MACROECON EXAM 2

Gross domestic product (in billions of dollars) for this economy equals...

$1,600

factors that lead to an underestimation of the unfulfilled desires to work in the computation of the U3 unemployment rate?

-discouraged workers -part-time workers who desire to work full time -workers who are over-educated for their current jobs

The value of what kind of items are included in the GDP

-fabric purchased by a family -a lawn mower purchased by a family -a lawn mower purchased by Joe's Lawn Services campany

the U6 unemployment rate is designed to adjust for a few issues in the U3 unemployment rate. What are the main adjustments?

-marginally attached workers are counted as part of the labor force. -underemployed workers are counted as unemployed persons. -marginally attached workers are counted as unemployed members of labor force.

Reasons why unemployment is a problem

-national production is lower than it would be if all resources were in use. -households with unemployed people are w/o the income they were accustomed to having. -the skills of the unemployed may become obsolete.

Assure the market basket for the CPI has 3 products-cokes, hamburgers, and CDs- w/in the following values in 2013 & 2018 for price and quality: the CPI for 2018 equals...

121

What is the difference between gross domestic product (GDP) and net domestic product (NDP)?

NDP = GDP - depreciational of capital

The price index that focuses on the prices of inputs and raw materials is known as the:

Producer Price Index (PPI)

The GDP is not a perfect measure of the standard of living because it does not take _____ of increasing production into account.

Social problems

Which price index considers the prices of the largest number of goods and services?

GDP deflator

To reduce the bias in the CPI, the Bureau of Labor Statistics...

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

The natural rate of unemployment:

varies across countries, even within the category of developed countries.

The CPI implicitly assumes that the demand curve for each good and service in the representative market basket is...

vertical

if an economy experiences deflation, the real interest rate...

will be less than the nominal interest rate.

The equation of the GDP components is:

Y=C+I+G+NX

When inflation occurs, a unit of money will buy _____ amount of goods than before inflation.

a smaller

A firm chooses to pay wages that are above equilibrium for the skills needed in hopes that the workers will work hard. Economists call this wage practice:

efficiency wages

Immediately after Ken's university graduation, he begins looking for employment and finds a job that will begin two months after his graduation. During the time that he is searching for his new job, Ken would be classified as being _______ unemployed.

frictionally

the output of Mexican citizens who work in Texas would be included in the...

gross domestic product of Mexico

Nominal GDP will increase...

if either the price level or the quality of goods and services produced rises

Adjustments for business inventory of product or inputs that are accumulated or sold during a year helps to ensure the accuracy of GDP by ensuring that GDP:

includes all of the time period's production.

A sharp increase in the number of medical errors increases the number of lawyers hired to determine medical malpractice settlements. This will...

increase GDP and decrease well-being in the economy

A decline in the value of money occurs when _____ occurs.

inflation

New houses are included in the _____ component of the GDP.

investment

The cost to firms of changing prices

is called a menu cost

if the GDP deflator is less than 100, the for that year, nominal GDP _____ real GDP.

is less than

Why does unemployment cause inaccuracies in the U3 unemployment rate?

it is difficult to mearsure underemployment

For a good to be included in the GDP, it must be produced...

legally

GDP is defined as the:

market value of all final goods and services produced in a country in a time period.

Costs of inflation

menu cost inflation tax deterioration of the value of a dollar/decrease in purchasing power tax distortion expected inflation is different than actual inflation

Durable good is a good that can be used for:

more than one period

Which describes the product quality improvement bias in the CPI?

new versions of a product may have more features than older versions, and yet the price may not be higher.

Inflation rate is measured as percentage change in prices from one period to the _____ period.

next

The increase in quality bias in the CPI refers to the idea that price increases in the CPI reflect pure inflation, but _____ quality increases. This causes the CPI to _____ the cost of the market basket.

not; overstate

During an economic expansion, _____ rises and _____ falls.

output; unemployment

Changes in the producer price index tend to _____ changes in the actual producer costs.

overstate

If the CPI changes from 125 to 120 between 2017 and 2018, how did prices change between 2017 and 2018?

prices decreased by 4%

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

prices have increased by 42%

The price index that focuses on the prices of the inputs and raw materials is known as the:

producer price index

Which price index tend to be the most volatile (change for the worst) over time?

producer price index (PPI)

The PPI measures the prices that firms...

receive for the goods and services they use at all stages of production.

In the figure, point D represents a:

recession

The GDP is the market value of goods and services produced by _____ of a country.

residents

CPI of 160 in 1996 with a base year of 1982-1984 would mean that the cost of the market basket...

rose 60% from the cost of the market basket in the base year.

Bias of consumer price index

substitution bias new product bias quality improvement bias outlet bias

The real value of income is:

the amount of goods and services that it will buy

Inflation is an increase in:

the average price level in an economy

Chain weighted price index is different from the CPI because:

the market is not fixed but reflects the current mix of items purchased.

When deflation occurs

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

The government purchases do not include the...

transfer payments

What stage of the business cycle immediately follows a recession?

trough

A significant part of economic activity in developing nations occurs in the _____ economy, which consists of small businesses that largely are unreported, are unregulated, and lack property rights.

underground

The base year used in calculating real GDP is...

2016

Jonia's population of 500,000 includes 95,000 children below age 16, 80,000 retirees, 20,000 discouraged workers, 228,000 employed persons, and 12,000 unemployed persons. What is the unemployment rate of Jonia?

5.0%

The consumer price index (CPI) is 100 in year 1, 156 in year 2, and 160 in year 3. What is the inflation rate for year 2?

5.6%

Econland's population of 260,000 includes 60,000 children below age 16, 40,000 retirees, 5,000 discouraged workers, 30,000 full-time homemakers, 110,000 employed persons, and 10,000 unemployed persons. What is the labor force participation rate of Econland? Round to the nearest whole percentage.

60%

calculate the rate of increase in the price level from 2017 to 2018.

8.6%

mathematically, GDP equals:

C + I + G + NX

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

Consumer price index (CPI)

The largest category of expenditures in the US GDP is...

Consumption expenditures

Next Export is calculated as_______.

Exports - Imports

If Gradys sells her 2003 Jeep Cherokee for $3500 in 2018, the sale of her car contributes $3500 to 2018 GDP.

FALSE

If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% between those two years.

FALSE

Nominal GDP measures the value of all final goods and services as base-year prices.

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

The inflation rate measures the average prices of goods and service in the economy.

FALSE

The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment.

FALSE (frictional + structural)

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

TRUE

The household survey asks adults about their unemployment status and is used to compile the monthly unemployment rate.

TRUE

what is the difference between a recession and a depression?

They are both rising unemployment and falling output, but a depression is much more severe.

in the figure, structural unemployment occurs at which wages?

W3

The labor force consists of:

all persons age 16 or older who are classified as employed or unemployed.

What describes the accuracy of the CPI?

changes in the CPI overstate the true rate of inflation

The GDP deflator is a ratio of ______ prices.

current to fixed

THere are not as many job openings as there are unemployed people. This is called _____ unemployment.

cyclical

When people are living on a fixed income, inflation will:

decrease the real value of their income

earned income plus unearned income minus taxes is a measure called:

disposable personal income.

When the number of discouraged workers increases, the U3 unemployment rate will _____, giving a false impression that the economy is:

drop; healthier