Test 1 Review

If the nominal interest rate is 3% and the rate of inflation is 2%, the real interest rate is

1%.

Which of the following statements is true regarding "investment expenditure" in the calculation of GDP using the expenditure approach?

It is based on the change in inventory occurring in businesses within the US from year to year.

Which of the following are true regarding the Bureau of Labor Statistics method of calculating the unemployment rate?

It is based strictly on a survey. Discouraged workers will tend to be classified as not being part of the labor force. The steady increase in part time employment in the US over the years is making the unemployment rate measured to be less meaningful.

Based on our class discussion, which of the following are true regarding the Natural Rate of Unemployment?

It is the unemployment that occurs even when there is a job for every worker participating in the labor market. It includes frictional unemployment. It includes structural unemployment.

If the price of chicken rises, consumers buy less chicken and more beef. How does this behavior affect the CPI's measurement of inflation?

It makes the CPI show more inflation than the one experienced by households.

The CPI fails to include goods that have been recently developed. How does this behavior affect the CPI's measurement of inflation?

It makes the CPI show more inflation than what households actually experience.

Which of the following are true regarding the chain-link CPI?

It measures lower inflation than the traditional CPI. It allows new goods to be added to the basket over time, while still using the same basked when comparing the cost of living between two consecutive years.

Which of the following actually help reduce unemployment?

Provide a less generous unemployment insurance system. Promote and finance employment agencies and websites. Get universities and community colleges to offer adult retraining programs.

When creating models, economists

can use of unrealistic assumptions, as long as the resulting model makes accurate predictions.

A German company sets up a factory in Wisconsin and begins producing cheese for sale in the United States. During 2020, it uses only German labor in the factory, but all other inputs were American. The value of sales will be

included entirely in U.S. GDP.

When an economist picks a year as the base year, she

is choosing the dollar as it was worth in that year as a unit with which to measure the real GDP of many years.

Kim earned $90,000 in 2009. If the CPI for 2009 was 210 and for 2017 it was 280, then Kim's 2009 income expressed in 2017 dollars would be

$120,000.

A fisherman sells his catch of salmon for $20,000 to a fish canning firm. The canner smokes and cans the salmon, then sells it for 25,000 to a wholesaler. The wholesaler sells and distributes the cans to supermarkets for $30,000. The supermarkets then sell the cans to the public for $35,000. How much does all this contribute to GDP?

$35,000.

Suppose that from 2017 to 2018 real GDP in the US grew from $20.00 trillion to $20.20 trillion, while nominal GDP grew from $27.20 trillion to $27.8 trillion. What was the actual growth rate of output from 2017 to 2018?

1.0%.

Suppose the CPI for December 2018 was 250, and for December 2019 it was 275. How much inflation did the economy experience during 2019?

10 percent.

Bob's income was $90,000 in 2008 and $140,400 in 2018. If the CPI was 190 for 2008 and 285 for 2018, by how much did Bob's income really increase?

4%

Which of the following is an example of an import of a service for the US?

A Russian IT company is hired by Facebook as a consultant to prevent foreigners from hacking its systems.

Which of the following represent how technological knowledge can be developed?

A firm devotes resources to researching and developing a new high-tech product. Scientists at a university strive to expand our knowledge of how the universe works. Researchers seek to improve the production process in a factory.

Which of the following is true regarding the measurement of unemployment by the Bureau of Labor Statistics:

A person does not have to lose his/her job to be considered unemployed.

Which of the following could increase the unemployment rate?

A surge in students graduating from college. An increase in business bankruptcies due to a recession.

Which of the following is an example of a structurally unemployed person, as we defined it in class?

A truck driver loses his job the truck industry is now using self-driving trucks and don't need drivers anymore.

Which of the following statements are true regarding the calculation of GDP using the expenditure approach? A. "Investment expenditure" in the calculation of GDP does not include all purchases done by businesses: it only includes the differences in the inventories, so as to avoid double counting. B. "Government expenditures" includes all government expenditures, except for transfer payments, because these do not represent production. C. "Capital" in economics refers to the money entrepreneurs put in to a business. It is also known as 'equity' D. 'Net Exports' is the difference between exports and imports of physical goods. It does not include services of any kind.

A. "Investment expenditure" in the calculation of GDP does not include all purchases done by businesses: it only includes the differences in the inventories, so as to avoid double counting. B. "Government expenditures" includes all government expenditures, except for transfer payments, because these do not represent production.

Which of the following is an example of a final good? A. Clothing fabric that was produced this year but did not get to be used this year to produce clothes. B. Gasoline that was produced this period and sold to FedEx to be used for deliveries this period. C. Heath bars produced, then bought by Dairy Queen and used during the same period in their ice cream Blizzards. D. Groceries bought by a restaurant for its business.

A. Clothing fabric that was produced this year but did not get to be used this year to produce clothes.

Which of the following statements are true?

A. If you are calculating the GDP of a given year using the prices that prevailed that year, you are calculating the Nominal GDP. B. If you are calculating the GDP of a given year using the prices that prevailed in the base year, you are calculating the Real GDP. C. Finding the percentage change in Real GDP from one year to the next tells you how much the nation's output actually increased in that period. D. Finding the percentage change in Nominal GDP from one year to the next tells you how much the nation's output and prices combined increased in that period.

Which of the following statements are true? A. In equilibrium, quantity demanded is equal to quantity supplied. B. A market will experience shortages whenever there is scarcity. C. There is a shortage in the market when the quantity demanded is greater than the quantity supplied. D. There is a surplus in the market when the quantity supplied is greater than the quantity demanded.

A. In equilibrium, quantity demanded is equal to quantity supplied. C. There is a shortage in the market when the quantity demanded is greater than the quantity supplied. D. There is a surplus in the market when the quantity supplied is greater than the quantity demanded.

Which of the following are determinants of quantity demanded? A. Prices of related goods. B. Consumer income. C. Prices of the inputs used to produce the good. D. Consumer tastes

A. Prices of related goods. B. Consumer income. D. Consumer tastes

Which of the following help explain why measuring the nations income amounts to measuring GDP? A. Producing of goods and services adds value, which then pays for wages, rent interest and profit. B. Measuring all value added in the economy lets us account for everything produced without double counting. C Taking consumption into account is essential in measuring GDP through the income approach. D. Whether workers are being paid too little or too much does not affect the calculation of GDP.

A. Producing of goods and services adds value, which then pays for wages, rent interest and profit. B. Measuring all value added in the economy lets us account for everything produced without double counting. D. Whether workers are being paid too little or too much does not affect the calculation of GDP.

Which of the following statements are true? A. The U.S. Treasury is sometimes involved in organizing the rescue of financial systems in crisis. B. The Council of Economic Advisers gives Economic advise to the Congress of the United States. C. The Congressional Budget Office provides economic statistics to the Congress of the United States. D. The Federal Reserve Bank is in charge the federal government's finances.

A. The U.S. Treasury is sometimes involved in organizing the rescue of financial systems in crisis. C. The Congressional Budget Office provides economic statistics to the Congress of the United States.

Which of the following are reasons why everybody becomes a price taker in a perfectly competitive mark? A. There are many buyers and sellers. B. Buyers and sellers are all perfectly informed. C. Buyers have equal access to the goods of all sellers. D. All goods produced in the industry are identical

A. There are many buyers and sellers. B. Buyers and sellers are all perfectly informed. C. Buyers have equal access to the goods of all sellers. D. All goods produced in the industry are identical.

The Federal Reserve Bank is in charge the federal government's finances. A. There are often several competing theories that strive to explain the same economic phenomena. B. Different economists make different assumptions, leading to different models. C. Different economists have different values and priorities. D. Economists of different nationalities disagree with each other, because economics works differently in different countries.

A. There are often several competing theories that strive to explain the same economic phenomena. B. Different economists make different assumptions, leading to different models. C. Different economists have different values and priorities.

Which of the following statements best describes the way economists usually study the economy? A. They devise theories, collect whatever data they can obtain, and then analyze the data to test the theory. B. They rely mainly on the use of controlled experiments to gather data, which they then use to develop theories. C. They avoid the use of controlled experiments whenever possible, because they are very unreliable. D. They look at data they have collected and then modify it to fit their theories.

A. They devise theories, collect whatever data they can obtain, and then analyze the data to test the theory.

Which of the following statements are true regarding the circular flow model of the economy? A. Which of the following statements are true regarding the circular flow model of the economy? B. It is a simplified version of a complicated theory that represents the whole economy. C. It includes government, banks, and our economy's interaction with other nations. D. It considers households as providers of the factors of production used by firms.

A. Which of the following statements are true regarding the circular flow model of the economy? B. It is a simplified version of a complicated theory that represents the whole economy. D. It considers households as providers of the factors of production used by firms.

If there is a shortage of farm laborers, we would expect A. the wages of farm laborers to increase. B. the wages of farm laborers to decrease. C. the prices of farm commodities to decrease. D. a decrease in the demand for substitutes of farm labor.

A. the wages of farm laborers to increase.

The labor force participation rate tells you how many of people in the [ Select ] are [ Select ] .

A: able population A: willing to work

Bob loses his job and immediately begins looking for a new job. This will make the measured unemployment rate [ Select ] , and the labor-force participation rate will [ Select ] .

A: increase A: remain unaffected

The unemployment rate is the percentage of people who [ Select ] out of the [ Select ] .

A:want to work, but don't have a job A: labor force

Suppose rumors suggest the price of copper will fall soon. This will cause the equilibrium price to rise or drop, depending on how big the shifts are and the equilibrium quantity to increase .

Answer 1: Drop Answer 2: Increase

New research demonstrates that microwave ovens cause harmful radiation that causes cancer. We can predict that this will cause the equilibrium price to drop and the equilibrium quantity to decrease .

Answer 1: drop Answer 2: decrease

As firms increase production, they encounter increasing marginal cost, which motivate firms to increasing production only when the price in the market increases .

Answer 1: increasing Answer 2: only when the price in the market increases

Reducing the capital gains tax, the corporate tax and the tax is meant to encourage saving, which would result in _________ . Such a tax system would also tend to benefit primarily the _________.

Answer 1: more investment and faster growth Answer 2: Rich

Suppose that the price of sugar rises, causing the cost of producing candy to rise. In the candy market, we can expect the equilibrium price of candy to rise and the equilibrium quantity produced and sold of candy to decrease .

Answer 1: rise Answer 2: decrease

Suppose battery technology improves, reducing the cost of making electric cars. Meanwhile, people become ever more conscientious about carbon dioxide emissions and climate change, motivating them to buy more electric cars. This will cause the equilibrium price to rise or drop, depending on how big the shifts are and the equilibrium quantity to increase .

Answer 1: rise or drop, depending on how big the shifts are Answer 2: increase

The accumulation of which of the following will help promote a steady long-term increase in American workers' incomes? A. Big public budget deficits. B. Education. C. The purchase of tools, machinery and equipment by firms. D. Research and development of new products and production technologies.

B. Education. C. The purchase of tools, machinery and equipment by firms. D. Research and development of new products and production technologies.

Which of the following are true? A. Without patents, firms would be able to enjoy the benefits of their research for a much longer period of time, even if the new technology is not kept secret. B. Patents allow firms to be the sole users of a new technology, but only for a limited number of years. C. Government subsidies on research tend to misdirect resources and often end up being a waste of money. D. Firms must use government subsidies to be entitled to obtain patents on the technology they develop.

B. Patents allow firms to be the sole users of a new technology, but only for a limited number of years. C. Government subsidies on research tend to misdirect resources and often end up being a waste of money.

Which of the following is true about persistent inflation? A. Persistent inflation is the result of workers constantly demanding exorbitant wage increases. B. Persistent inflation is the result of introducing ever more money into an economy. C. Persistent inflation means that prices suddenly rise very quickly. D. Persistent inflation occurs when the government has to borrow too much money to finance a huge budget deficit.

B. Persistent inflation is the result of introducing ever more money into an economy.

Because it is difficult for economists to use controlled experiments to generate economic data, they A. use other forms of observation that are even more valid and reliable than controlled experiments. B. use instead simplified versions of theories. C. find it difficult to determine which hypothesis are good and which should be discarded. D. are forced to use only computer simulations to generate the data.

C. find it difficult to determine which hypothesis are good and which should be discarded.

Suppose car buyers come to expect car dealers will offer huge discounts next month. This month's demand curve for cars A. will remain unchanged, but quantity demanded will decrease. B. will shift to the right. C. will shift to the left. D. may shift in either direction, depending on other related factors.

C. will shift to the left.

Which of the following are true?

Cyclical unemployment occurs whenever unemployment is above the natural rate of unemployment. Cyclical unemployment is the surplus of labor that arises during recessions. There's a shortage of labor whenever unemployment is below its natural rate.

Which of the following will cause the supply of washing machines to shift to the left? A. Washing machine producers expect the price of washing machines to fall soon. B. The price of steel decreases. C. A new washing machine production technology is developed and implemented. D. Labor unions force firms in the industry to pay their workers higher wages.

D. Labor unions force firms in the industry to pay their workers higher wages.

Which of the following would be the most useful way to measure GDP? A. add together the physical quantities of all final goods and services produced. B. create a list showing the actual output of all final goods and services . C. find a unit of measurement, such as weight or volume, use it to add quantities of different kinds of goods and services. D. Use market prices of all final goods and services, to obtain the total value of goods and services produced.

D. Use market prices of all final goods and services, to obtain the total value of goods and services produced.

Which of the following is a good strategy to attract foreign sources of investment?

Ensure that American laws protect foreign lenders as much as domestic lenders.

Which of the following are true when comparing real wages in the US in 1977 to 2017?

Men with high school but no college degree are actually earning less now than they did in 1977. The income earned by workers with college degrees has increased significantly since 1977.

Which of the following statements are true regarding the differences between the CPI and the GDP deflator? A. Quantities are kept constant when calculating the CPI while prices are kept constant when calculating the real GDP. B. The CPI tracks only the prices of goods and services purchased by households, while the GDP deflator takes into account the prices of all goods and services produced in the nation. C. The CPI does not include imports, but the GDP does. D. The CPI uses the same basket to calculate inflation between any two consecutive years, while the GDP deflator is based on the goods and services produced in the nation, which change from year to year.

Quantities are kept constant when calculating the CPI while prices are kept constant when calculating the real GDP. The CPI tracks only the prices of goods and services purchased by households, while the GDP deflator takes into account the prices of all goods and services produced in the nation. The CPI uses the same basket to calculate inflation between any two consecutive years, while the GDP deflator is based on the goods and services produced in the nation, which change from year to year.

Which of the following is best in measuring improvements of the material well-being enjoyed by the average American?

Real Gross Domestic Product per person.

Which of the following is the most effective in promoting pure research?

Requiring university professors to publish frequently.

Based on the material you studied, which of the following is the least likely to help improve primary education in the U.S.?

Significantly increase spending in schools' buildings and facilities.

Based on the OECD's PISA study, which of the following is true?

Students in the US go to school far fewer days per year than the average of other rich OECD countries.

Say's Law uses the circular flow model to conclude that:

Supply creates its own demand.

How is the basket of goods for the consumer price index determined?

The Bureau of Labor Statistics surveys households to find what goods and services the typical household buys.

Which of the following statements are true? A. The US is a big exporter as well as a big importer of goods and services. B. The US is competitive internationally in spite of its high wages, because American workers are highly productive. C. The US has a big trade deficit mainly because Americans tend to spend more than they earn. D. The US cannot possibly compete against low foreign wages, which is why it imports so much.

The US is a big exporter as well as a big importer of goods and services. The US is competitive internationally in spite of its high wages, because American workers are highly productive. The US has a big trade deficit mainly because Americans tend to spend more than they earn.

What impact does having a college degree have on unemployment during a recession?

Unemployment for unskilled labor rises significantly, but that for college graduates remains low.

Price indexing means that things such Social Security pension payments

are automatically adjusted for inflation according to the CPI.

The demand and supply model explains the behavior of markets that

are very competitive.

If Michelle pays a painter to paint her house, instead of painting it herself, the measured GDP will be

bigger than if he did it herself.

Multinational corporations often build factories in poor countries to take advantage of cheap labor to produce their goods. The economic impact of this is that it

causes wages in developing countries to gradually rise.

The main focus of economics is the study of how society and individuals

deal with the fact that most of us want more than we can get.

Given the methods used by the Bureau of Labor Statistics, discouraged workers (people who are willing to work, but are no longer actively looking for a job) are

not counted as part of the labor force.

The catch-up effect is the idea that

poor countries with little capital can grow faster than rich countries and so catch up with them.

Suppose that the GDP deflator increased from 2010 to 2011. This means that prices rose during that year.

prices rose

Human capital, natural resources, physical capital, and technological knowledge are determinants of

productivity.

One way that government can stimulate physical capital accumulation is by encouraging

saving.

In the _______________ , reducing inflation is associated with _______________ unemployment.

short-run rising

Suppose the cost of the basket in 2020 was $5,000. If the cost of the basket in the base year was $4,000, we can say that

the CPI for 2020 is 125.

When calculating the increase in the cost of living between two adjacent years, the Bureau of Labor Statistics will use

the exact same basket for the two adjacent years being compared.

Diminishing returns to investment is the notion that

the more capital an economy has, the less output increases from further additions of capital.