Macroeconomics Exam 3

Suppose that real GDP for 2021 was $10,000 billion and real GDP for 2022 was $9,500 billion. What is the rate of growth of real GDP between 2021 and 2022?

-5%

Growth in potential GDP in the United States from 1949 to 2020 was estimated to be about

3.2% per year.

Which aggregate supply curve has a positive slope?

short run only

Declines in spending on residential construction are often due to increases in interest rates. The collapse in residential construction prior to and during the recession of 2007-2009 was due more to ________ than to higher interest rates.

the financial crisis that began in 2007

Potential GDP is defined as

the level of GDP attained when all firms are producing at capacity.

What two factors are the keys to determining labor productivity?

the level of technology and the quantity of capital per hour worked

Which of the following models relies on emphasizing the importance of sticky wages and prices?

the new Keynesian model

Which of the following models has as its central idea that workers and firms have rational expectations?

the new classical model

The rule of 70 states that

the number of years it takes an economy to double in size is 70 divided by the growth rate.

The unemployment rate is

the percentage of the labor force that is unemployed.

The labor force participation rate is defined as

the percentage of the working-age population in the labor force.

The long-run aggregate supply curve shows the relationship between

the price level and quantity of real GDP supplied.

The aggregate demand curve illustrates the relationship between ________ and the ________, holding constant all other factors that affect aggregate expenditure.

the price level; quantity of planned aggregate expenditure

Frictional unemployment is the result of

the process of matching workers with jobs.

Labor productivity is

the quantity of output produced by one worker or by one hour of work.

What is outlet bias?

the tendency for households to spend their money at discount stores as prices rise

Deflation occurs when

there is a decline in the price level.

A study led by the president of the Federal Reserve Bank of San Francisco found that when the unemployment rate is unusually low, the unemployment rate for ________ falls more than it does for ________.

white women with less than a college degree; non-whites

An increase in the price level in the United States will have what effect on the aggregate expenditure line?

Aggregate expenditure will shift downward.

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditure.

An increase in public saving has what impact on the market for loanable funds?

The supply of loanable funds increases.

When the economy enters a recessionary phase of the business cycle, unemployment tends to

increase.

The international trade effect states that a(n) ________ in the price level will ________ net exports.

increase; decrease

A decrease in the price level results in a(n) ________ in household consumption spending and a(n) ________ in investment spending.

increase; increase

Which of the following financial securities is most liquid?

a $20 bill

Structural unemployment is the result of

a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.

Potential GDP was estimated to grow at a rate of 3.2% from 1949-2019 in the United States. Actual GDP in the U.S.

is the same as potential GDP if all firms in the economy were working at capacity.

A firm can fund an expansion of its operations by

issuing bonds.

Stagflation usually results from

a supply shock.

Using the market for loanable funds, which of the following has the potential to raise the real interest rate?

an increase in the demand for loanable funds

On the long-run aggregate supply curve

an increase in the price level has no effect on the aggregate quantity of GDP supplied.

The international trade effect states that

an increase in the price level will lower net exports.

An increase in the price level ________ real wealth, which causes consumption to ________.

lowers; decrease

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

bonds.

The Covid-19 pandemic caused

both an aggregate supply shock and an aggregate demand shock.

Since 1900, real GDP in the United States has grown

more rapidly than the population.

The stated interest rate on a loan is the

nominal interest rate.

An increase in the price level results in a(n) ________ in household consumption spending and a(n) ________ in investment spending.

decrease; decrease

Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds.

demanders; suppliers

From June 2009 until February 2020, the United States was in a period of

expansion.

Actual real GDP will be above potential GDP if

firms are producing above capacity.

The natural rate of unemployment is made up of

frictional and structural unemployment.

Establishing a state employment agency that speeds up the process of matching unemployed workers with unfilled jobs is an attempt to lower

frictional unemployment.

The only way the standard of living of the average person in a country can increase is if ________ increases faster than ________.

production; population

The period between a business cycle peak and a business cycle trough is called

recession.

Stagflation occurs when inflation ________ and GDP ________.

rises; falls

If full-employment GDP is equal to $4.2 trillion, what does the long-run aggregate supply curve look like?

It is a vertical line at $4.2 trillion of GDP.

Which of the following models advocate that the quantity of money should be increased at a constant rate?

the monetarist model

________ are financial securities that represent promises to repay a fixed amount of funds.

Bonds

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

Aggregate demand and potential real GDP decrease continuously.

In January 2021, the U.S. unemployment rate was highest for

African Americans.

The level of real GDP in the long run is

called potential GDP.

Since 1950

the average length of expansions in the United States have become longer as compared to before 1950.

The recession of 2007-2009 began in ________, with the end of the economic expansion that had begun in ________.

December 2007; November 2001

Most of the unemployment that occurred during the Great Depression was

cyclical unemployment.

Discouraged workers are classified by the BLS as

not in the labor force.

The nominal interest rate equals the real interest rate ________ the inflation rate.

plus

Which of the following is a true statement about the length of recessions and expansions in the United States economy?

After 1950, the length of expansions were much longer than the length of recessions.

Which of the following correctly describes how an increase in the price level affects consumption spending?

An increase in the price level lowers real wealth, which causes consumption to decrease.

Which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009?

the end of the housing bubble

When the economy reaches a trough in a business cycle, which of the following will occur?

Income, production, and employment will begin to rise.

Which of the following is a correct statement?

Inflation is measured as the percentage change in the CPI.

According to ________, entrepreneurship does not contribute anything of value to production.

Karl Marx

When production in an economy grows more quickly than the population in that economy, which of the following must be occurring?

Real GDP per capita is rising.

In the modern U.S. economy, the typical unemployed person stays unemployed for

a relatively short time, less than six months.

Which of the following describes actual trends in the U.S. labor force participation rate?

The labor force participation rate of adult women has risen since 1948.

Because of the slope of the aggregate demand curve, we can say that

a decrease in the price level leads to a higher level of real GDP demanded.

The economic effects of a recession are likely to have the smallest impact on the sales of which of the following businesses?

a fast-food restaurant

The ________ shows the relationship between the price level and quantity of real GDP demanded.

aggregate demand curve

A country with no trade and no borrowing and lending relationships with other countries is known as a(n)

closed economy.

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

consumer price index

Workers laid off as a result of a recession suffer

cyclical unemployment.

When the economy enters a recession, your employer is unlikely to reduce your wages because ________ during a recession.

lower wages increase your incentive to find employment elsewhere

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

decreased; increased

During 2008, oil price increases

did not shift the short-run aggregate supply curve as far to the left as similar increases had 30 years earlier.

Changes in the price level

do not affect the level of aggregate supply in the long run.

The labor force equals the number of people

employed plus unemployed.

Human capital refers to which of the following?

the accumulated knowledge and skills workers acquire from education and training or from their life experiences

Which of the following would decrease the unemployment rate?

government aid to retrain unemployed workers

Upon your graduation from college, you find that the economy is in recession and the unemployment rate is relatively high. Nonetheless, most Americans in this situation would continue along their career paths looking for a new job because

high unemployment rates do not usually last for very long.

In the dynamic aggregated demand and aggregate supply model, if AD shifts further than AS

inflation occurs.

The percent increase in the CPI from one year to the next is a measure of the

inflation rate.

During the recession of 2007-2009, employment by all workers aged 20 and over declined by

less than 5 percent.

Economist Robert Fogel has estimated that by the year 2040, individuals in the United States will be spending

less time in the workforce and more time in leisure activities than they do today.

When people became ________ concerned with the underlying value of their houses and became ________ concerned with the expectations of the prices of their houses increasing, a housing bubble occurred.

less; more

Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about

one-half to one percentage point. (0.5-1)

The short-run aggregate supply curve has a(n) ________ slope because as prices of ________ rise, prices of ________ rise more slowly.

positive; final goods and services; inputs

The producer price index measures the prices that firms

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

The ________ curve has a positive slope because as prices of final goods and services rise, prices of inputs rise more slowly.

short-run aggregate supply

The basic aggregate demand and aggregate supply curve model helps explain

short-term fluctuations in real GDP and the price level.

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.

What are the three main types of unemployment?

structural, frictional, and cyclical

If advances in robotics, automation, and artificial intelligence lead to the elimination of jobs, and the people who held those jobs need to learn new skills to find new jobs, those people would be considered

structurally unemployed.

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

the GDP deflator.

What is the name of the organization that defines business cycle peaks and troughs in the United States?

the National Bureau of Economic Research

The main belief of the monetarist model is that

the quantity of money should be increased at a constant rate.

Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as

unemployed.

When the economy enters into a recession, your employer is ________ to reduce your wages because ________.

unlikely; lower wages reduce productivity and morale

In 2000, the employment-population ratio was 64.7 percent. In late 2019 and early 2020, more than nine years after the end of the recession, the ratio

was still only 61.1 percent.

Discouraged workers are

workers who have stopped looking for work because they believe there are no jobs for them.