Macroeconomics Practice Exam 1 & 2 for Exam 3

24. If v=4%, P =3%, and YR =2%, then M must equal:

1%

What are some price indexes?

1. PPI 2. GDP Deflator 3. CPI

12. What contributes directly to the persistence of structural unemployment?

1. unemployment benefits 2. employment protection laws 3. unions

B 7. What is the unemployment rate of the country?

5%

B--graph on card 12. What is the unemployment rate in this market as a result of the implementation of a $10 minimum wage?

50%

B--graph on card 11. What is the number of people who are employed at the market wage? How many people end up unemployed due to the implementation of a $10 minimum wage?

60; 40

If π < Eπ then,

borrowers' profits will increase.

Inflations helps ______ and hurts _____.

borrows; lenders

B 19. In which of the following years did this country experience disinflation?

both 2001 and 2002

B 15. How can people who are laid off from work due to a recession eventually turn into structurally unemployed people?

by staying unemployed for so long that their skills become outdates

22. When the government monetizes its debt, the results are:

higher inflation and losses for holders of government bonds.

B 10. Long-lasting unemployment benefits tend to:

increase the rate of structural unemployment.

B 17. The invention of birth control in pill form substantially _______ labor force participation.

increased female

B 14. During recessions the unemployment rate:

increases

B 4. When workers lose their jobs and become officially unemployed, the unemployment rate:

increases

18. In the long run, the quantity theory of money says that the growth rate of the money supply will be approximately equal to the:

inflation rate.

B 28. The aggregate demand curve shows all the combinations of ____ and ____ that are consistent with a specified rate of ____.

inflation; real GDP growth; spending growth

Total spending=

money supply X velocity of money

M=

money supply-amount of money circulating in an economy.

34. Refer to the figure on the card. If the economy is initially at Point A and expected inflation rate remains unchanged, the economy can achieve a real GDP growth rate of 9% only by:

moving along SRAS1 to Point B.

26. An increase in inflation will cause the long-run aggregate supply curve to:

not shift at all.

structural unemployment

persistant, long-term unemployment caused by long-lasting shocks or permanent features of an economy that make it more difficult for some workers to find jobs.

B 34. An unexpected increase in export growth is a:

positive AD shock

B 31. The position of the long-run aggregate supply curve shows the economy's:

potential growth rate given by the real factors of production

31. Menu costs are the costs associated with changing:

prices

33. Deflation:

raises the real value of debts.

27. Using a graph of the AD and long-run aggregate supply curves, the Internet revolution of the 1990s caused:

real growth to increase and inflation to decrease.

2. When workers lose their jobs and become officially unemployed, the number of people in the labor force:

remains constant

To be unemployed one must be ______ for a job.

searching

B 27. Holding everything else constant, an increase in the growth rate of the money supply will cause the aggregate demand curve to:

shift outward

30. Sticky wages and prices are incorporated in the AD-AS model by the:

short-run aggregate supply curve.

Frictional unemployment:

short-term unemployment caused by difficulties in matching employer to employee. (< 14 weeks)

B 8. Which of the following individuals can be counted as part of the labor force?

someone who is collecting unemployment benefits

B 9. The shift toward more of a service economy and less of a manufacturing economy in the United States has caused an increase in:

structural unemployment

Everything on the AD curve has what in common?

All represent the same spending growth.

Who is in the LF?

Civilian, 16+, Non-institutionalized.

P=

price level

Nominal GDP=

total spending

B 22. In a small economy, the money supply is $600,000, and the velocity of money is 2. The current average price level in the economy is 3. What is the level of nominal GDP in this economy?

$1.2 million

B 25. Suppose the nominal interest rate is 4% and the inflation rate is 5%. The real interest rate is:

-1%

Year CPI 2005 195.3 2006 201.6 2007 207.3 2008 215.3 2009 214.5 2010 218.1 15 & 16

15 & 16

Year CPI 1999. 110 2000 115 2001 117 2002 115

19 & 20

B 20. In which of the following years did this country experience deflation?

2002 only.

15. In which year was the inflation rate the highest?

2008.

16. Refer to the CPI values in the table for the years 2005 to 2010. In which year(s) did the country experience deflation?

2009 only.

Refer to the table below for the following two questions. Adult Population 200 million Labor Force 150 million Employed Persons 138.75 million Discouraged Workers 10.5 million

3 & 4

20. Jordan loaned Taylor $1,200 on March 15, 2009. Taylor returned $1,260 on March 14, 2010. Inflation was 2% over the 1-year period. What is the real interest rate that Taylor paid?

3%

17. In a small economy, the quantity of money circulating in the economy is $2.5 million. Real GDP for the current year is $5 million, and the average price level is 2. What is the velocity of money?

4

B 29. Refer to the figure on the card. Point B on this aggregate demand curve represents an inflation rate of:

4%

B 30. For an aggregate demand curve with M = 10% and v = 0%, if inflation is 6%, then real growth is:

4%

3. According to the accompanying labor data, the unemployment rate is:

7.5%

4. According to the accompanying labor data, the labor force participation rate is:

75%

B 6. What is the labor force participation rate of this country?

76%

14. If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be:

8.33%

9. Which type of unemployment is likely to be higher when real GDP growth is lower?

Cyclical unemployment.

As the economy improves or GDP increases, cyclical unemployment _____.

Falls due to real shocks and deficiencies in AD.

Nominal interest rate:

IR unadjusted for inflation.

B 16. Suppose that Congress decided to exempt seniors from paying income tax on labor income. What would happen to the labor force participation rate for seniors?

It would increase.

1. Which of the following individuals can be counted as unemployed?

Jean, who left her job to search for a higher-paying position

How to find LF participation rate:

LF/adult population

Quantity theory of $ equation:

M + V = P + Yr (growth rates)

How do we get the IR that all the banks are set at?

Market for loanable funds.

Real interest rate equation:

Nominal (i) - inflation r REAL

How to find P:

Nominal GDP/Real GDP (Yr)

How do we find inflation rate?

P2-P1/P1 X 100%

Yr

Real GDP

B 33. As a result of an increase in expected inflation, the:

SRAS curve shifts up and to the left

rREAL > rEQM Who's better off here?

The bank--wealth is distributed from borrower to the lender.

10. Employment-at-will Doctrine basically states:

The doctrine helps lower labor hiring and firing costs, leading to lower unemployment rates.

19. Why could very high rates of inflation cause velocity to increase?

The more money loses its value, the faster people try to spend it.

5. Which of the following is a case of frictional unemployment?

Timothy is looking for a job where he can apply his expertise in computer programming.

32. Which of the following occurs in the long run?

Unexpected inflation is absent.

Can the gov control inflation?

Yes, monetizing money.

B 18. Inflation is:

an increase in the average level of prices

B 21. The consumer price index measures the prices of:

a basket of goods bought by the typical American consumer

B 1. Which of the following is part of the labor force?

a person who was laid off and is now looking for work

disinflation

a reduction in the rate of inflation

25. A real shock causes:

a shift of the long-run aggregate supply curve.

What can a gov do to reduce structural unemployment?

active labor market policies (retraining, job search assistance, work tests)

23. The aggregate demand curve shows the relationship between real GDP growth and the:

actual inflation rate

8. If the equilibrium wage is $9 in the market for hotel workers and $8 in the market for restau- rant workers and both markets have similar elasticities of labor supply and demand, then a minimum wage of $10 in both markets will:

cause more unemployment among restaurant workers than hotel workers.

B 3. What is the term for workers who have given up looking for a job but would still like one?

discouraged workers

13. If the inflation rate falls from 4% in 2005 to 2% in 2006, then:

disinflation has occurred.

B 32. The long-run aggregate supply curve shows that long-run economic growth:

does not depend on the rate of inflation

B 2. An unemployed person is one who:

does not have a job but is actively looking for one.

B 13. What allows an employee to quit at any time and an employer to fire at any time for any reason?

employment-at-will

B 35. If π > πe then,

firms' profits will increase

29. If π > Eπ then,

firms' profits will increase.

Is there more structural or frictional unemployment?

frictional

B 5. The short-term unemployment caused by the ordinary difficulties of matching employee to employer is called:

frictional unemployment

11. In a nonrecession year, the majority of U.S. unemployment is:

frictional.

B 26. Business fluctuations are fluctuations in the:

growth rate of real GDP around its trend growth rate

7. If employers can fire an employee for any reason, other things being equal:

it will be easier for job seekers to find employment.

Why is structural employment less in the U.S. than in Europe?

labor regs unemployment benefits minimum wage/unions employment-protection laws

28. Wages are sticky when:

labor unions set wage contracts for a certain period of time.

B 23. Current forecasts say that mild inflation is expected next year. If, however, deflation occurs instead:

lenders on existing fixed rate loans will gain while borrowers will lose

Causes of structural unemployment:

long-lasting economy-wide shocks & labor-saving technology

6. Over the past few decades, the U.S. economy has switched from a primarily manufacturing economy to a service economy. Many individuals working in manufacturing positions lost their jobs, and many new jobs opened up in services. For those who lost jobs in manufacturing, this is an example of:

structural unemployment.

Inflation redistributes wealth from ______ to ______.

taxpayers to the government

21. What is the Fisher Effect?

tendency of nominal interest rates to rise with higher expected inflation rates

Suppose E pi < pi Who is better off?

the borrower.

deflation

the inflation rate is less than zero.

LF=

the number of unemployed + employed workers.

B 24. What is the Fisher effect?

the tendency of nominal interest rates to rise with higher expected inflation rates

how to find unemployment rate

unemployment rate= # unemployed/# in labor force x 100

Population 400 million Adults in Labor Force 260 million Adults not in Labor Force 80 million Employed Workers 247 million

use for 6 & 7

V=

velocity of money

Discouraged worker:

worker who would like to have a job, but has given up looking for work. Excluded from LF.

35. Nominal wage confusion occurs when:

workers respond to their nominal wage instead of to their real wage.