Macroeconomics Exam Review #2

What GDP does not measure?

-Goods and services that are not included in GDP -Illegal Drugs, good and services in the underground economy. -Goods and services produced within the household that don't enter the market place -Taking care of children, cleaning, cooking, food, produced and consumed within the household.

what are the factors of production?

-Land and natural resources -Human capital -Physical capital -Entrepreneurship

what are the Types of Unemployment?

-Long-run unemployment -short-run unemployment

Why is inflation so unpopular?

-Problems with unanticipated inflation -Hits with those whose incomes are fixed in nominal terms -There are winners and losers -Reduces the ability to make long-term plans -Forces buyers and sellers to pay more attention to prices-less time for productivity -overall of economy falls

what are ways to improve productivity?

-increase access to natural resources -improve quality of labor (human capital) -increase the capital-to-labor ratio -promote innovation and technology

Economic growth is most commonly measured by: A) GDP. B) GDP per capita. C) Genuine Progress Indicator per capita. D) real GDP per capita.

D) real GDP per capita.

those who are no longer looking for work but are unemployed

Discouraged Workers

the ability to use resources to produce goods and services

Entrepreneurship

we count the sales to final buyers such as consumers, firms that purchase investment goods, the government or foreign buyers. -Consumption (C ) -Investment (I) -Government Purchases (G) -Net Exports (NX) y=C+I+G+NX

Expenditure Approach

the market value of all final goods and services. Goods and services with a higher price (value) contribute more to GDP

GDP

A general rise in prices throughout the economy. It is a measure of changes in the cost of living. It is typically measured annually.

Inflation

those in the adult population who are either working or actively looking for work

Labor Force

include land and raw resources from the land.

Land and natural resources

shows the output that is produced using different combinations of inputs combined with existing technology. Incorporating all of the factors of production.

Production Function

the extent to which inputs are converted into output. It is the key driver for economic growth and rises when labor is able to produce greater quantities and higher values of output. The primary reason the American of living is so high is that American workers produce more per hour than do workers in most other countries

Productivity

the market value of all final goods and services produced within a country in a given time period, measured in a constant prices.

Real GDP

equals the nominal rate of interest minus the inflation

Real interest rate

unemployment caused by seasonal shifts in the demand and supply of workers

Seasonal unemployment

unemployment arises because: a) the skills demanded by employers do not match the skills of unemployed workers. b) unemployed workers do not live where jobs are located.

Structural Unemployment

Which of the following would be included in GDP? a. payment of the monthly telephone bill by Mr. Laconic b. the purchase of corporate stock by Steven Jones c. the purchase of a used limousine by Harold Abel d. the value of a pair of mittens your mother knitted for you e. the $300 George saved because he painted his own garage

a. payment of the monthly telephone bill by Mr. Laconic

Consider an economy with an adult population of 100, 50 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The labor force participation rate is a. 100 percent b. 60 percent c. 50 percent d. 40 percent e. 10 percent

b. 60 percent

Use the following data to calculate GDP: consumption = $2,000; gross investment = $600; government purchases = $500; net exports = -$40; transfer payments = $340. a. GDP = $2,720 b. GDP = $3,060 c. GDP = $3,140 d. GDP = $3,400 e. GDP cannot be determined due to insufficient data

b. GDP = $3,060

the CPI this year is 162 and last year it was 170, what do we know about the inflation rate this year? a. It is positive. b. It is negative. c. It has decreased since last year. d. It has increased since last year. e. It is the same as last year.

b. It is negative.

People who are not currently employed, but say they want a job, are counted as unemployed only if they a. have previously held a job b. are actively seeking employment c. are willing to accept a reasonable offer d. are between 16 and 65 years of age e. are willing to accept any offer of employment

b. are actively seeking employment

Gross Domestic Product includes final goods and services, but not intermediate goods because a. intermediate goods are not part of investment spending b. the value of the intermediate goods is already included in the value of the final goods c. the value of the intermediate goods is already included as inventory investment d. intermediate goods are only produced by government e. intermediate goods are not current production

b. the value of the intermediate goods is already included in the value of the final goods

Alternating increases and decreases in economic activity that are typically punctuated by periods of recession and recovery. They vary in intensity and duration. Generally, they show a long-term upward trend. The four phases include peak, recession, trough and recovery.

business cycles

ssuming the total population is 150 million, the labor force is 100 million, and 94 million workers are employed, the unemployment rate is a. 4 percent b. 8 percent c. 6 percent d. 10 percent e. 15 percent

c. 6 percent

Frictional unemployment refers to unemployment that results from a. a mismatch of skills b. being in the wrong geographical location c. taking the time to find the best job d. seasonal decreases in demand for labor e. a recession in the economy

c. taking the time to find the best job

What is the role of the government in Economic Growth?

contributing to physical capital, human capital and technology. -enforcing contracts, protecting property rights and maintaining a stable financial system -promoting free and competitive markets

A wholesale nursery purchases six dozen gladiolus bulbs for $5. The nursery sells the six dozen resulting flowers to a wholesale florist for $10. The wholesale florist delivers the flowers to a retail florist for $15. The flowers are sold by the retail florist for $75 to the bereaved Jones family to use at great-grandfather Jones's wake. What is the value added by the retail florist? a. $10 b. $15 c. $25 d. $60 e. $75

d. $60

If the inflation rate is 4 percent and the nominal interest rate is 9 percent, the real interest rate is a. 13 percent b. -5 percent c. 9 percent d. -13 percent e. 5 percent

e. 5 percent

Which of the following people would be counted as unemployed? a. a retired naval officer b. a full-time student in high school c. a father of preschool children who does not want to work d. an inner-city teenager who has given up looking for work after a year of trying e. a downhill ski instructor who looks for work during the summer

e. a downhill ski instructor who looks for work during the summer

Which of the following is the best example of an investment as defined by economists? a. a household's purchase of 100 shares of Apple computer stock b. a firm's purchase of 100 shares of General Electric stock c. a firm's purchase of a bond issued by General Mills d. a firm's purchase of a U.S. savings bond e. a firm buying personal computers for its secretarial staff

e. a firm buying personal computers for its secretarial staff

Cyclical unemployment results from a. a mismatch of skills b. being in the wrong geographical location c. taking the time to find the best job d. seasonal decreases in demand for labor e. a recession in the economy

e. a recession in the economy

Inflation can be caused by a. increases in aggregate demand only b. increases in aggregate supply only c. decreases in aggregate supply only d. increases in aggregate supply or decreases in aggregate demand e. increases in aggregate demand or decreases in aggregate supply

e. increases in aggregate demand or decreases in aggregate supply

when the economy is on a decline

recession

occurs when an economy makes use of existing but underutilized resources. It is common during recovery from a recession.

short-run unemployment

What are the sources of Inflation?

-Demand and pull -Cost-push inflation

What are the Components of Natural Rate of Unemployment

-Frictional Unemployment -Structural Unemployment -Seasonal unemployment

What is Unemployment Rate?

: [Number unemployed/Labor Force] x 100

If the growth rate in an economy is 3.5%, then its GDP will double in about: A) 3.5 years. B) 20 years. C) 70 years. D) 245 years.

B) 20 years.

Investment in human capital is important because: A) humans need capital. B) it lowers the total wage bill. C) it increases labor productivity. D) it improves morale.

C) it increases labor productivity.

n the absence of copyright and patent laws: A) the quality of goods and services consumed by purchasers improves. B) innovators can invent more, because they don't have to spend resources navigating the legal system. C) it is difficult for innovators to profit from their efforts. D) the profits of writers and inventors rise

C) it is difficult for innovators to profit from their efforts.

Physical capital includes: A) the talents of people. B) the ability to take resources and use them in creative ways to produce goods and services. C) manufactured products that are used to produce other goods and services. D) land and raw resources that come from land.

C) manufactured products that are used to produce other goods and services.

Which of the following is NOT a factor in the production function? A) labor B) technology C) money D) capital

C) money

-All civilians 16 years of age and older -Excludes institutional in prisons or mental hospitals -Excludes those in military

Civil Adult Population

The higher the productivity of a nation, the: A) greater is its population growth. B) lower is its capital-to-labor ratio. C) larger is its labor force. D) higher is its standard of living.

D) higher is its standard of living.

when the economy is growing

Expansions

unemployment that arises because of the time needed to match qualified job seekers with available jobs. People moving from one job to another

Frictional Unemployment

includes improvements to labor from training and education

Human capital

mental and physical talents

Labor

occurs when an economy finds new resources or finds ways to use existing resources better

Long-run unemployment

the market value of all final goods and services produced within a country in a given time period, measured in current prices

Nominal GDP

is manufactured items used to produce goods and service

Physical capital

compounding allows small rates of growth to turn into substantial increases in income over time

Power of Compounding

provides an estimate of the number of years for a value to double and is calculated as 70 divided by the annual growth rate

Rule of 70

Measures the portion of output that is not explained by the amount of inputs used. It captures the external effects influencing productivity of all inputs. It includes factor such as change in a country's institutions

Total factor productivity

the value of its sales minus the value of its purchases of inputs -Selling prices minus cost of intermediate good

Value Added

What is Labor Force Participation Rate?

[Labor force/Adult population] x 100

What is the GDP growth rate?

[new-old/old]x100

Given the following hypothetical data: C = $3,000; I = $1,200; G = $2,000; X - M = -$500; depreciation = $200; transfer payments = $800, net domestic product is a. $5,500 b. $5,700 c. $6,200 d. $6,400 e. $6,900

a. $5,500

Which of the following transactions is not included in GDP? a. Someone sells drugs in a vacant lot. b. Someone sells drugs in a pharmacy. c. A doctor treats a patient for drug addiction. d. A drug addict spends two months in a drug rehabilitation center. e. The drug addict buys cough medicine.

a. Someone sells drugs in a vacant lot.

Suppose you received a 3 percent increase in your nominal wage. Over the year, inflation ran about 6 percent. Which of the following is true? a. Your real wage fell. b. Y our nominal wage fell. c. Both your nominal and real wages decreased. d. Although your nominal wage fell, your real wage increased. e. Both nominal and real wages increased.

a. Your real wage fell.

Your cousin recently graduated from Harvard Law School and has not found a job after looking for one last week. She can be described as a. frictionally unemployed b. structurally unemployed c. seasonally unemployed d. not part of the labor force e. a discouraged worker

a. frictionally unemployed

If the CPI is 200 one year and 206 the next year, the annual rate of inflation as measured by the CPI is approximately a. 103 percent b. 1 percent c. 6 percent d. 3 percent e. 206 percent

d. 3 percent