Macroeconomics test 1
What is a quota?
A numerical limit a government imposes on the quantity of a good that can be imported into a country.
Is free trade more likely to benefit a large, populous country or a small country with fewer people?
A small country with fewer people.
"If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline."?
Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall.
Household production and the underground economy?
Are not accounted for in the Bureau of Economic Analysis' estimates of GDP.
"Whenever real GDP declines, nominal GDP must also decline."?
Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.
An article in the Wall Street Journal notes that many economists believe that GDP data for India are unreliable because "the average firm employs just a handful of people and the overwhelming majority of the adult population works off the books and far from major cities." Working "off the books" refers to?
Earning income that is not reported for tax purposes.
In the U.S., gross domestic product (GDP) and gross national product (GNP) are close in value. Under what circumstances would GNP be much larger than GDP?
Few foreign firms maintain facilities in the U.S. while many U.S. firms are currently operating abroad, Few foreign citizens currently work in the U.S. and few foreign firms maintain facilities in the U.S., Many U.S. citizens currently work in foreign countries while few foreign citizens currently work in the U.S.
How is the GDP deflator calculated?
GDP Deflator = Nominal GDP / Real GDP X 100
All of the following are correct except?
Gross domestic income does not include health insurance benefits received by the employees.
GDP is an imperfect measure of economic well being because it fails to measure what types of production?
Household production and the underground economy.
If the United States were to stop trading goods and services with other countries, which of the following U.S. industries would be likely to see their sales decline the most?
Most manufacturing industries, Some service industries, Most of the agriculture industry.
If the GDP deflator in 2012 has a value of 98.0, then?
Prices have decreased 2 percent between the base year and 2012.
According to Dan Sichel, an economist at Wellesley College, the amount of time a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new machine." Which of the following statements is correct?
Song development time produces songs, similar to investment in a factory produces physical goods.
Real GDP is?
The value of goods and services evaluated at base year prices.
Which component of gross domestic income is the largest?
Wages
In 2014, the largest component of gross domestic income was.
Wages.
How does the World Trade Organization (WTO) allow countries to determine whether dumping has occurred? The WTO allows countries to determine that dumping has occurred if.
a product is exported for a lower price than it sells for on the home market.
The opponents of globalization contend that?
globalization destroys cultures.
Once a country has lost its comparative advantage in producing a good, its income will be ________ and its economy will be ________ efficient if it switches from producing the good to importing it.
higher; more
In the circular-flow diagram, who supplies factors of production in exchange for income?
households
While running for president, Barack Obama made the following statement: "Well, look, people don't want a cheaper T-shirt if they're losing a job in the process."What did Obama mean by the phrase "losing a job in the process"? Obama was suggesting that a job would be lost if the T-shirt were cheaper because?
it would be produced in another country.
An article in the Wall Street Journal discussed the views of Canadian Minister of Finance Joe Oliver on the effect of falling oil prices on the Canadian economy. According to the article, Oliver argued that "lower oil prices would have a broadly neutral impact on real. gross domestic product, but have a negative effect on nominal GDP." Oliver must be expecting the effect of lower oil prices to?
lower the inflation rate, which would offset the reduction in nominal GDP.
The use of trade barriers to shield domestic companies from foreign competition is called?
protectionism.
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
New Balance manufactures shoes in the United States, so you might expect that the firm would benefit from a tariff on shoes. Yet New Balance did not actively oppose the Obama administration's attempts to eliminate the shoe tariff imposed on countries that would be part of the Trans-Pacific Partnership.
the agreement would lower the cost of shoes and shoe parts that it imports from other countries.
Gross domestic product is best defined as
the market value of all final goods and services produced in a country during a period of time, typically one year.
Which of the following is included in the economist's definition of investment?
the purchase of new machines, factories, or houses
The term external economies refers to, and Which of the following is a source of comparative advantage?
the reduction of costs resulting from increases in the size of an industry in a given area. and the relative abundance of capital and labor.
Although international trade leads to substantial net benefits, not everyone gains from international trade. Which of the following groups is most likely to lose from trade?
the workers and companies in the industries that compete with the imports.
An article in the New Yorker magazine states, "the main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans. But...the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries." Explain how it is possible that middle- and lower-income Americans are both the biggest losers and at the same time the biggest winners from free trade. It would be possible for middle and lower income Americans to be both the biggest losers and at the same time the biggest winners from free trade if they are the ones most likely to.
work in industries that produce at higher opportunity cost than in other countries and purchase those goods that can be produced at lower opportunity cost in other countries.
Which of the following is true about the consumption component of U.S. GDP in 2014?
Consumer spending on services was greater than the sum of spending on durable and nondurable goods.
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
Which of the following do we subtract from GDP to obtain national income?
Depreciation.
Briefly explain whether you agree or disagree with the following statement: "International trade is more important to the U.S. economy than to most other economies."
Disagree. Exports and imports are a relatively small fraction of the United States GDP.
Briefly explain whether you agree with the following statement: "Japan has always been much more heavily involved in international trade than are most other nations. In fact, today Japan exports LOADING... a larger fraction of its GDP than do Germany, Great Britain, or the United States."
Disagree. Japan exports about 20% of its GDP, of the above, only the U.S. exports a smaller percentage.
While running for the 2016 Democratic nomination for president, Vermont Senator Bernie Sanders opposed the Trans-Pacific Partnership in part because he believed that as a result of the agreement, "the U.S. will lose more than 130,000 jobs to Vietnam and Japan alone." Do you agree that reducing barriers to trade reduces the number of jobs available to workers in the United States?
Disagree. While some jobs are saved by trade restrictions, many more jobs are lost in industries that use trade restricted goods as inputs.
Indicate whether you agree or disagree with the following statement: "In years when people buy few shares of stock, investment will be lowlow and, therefore, so will gross domestic product (GDP)."
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast?
Disposable personal income.
In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income?
Every penny spent on a good or service must end up as someone's income.
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
GDP is not adjusted for crime or other social problems, The value of leisure is not included in GDP, GDP is not adjusted for pollution and it does not account for unequal income distribution.
What happens if we measure GDP by adding up the value of every good and service produced in the economy?
GDP is overestimated because of double counting.
Which of the following is not a shortcoming of GDP as a measure of well-being?
GDP only counts final goods and services and not intermediate goods.
When a significant fraction of domestic production takes place in foreign owned facilities, a country's difference between GDP and GNP is as follows.
GDP will be much larger than GNP.
If Americans still worked 60-hour weeks, as they did in 1890?
GDP would be much higher than it is, but the well being of the typical person would not necessarily be higher.
U.S. Gross National Product (GNP) differs from U.S. Gross Domestic Product (GDP) in which of the following ways?
GNP considers production that occurs outside the U.S. Your answer is correct. GNP is the value of final goods and services produced by residents of the U.S.
How does the size of a country's GDP affect the quality of life of the country's people?
Generally, the more goods and services people have, the better off they are.
Which of the following factors may explain why a country like the Netherlands is more likely to import and export larger fractions of its GDP than would a larger country, such as China or the United States?
Given its small size, the Netherlands must specialize in producing and exporting only a few products; it cannot produce the wide range of products that China or the U.S. can produce,Your answer is not correct,The Netherlands must rely on imports for a large range of products,The Netherlands is a small country with a level of GDP that is only a small fraction of that of China or the U.S.
An article in the Economist on the Irish economy argues, "Irish progress, both economic and fiscal, is typically measured using GDP.But for an economy where foreign firms are so dominant, GNP is more relevant." The author's reasoning is based on the fact that?
Gross domestic product (GDP) is the value of final goods and services produced within Ireland whereas gross national product (GNP) is the value of final goods and services produced by residents of Ireland, even if the production takes place outside Ireland.
Briefly explain whether you agree with the following argument:"Unfortunately, Bolivia does not have a comparative advantage with respect to the United States in the production of any good or service."
If the U.S. trades at all with Bolivia, then the argument above is false. There would be no trade unless both countries were made better off, and this would imply Bolivia has the comparative advantage in the production of at least one good or service.
Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs between 2003 and 2006 spent their time. They discovered that during the period when they were unemployed, the reduction in the number of hours of paid work was almost completely replaced by an increase in the number of hours spent on household production. Based on these findings, what can we predict about total production long dash whether or not that production is included in the calculation of GDPlong dash in the economy when these workers became unemployed?
If the workers had been paying other people to perform the household activities prior to unemployment, then total production will fall.
Why in microeconomics can we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value?
If, in macroeconomics, we measured production using quantities, we would add tons of wheat grown by U.S. farmers to the number of iPods produced by Apple, to gallons of milk, and so on. When we measure total production, we can't just add together the quantities of every good and service because the result would be meaningless. Measuring production using market value in dollar terms allows us to add together many different goods and services.
Which of the following describes the importance of international trade around the world?
Imports and exports remain a smaller fraction of GDP in the U.S. than in most other countriesImports and exports remain a smaller fraction of GDP in the U.S. than in most other countries.
In addition to tariffs and quotas, governments sometimes erect other barriers to trade. Which of the following is an example of a barrier to trade that a government may impose?
Imports must meet certain health requirements, Imports of certain products may be restricted on national security grounds, Imports must meet certain safety requirements.
"Corporate profits are much too high: Most corporations make profits equal to 50 percent of the price of the products they sell."?
Incorrect: The largest component of gross domestic income is wages, which are about three times as large as profit.
Which of the following is not a main source of comparative advantage?
Internal economies of scale.
What is meant by a country specializing in the production of a good? Is it typical for countries to be completely specialized?
It shifts resources toward producing only those goods where it has a comparative advantage; No
If the U.S. Bureau of Economic Analysis (BEA) added up the values of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP)?
Larger: The value of all goods and services sold would include intermediate goods.
The problems of small firms working off the books and far from major cities would make it difficult for the Indian government to accurately measure GDP because the?
Measures of GDP will be understated if these practices are common.
Which of the following is an example of positive economic analysis?
Measuring the effect of the sugar quota on the U.S. economy.
According to most economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground economy?
Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to measure changes in total production over short periods of time.
In 2011, President Barack Obama described a trade agreement reached with the government of Colombia as a "'win-win' for both our countries." Is everyone in both countries likely to win from the agreement?
No, workers employed at companies that are less efficient than foreign companies will lose jobs.
Suppose a house is built and sold in the year 2006. If the house is resold in the year 2017, is the value of the house included in Gross Domestic Product (GDP) for 2017?
No. GDP for 2017 includes only production that occurs during 2017.
In an economy with rising prices, compared to the base year?
Nominal GDP is larger than real GDP in years after the base year.
Some countries have larger underground economies than do other countries, because?
Of government policies that are retarding economic growth.
Disposable personal income is equal to?
Personal income minus personal tax payments.
Which of the following is true about the government purchases component of U.S. GDP in 2014?
Purchases by state and local governments was greater than purchases by the federal government.
How does real GDP deal with the problem inflation causes with nominal GDP?
Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years, By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced, Real GDP separates price changes from quantity changes.
Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates?
Real GDP using chain weights.
According to an article in the Economist, "China's GDP grew by 7% in the second quarter, which was higher than had been expected." Is it likely that percentage the article is referring to is the change in?
Real GDP.
What events led to the General Agreement on Tariffs and Trade? Why did the World Trade Organization eventually replace GATT?
The Great Depression and the Smoot-Hawley Tariff; Trade in services and in products incorporating intellectual property grew in importance.
We often use real GDP per capita as a measure of a country's well-being. Review the definition of real GDP per capita before answering the following question.Today, the typical American works fewer than 40 hours per week. In 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the population's economic well-being?
The increase in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP.
Political commentator B. Bruce-Biggs once wrote the following in the Wall Street Journal: "This is not to say that the case for international free trade is invalid; it is just irrelevant. It is an 'if only everybody. argument. In the real world almost everybody sees benefits in economic nationalism." Choose the correct answer that might refer to "economic nationalism."
The use of non-tariff barriers to protect domestic industries, The use of tariffs to protect domestic industries, The use of quotas to protect domestic industries.
What is the difference between the value of a firm's final product and the value added by the firm to the final product?
The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.
An important conclusion to draw from the circular-flow diagram is that
We can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income.
Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
Which of the following statements is true about the importance of trade in the U.S. economy?
While exports and imports have been steadily rising as a fraction of GDP, not all sectors of the U.S. economy have been affected equally by international trade.
Economic historians Roger Ransom and Richard Sutch have estimated that African-American farmers in the U.S. South after the Civil War worked about 30 percent fewer hours per year than they had as slaves before the Civil War. If after the Civil War, African-American farmers had continued to work these additional hours, their production and income would have been higher and so would have been U.S. GDP. The farmers' well-being?
Would not have been higher as a result of working these additional hours because value of an individual's well-being is not included in GDP calculation.
Which equation represents the relationship between GDP and the four major expenditure components?
Y=C+I+G+NX
According to the analysis by Hufbauer and Lowry, of the additional $1.1 billion consumers spent on tires as a result of the tariff on Chinese tires, the workers whose jobs were saved in the U.S. tire industry received only about $48 million in wages. Would it have been cheaper for the federal government to have raised taxes on U.S. consumers and given the money to tire workers rather than to have imposed a tariff? and
Yes, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers more than $900,000 per year for each job saved in the tire industry. and the United Steelworkers Unions had sufficient political power to persuade Congress to pass this tariff.
Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2017?
Yes. GDP for 2017 includes the market value of final goods and services. This includes real estate services.
Is the value of intermediate goods and services produced during the year included in Gross Domestic Product (GDP)? Forexample, is aluminum used to produce a new mountain bikemountain bike included in GDP?
Yes. The value of the aluminum is not directly counted in GDP, but the production of aluminum is included in the value-added method of measuring GDP.
An article in the Wall Street Journal states that a "change in ... inventories subtracted 0.57 percentage point from" what would have been the increase in GDP. For this result to occur, the change in inventories would have to have been.
a decrease because this would reduce investment and GDP.
If government cannot accurately measure GDP?
businesses will not be able to correctly gauge the market, and the government will be unable to design efficient tax policies.
An article in the Economist on the revisions to Nigeria's GDP commented, "The GDP revision is not mere trickery. It provides a truer picture of Nigeria's size by giving due weight to the bits of the economy, such as telecoms, banking and the Nollywood film industry, that have been growing fast in recent years." The phrase "giving due weight" to the sectors of the economy that have been growing quickly means that analysts?
developed better measures of those sectors of the economy, which then allowed for better GDP estimates.
What is the name given to the sale of a product for a price below its cost of production?
dumping
Instagram is a smartphone app now owned by Facebook. According to an article that discusses the climate for software firms in the San Francisco Bay Area, the success of Instagram "is a tale about the culture of the Bay Area tech scene, driven by a tightly woven web of entrepreneurs and investors who nurture one another's projects with money, advice and introductions to the right people." Being located in the Bay Area gives start-up software firms an advantage because of. and The advantages the Bay Area has are.
external economies, likely to persist over time because more software firms will locate there, enhancing the external economies.
Briefly explain whether the value of U.S. exports is typically larger or smaller than the value of U.S. imports.The value of U.S. exports
has been smaller than the value of U.S. imports since about 1980.
In 2015, several U.S. paper manufacturers asked the federal government to impose tariffs on paper imported from China, Indonesia, Brazil, Portugal, and Australia. According to an article in the Wall Street Journal, firms in these countries were accused of "dumping certain types of uncoated paper on the U.S. market, including that used for such things as computer printers, book publishing, junk mail and envelopes." "Dumping" is. and If the U.S. firms succeed in having tariffs imposed on imports of paper,
selling a product for a price below its cost of production. and consumers will lose as paper prices rise but domestic paper firms will gain.
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called.
value added
In the real world, specialization is not complete. Why do countries not completely specialize?
Because production of most goods involves increasing opportunity costs,Because tastes for products differ, Because not all goods are traded internationally.
An underground economy involves all of the following except?
Buying and selling of goods and services by obtaining a permit from the government.
An article in the New York Times describes the much greater use of cash, as opposed to checks and credit cards, in buying and selling in China. The article describes someone bringing several bags of cash containing the equivalent of $130,000 into a car dealership to buy a new BMW. Another article notes: "Many economists believe that the rise in [use of] cash is strongly related to growth in the so-called underground economy." The underground economy is the?
Buying and selling of goods and services that is concealed from the government.
At one time, Eastman Kodak was the world's largest producer of photographic film, employing nearly 145,000 workers worldwide, including thousands at its headquarters in Rochester, New York. The firm eventually laid off most of those workers because its sales declined as it failed to adjust to digital photography as quickly as many of its foreign competitors. A member of Congress from Rochester described the many new firms that were now located in buildings that were formerly owned by Kodak. A New York Times columnist concluded, "Which, of course, is precisely the way globalization is supposed to work." When the New York Times columnist concluded that this was, "... precisely the way globalization is supposed to work" he meant that. And The outcome in Rochester shows that globalization
when an industry changes, jobs will be created in other sectors. Is good for some, like the consumers of digital cameras, and bad for others, like the unemployed Kodak workers.
Suppose you are explaining the benefits of free trade and someone states, "I don't understand all the principles of comparative advantage and gains from trade. I just know that if I buy something produced in America, I create a job for an American, and if I buy something produced in Brazil, I create a job for a Brazilian." Are they correct in asserting that free trade costs U.S. jobs?
No, since free trade creates more jobs for the U.S. economy than it costs the U.S.
Using the economic concept of comparative advantage, explain under what circumstances it would make sense for the United States to produce all of the T-shirts purchased in the United States. The United States should produce all of the T-shirts purchased in the United States if the U.S. could produce
T-shirts at lower opportunity cost than other countries.
To calculate personal income from national income, which of the following must the BEA do?
Add government transfer payments.
"If real GDP stayed the same while nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined."?
Agree. If nominal GDP declined between 2008 and 2009, then the the GDP deflator must also have declined.
"If nominal GDP is less than real GDP, then the price level must have fallen during the year."?
Agree. Nominal GDP will be less than real GDP if the price level falls and is lower than the base year's prices.
What is a voluntary export restraint?
An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country.
