Macroeconomics exam 2

A consumer price index 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.

Suppose that nominal GDP in 2011 was less than real GDP in 2011. Given this information, we know for certain that

the price level in 2011 was less than the price level in the base year.

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2010, then the value of your grandfather's salary in 2010 dollars is approximately

$84,775.

If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion, the growth rate of real GDP between 2010 and 2011

is 3.75%

Which of the following will increase investment spending in the economy, holding everything else constant

an increase in federal government surplus

Which of the following would increase the unemployment rate?

an increase in unemployment insurance payments

The response of investment spending to an increase in the government budget deficit is called

crowding out.

Since 1948, the labor force participation rate for adult men has ________ and for adult women has ________.

decrease; increased

The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household.

false

Transfer payments are subtracted from national income to personal income.

false

Residential investment includes spending by firms on office buildings.

false.

Which of the following statements is true about the U.S. economy?

frictionally unemployed.

A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements. This will

increase GDP and decrease well being in the economy.

Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would

increase the measured labor force participation rate.

Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I= $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion Refer to Scenario above. Based on the information above, what is the level of private saving in the economy?

$3 trillion

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%

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.

Which of the following transactions represents the purchase of a final good? A. Starbucks purchases coffee beans. B. Delta buys a new European-made jetliner. C. Apple computer buys computer processors from Intel. D. Your father buys a new John Deere riding lawn mower.

D. Your father buys a new John Deere riding lawn mower.

Which of the following would encourage economic growth through increases in the capital stock? A. a change from an income tax to a consumption tax B. an increase in household saving C. a decrease in the government deficit D. all of the above

D. all of the above

The nominal GDP of the U.S. in 2010 was approximately $14.6 trillion. This means that A. the value of output in 2010 was around $14.6 trillion. B. total income in 2010 was around $14.6 trillion. C. total spending in 2010 was around $14.6 trillion. D. all of the above are true.

D. all of the above are true.

You earned $30,000 in 1990, and your salary rose to $80,000 in 2011. If the CPI rose from 82 to 202 between 1990 and 2011, which of the following is true?

The purchasing power of your salary increase between 1990 and 2011.

In a closed economy, which of the following equations reflects investment? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)

Y - C - G

Which of the following describes a situation in which the person is hurt by inflation?

a person paid a fixed income during an inflationary period

An example of business fixed investment spending is

a purchase of a computer by an accounting firm.

The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket.

change; over-estimates

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.

Accumulation a greater number of inputs will ensure that an economy will experience economic growth.

false

Counting part-time workers who are looking for full-time work as employed overstates the degree of joblessness in the economy.

false

Efficiency wage is another name for the minimum wage.

false

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

false

Potential GDP is the maximum output a firm is capable of producing.

false

Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation

greater than 7 percent.

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

gross national product of Mexico.

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

household production.

Technological advances generally result in

increased life expectancy.

In the United States since the mid-1980s, consumption as a percentage of GDP has

increased.

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 advantage of the establishment survey over the household survey of the labor market is that the establishment survey

is based on actual payrolls, rather than on unverified answers.

The cost to firms of changing prices

is called a menu cost.

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as

labor productivity.

Since 1900, real GDP in the United States has grown

more rapidly than the population.

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 of consumers.

The Bureau of Labor Statistics would categorize a retiree who is not working as

out of the labor force.

Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will

remain constant.

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

structural unemployment

What two factors are the keys to determining labor productivity?

technology and the quantity of capital per hour worked

The unemployment rate is an important economic statistic that can tell us about the health of the economy. If the unemployment rate turns out to be higher or higher than anticipated, we would expect

that stock prices are more likely to fall

Liquidity refers to

the ease with which a financial security can be traded for cash.

If cyclical unemployment is eliminated in the economy, then

the economy is considered to be at full employment.

An increase in the real interest rate will decrease consumption and investment.

true

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

true

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.

Cyclical unemployment is the result of

a slowdown in the economy.

If consumers decide to be more frugal and same more out of their income, then this will cause

a shift in the supply curve for loanable funds to the right.

Wage laws cause unemployment because the legal minimum wage is set

above the market wage, causing labor demand to be less than labor supply.

The consumer price index is the

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

Financial securities that represent promises to repay a fixed amount of funds are known as

bonds.

When actual inflation is less than expected inflation,

borrowers lose and lenders gain.

Which of the following policies would reduce frictional unemployment?

building an on-line job database that helps workers find jobs

The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds.

lower; greater; greater

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

the price level.

If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on

the producer price index.

If inflationary expectations are increasing, we would expect that the nominal interest rate would also be increasing, holding all else constant.

true

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

true

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

Real GDP is GDP in a given year

valued in the prices of the base year.

In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced, This means that the BEA

values foods and services at their market prices. multiplies them by the quantity produced, and then adds them up.