Quiz 3 Macro
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
(# of unemployed/# in labor force) *100
What are the four major categories of expenditure?
. Consumption, investment, government purchases, and net exports.
"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.
Suppose John Q. Worker is currently unemployed. Each day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John Q. what he does for work, he tells them that he is currently "in-between jobs." Which of the following best classifies John Q.'s unemployment status?
. Frictionally unemployed
In the circular-flow diagram, who supplies factors of production in exchange for income?
.households
"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.
As of August 2015, which of the following demographic groups has the highest unemployment rate?
African Americans
"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 GDP deflator must also have declined.
How does real GDP deal with the problem inflation causes with nominal GDP?
By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced. Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. Real GDP separates price changes from quantity changes.
Country Average Annual Hours Worked Average Annual Wages Germany 1,371 $44,925 United States 1,790 $58,714 The average German worker worked about 400 fewer hours per year and earned nearly $14,000 less than did the average worker in the United States. Can we conclude anything about the well-being of the average German worker versus the well-being of the average worker in the United States from these data? What other measures would you like to see in evaluating the well-being of workers in these two countries?
Can we conclude anything about the well-being of the average German worker versus the well-being of the average worker in the United States from these data? No, because although the German worker earned less per year, they also worked less per year. What measures besides average number of hours worked and real per capita GDP would you like to have to evaluate the well-being of workers in OECD countries? Indicators of pollution, crime and other social problems, and the distribution of income.
Indicate whether each of the following is a final good, an intermediate good, or neither.
Coffee beans purchased by a coffee shop Intermediate good One share of Google stock Neither A new pick-up truck purchased by a consumer Final good A new home purchased by a family Final good
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.
Suppose that the economy enters into a recession and that, as a result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck mechanic?
Cyclically unemployed
"If nominal GDP is less than real GDP, then the price level must have fallen during the year."
Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP.
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 discussing the labor market during the recovery from the 2007-2009 recession, Federal Reserve Chair Janet Yellen noted that "the employment-to-population ratio has increased far less over the past several years than the unemployment rate alone would indicate, based on past experience."
During an economic expansion, we would normally expect the employment-population ratio to increase as the unemployment rate falls because more people are likely to be employed. During the recovery from the 2007-2009 recession, the employment-population ratio did not increase as much as it might have been expected to because the recovery was sluggish and employment did not expand as rapidly.
How is the GDP deflator calculated?
GDP deflator= (Nominal GDP/Real GDP)*100
Why is GDP an imperfect measurement of total production in the economy?
GDP does not include household production or production from the underground economy.
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 pollution and it does not account for unequal income distribution. The value of leisure is not included in GDP. GDP is not adjusted for crime or other social problems.
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? (Mark all that apply.)
GNP considers production that occurs outside the U.S GNP is the value of final goods and services produced by residents of the U.S In the United States, the difference between GNP and GDP is smaller than that of many other countries.
In 1914, Henry Ford increased the wage he paid workers in his car factory in Dearborn, Michigan to $5 per day. This wage was more than twice as much as other car manufacturers were paying. Ford was quoted as saying: "The payment of five dollars a day for an eight-hour day was one of the finest cost-cutting moves we ever made."
Giving workers a raise can result in overall lower costs for a firm if? workers are motivated by higher wages to work harder.
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy.
How does the U.S. economy create and destroy millions of jobs each year? (Mark all that apply.)
In the market system, new firms are constantly entering and exiting various industries. Some businesses are expanding, while others are contracting.
Since 1948, which of the following best describes the trend in the labor force participation rate ?
It is decreasing for men and increasing for women.
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.
Suppose the amount the federal government collects in personal income taxes increases, while the level of GDP remains the same. What will happen to the values of national income, personal income, and disposable personal income?
National income will remain the same . Personal income will remain the same . Disposable personal income will decrease .
One major component of GDP that can be negative is
Net Exports
Suppose a house is built and sold in the year 2008. If the house is resold in the year 2019, is the value of the house included in Gross Domestic Product (GDP) for 2019?
No. GDP for 2019 includes only production that occurs during 2019.
Which one of the following accurately describes the relationship between frictional unemployment and job search?
People are said to be frictionally unemployed when they are between jobs and searching for new jobs
Which of the following would be included in the gross national product (GNP) of the United States?
Production from a U.S. firm that operates in Mexico.
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
Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP ?
RGDP < NGDP because prices are rising
What effect do labor unions have on the unemployment rate?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
Which of the following statements about the consumption component of GDP is not correct?
Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.
Real GDP per capita is often used as a measure of general well-being. While increases in real GDP often do lead to increases in the well-being of the population, why is real GDP not a perfect measure of well-being?
The costs of pollution are not included. The value of leisure is not included. GDP does not include crime rates or income distribution.
Which one of the following depicts an accurate description of the household survey and the establishment survey?
The household survey interviews households and collects data that is used to measure the unemployment rate whereas the establishment survey interviews businesses and measures total employment in the economy.
Click on the graph in the window on the right and select Multiple Time Series to graph the labor force participation rates of adult men and adult women for the years 1948-2006. For Y axis1 select Labor Force Participation of Men and for Y axis2 select Labor Force Participation for Women. Roll your cursor over the plotted data to identify each series. Use the graph to help determine which one of the following statements regarding the labor force participation rates of adult men and women is false.
The labor force participation rates of adult men and adult women were equal in 1990.
The production of LCD television sets in Australia increased by 20% this year as compared to last year. Those TV sets were no less advanced technologically than the sets sold in previous years. However, the value of the contribution LCD television sets made to Australia's nominal GDP during this year was the same as the previous year. Which of the following, if true, would best explain this outcome?
The price of LCD television sets declined in the past year.
In 2015, an article on bloomberg.com noted that Walmart, Starbucks, TJ Maxx, IKEA, Gap, and several other big retailers had announced increases in the wages they were paying newly hired workers. The same article also noted that "[labor] turnover in the retail sector has been steadily rising and now stands at 5 percent a month."
The term "labor turnover" used in the article means the? separation of an employee from an establishment. The increase in labor turnover and the increases in entry-level wages being paid by large retailers are? connected because higher wages can encourage workers to stay longer, thereby lowering turnover rates.
Currently, the Bureau of Labor Statistics does not include homemakers in its employment and labor force totals. What would happen to the unemployment rate and the labor force participation rate if homemakers were included in these numbers?
The unemployment rate would decrease and the labor force participation rate would increase.
How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?
They decrease the opportunity cost of job search.
Which of the following is not one of the conditions someone needs to meet to be counted as unemployed?
They had worked only one hour per week during the previous four weeks
An article in the Wall Street Journal noted that over a four-month period in late 2014, employment in the state of Georgia "rose 1% even as the state's jobless rate climbed 1.2 percentage points."
The state's unemployment rate could have increased at the same time that employment in the state was increasing because the number of discouraged workers and other people not previously counted as unemploymed entered the labor force.
The unemployment rate is calculated as follows:
Unemployement Rate= (Number of Unemployed/Labor Force)×100.
The BLS defines a job quit as a "voluntary separation initiated by an employee." The BLS estimated that there were 3.1 million job quits in March 2017.
Unemployment caused by an increase in job quits would be classified as? frictional unemployment. An increase in the number of job quits would suggest that it is becoming? easier to find jobs because employees who leave voluntarily are confident of finding another one.
When looking at GDP as the amount of total income, the largest component of total income in the U.S. is
Wages Wages earned by households make up greater than 50% of the total income earned in the U.S. economy.
According to Costco's CEO, Jim Sinegal: "Paying good wages and keeping your people working for you is good business...Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you."
What is Costco's CEO referring to? Efficiency wages
What is the relationship between the unemployment rate and enacting or increasing a minimum wage?
When a minimum wage is enacted or increased across a country, the unemployment rate? will increase some but the impacts will be much larger for some groups of workers.
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.
Click on the graph in the window on the right and select Multiple Time Series to graph nominal GDP and real GDP for the years 1990-2006. For Y axis1 select nominal GDP, and for Y axis2 select real GDP. Roll your cursor over the plotted data to identify each series. For this data, the base year for calculating GDP is 2000. Use the graph to help determine which one of the following statements regarding nominal and real GDP is FALSE.
When nominal GDP increases, real GDP falls.
Which equation represents the relationship between GDP and the four major expenditure components?
Y= C+I+G+NX
Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2019?
Yes. GDP for 2019 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)? For example, is a computer chip a computer chip used to produce a new PC included in GDP?
Yes. The value of the computer chip computer chip is not directly counted in GDP, but the production of a computer chip a computer chip is included in the value-added method of measuring GDP.
Is the value of intermediate goods and services produced during the year included in Gross Domestic Product (GDP)? For example, is a computer chip used to produce a new PC included in GDP?
Yes. The value of the computer chip is not directly counted in GDP, but the production of a computer chip is included in the value-added method of measuring GDP.
Boeing Company employed fewer people in 2017 than it did in 1980. This decline in employment is ?
a combination of frictional, structural, and cyclical unemployment. The reasons behind this decline in employment could be all of the following except? this is the normal underlying level of unemployment in the economy.
A recession occurs when an economy experiences a period in which there is
a decrease in total production.
Which of the following are likely to increase the measured level of GDP and which are likely to reduce it?
a. When the number of people working outside the home increases, the measured level of GDP increases When there is a sharp decrease in the crime rate, the measured level of GDP may increase or decrease If higher tax rates cause more people to hide the income they earn, the measured GDP decreases
Household production and the underground economy
are not accounted for in the Bureau of Economic Analysis' estimates of GDP.
An underground economy involves all of the following except
buying and selling of goods and services by obtaining a permit from the government.
When an unemployed person drops out of the labor force, it
does not affect the employment-population ratio.
If most U.S. workers join labor unions, then the unemployment rate will
increase
Personal income is
national income minus retained corporate earnings plus government transfer payments and interest on government bonds.
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.
All of the following are problems in measuring the unemployment rate except that
people on active military service are included as unemployed. When there are workers that drop out of the labor force, the official BLS measure of the unemployment rate understates the true degree of unemployment.
Disposable personal income is
personal income minus personal taxes.
If the GDP deflator in 2012 has a value of 98.0, then
prices have decreased 2 percent between the base year and 2012.
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
The unemployment rate
shows the percentage of the labor force that is considered unemployed.
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.
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
The type of unemployment most likely to result in hardship for the people who are unemployed is
structural because this type of unemployment requires retraining to acquire new job skills.
A headline on an article in the New York Times was "Unemployed in Europe Stymied by Lack of Technology Skills." The unemployed workers referred to in the headline are likely to be?
structurally unemployed because there is a mismatch between the skills of workers and the requirements of jobs.
Why do economists believe that setting a goal of zero percent unemployment is not feasible or desirable? Creating a goal of zero percent unemployment for an economy is not feasible nor is it desirable because
the economy needs some short-term unemployment in order to allow for better matching of jobs with workers that possess the proper skill sets.
Many economists prefer
the establishment survey because it is determined by actual payroll records rather than unverified answers.
Gross Domestic Product (GDP) is
the market value of all final goods and services produced in a country during a period of time.
When the economy is at full employment, unemployment is equal to
the natural rate of unemployment.
The labor force participation rate is calculated by
the percentage of the working-age population that is in the labor force or Labor force ----------------------------- *100 Working - age population Use the graph to the right to help determine which of the following statements regarding the labor force participation rates of adult men and women since 1950 is false. The labor force participation rates of adult men and adult women were equal in 1990. Your answer is correct.
Which of the following is included in the economist's definition of investment?
the purchase of new machines, factories, or houses
The natural rate of unemployment is
the sum of structural unemployment and frictional unemployment.
Real GDP is
the value of goods and services evaluated at base year prices.
The business cycle exists because
total production experiences periods of increases and periods of decreases.
The three types of unemployment are
frictional, structural, and cyclical unemploment.
Transfer payments are not included in GDP calculations because
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
When an unemployed person drops out of the labor force, the unemployment rate
understates the true degree of joblessness in the economy.
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.
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
"In years when people buy many shares of stock, investment will be high 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.
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.