) Changes in the CPI are unrelated to the true rate of inflation. B) Changes in the CPI accurately reflect the true rate of inflation. C) Changes in the CPI overstate the true rate of inflation. D) Changes in the CPI understate the true rate of inflation.

Changes in the CPI overstate the true rate of inflation.

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.

Scott is a woodworker and charges $125 an hour for his timemanufacturing custom-made wood products. For his wife's birthday, he designs and creates an intricate birdseye maple jewelry box that takes him 15 hours to complete. By how much and in what direction does GDP change as a result of his efforts?

GDP is not affected by Scott's production of the jewelry box.

Net national product (NNP) is equal to

GNP minus depreciation

Income Policy

Government efforts to control inflation by limiting increases in wages and prices

fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending.

monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

Which of the following is a true statement about real and nominal GDP?

If real GDP increases from one year to the next, we know that production of goods and services has risen.

aggregate supply and demand

The total supply and demand in economy at a particular period of time and a particular price threshold

stagflation

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

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

gdp deflator

the aggregate demand curve shows the total quantity demanded by all sectors in the Economy at different what

general price levels

Which of the following has a tendency to raise the unemployment rate?

implementing a minimum wage in an economy

n 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1,500. Today, a $1,500 iMac computer (also made by Apple) comes with 1,048,576 kilobytes (1 gigabyte) of memory. This illustrates the potential for what kind of bias in CPI calculations?

increase in quality bias

what would reduce labor force participation

increase in working age population

According to the Classical economists, the economy

is self-correcting

if the central bank decreases the money supply, it is conducting

monetary policy

You agree to lend $1,000 for one year at a nominal interest rate of 10%. You anticipate that inflation will be 4% over that year. If inflation is instead 3% over that year, which of the following is true?

The person who borrowed the $1,000 will be worse off as a result of the unanticipated decrease in

If the GDP deflator is 142, by how much have prices changed since the base year?

42%

The equilibrium wage in a local labor market is $6 per hour. If a minimum wage of $8 per hour is imposed, which of the following will occur?

There will be an increase in unemployment.

The total supply of goods and services in an economy is known as

aggregate supply

When lumber from Brazilian forests is used by a U.S.-owned company to produce furniture in Canada, the value of the furniture produce will contribute to

canadas GDP

To make the calculation of real GDP more accurate, in 1996 the BEA switched to using

chain-weighted prices

Investment spending includes spending on

changes in business inventories

The concept of "market clearing" is adopted and defended by

classical economists

According to the Classical model, unemployment

could not persist because wages would fall to eliminate the excess supply of labor.

nominal GDP is another word for

current dollar GDP