Test 2

Private saving is equal to:

Disposable income less consumption.

Disposable income in a particular period is:

Earned income plus government transfer payments less taxes.

Menu costs of inflation are the:

costs associated with businesses changing prices.

Unit-of-account costs of inflation are the

costs associated with money not being a reliable unit of measurement

Deflation is a

decrease in the average level of prices

Unanticipated inflation

reduces the value of money

rising high school graduation rates are an example of an increase in

human capital

Unexpected inflation ____ lenders and ____borrowers

hurts; benefits

Labor productivity growth can be attributed to

improvement in technology

the term human capital describes improvement

in a workers skills made possible by education, training and knowledge

Income divided by the price level is

real

menu costs are the

real costs of changing listed prices

Consider an economy that produces only DVDs and DVD players. Last year, 10 DVDS were sold at$20 each and 5 DVD players were sold at $100 each, while this year 15 DVDS were sold at $10 each and 10 DVD players were sold at $50 each. Real GDP this year using last year as the base year is:

$1,300 (Use prices from base year)

Boeing buys $3 million worth of steel, $2.5 million worth of computer hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing sells this particular model at $10 million. The value added by Boeing is equal to:

$3.5 million

If during 2011, the Republic of Sildavia recorded a GDP of $65 billion, interest payments of $15 billion, imports of $13 billion, profits of $7 billion, exports of $15 billion, and rent of $7 billion, wages during 2011 in Sildavia were:

$36 billion.

Assume that the real GDP of the United States is approximately $12 trillion and the population of the US is approximately 300 million. What is per capita real GDP?

$40,000 (real GDP/population)

A minimum wage of $7.25 per hour can cause structural unemployment if the equilibrium wage is:

$6.85 (lower than the minimum)

In 2011, consumption spending is $7,000, government purchases of goods and services is $2,000, and investment spending is $1,500. If GDP for 2011 is $10,300, exports are ____ and imports are _____.

$600; $800

Consider an economy that produces only DVDs and DVD players. If 10 DVDs are sold at $20 each and 5 DVD players are sold at $100 each, then nominal GDP is:

$700

All of the following cause structural unemployment EXCEPT:

(More workers than jobs available (higher wages)) DO: A government-mandated floor on the price of labor set above the equilibrium wage. Collective bargaining efforts that secure higher wages for unionized workers than for non-unionized workers. Offering high wages to attract high-quality workers. DONT: Granting Social Security benefits to laid-off workers.

If 99 million people are working and 1 million are unemployed but actively seeking work, then the unemployment rate is:

1% (1/99)x100

If a country has a working-age population of 200 million, 135 million people with jobs, 10 million people who were looking for a job but have given up, and 5 million people unemployed and seeking employment, then the number of discouraged workers is:

10 million

According to the rule of 70, if a country's real GDP per capita grows at an annual rate of 2% instead of 3%, it will take _____ ADDITIONAL years for that country to double its level of real GDP per capita.

11.67 (find difference between 2% and 3%)

Suppose there are 70 million people in the labor force, of whom 60 million are employed. The unemployment rate is:

14.28% (#unemployed/labor force)x100

If a country has a working-age population of 200 million, 135 million people with jobs, and 15 million people unemployed and seeking employment, then its labor fore is:

150 million

A survey reveals that on a small island 1,000 people have jobs, 200 people don't have jobs but are looking for jobs, and 200 people are neither working nor looking for work. the unemployment rate is

16.7%

If the actual unemployment rate is 7% and the natural rate is 5%, then the cyclical rate is

2%

In February 2012, the Bureau of Labor Statistics calculated the unemployment rate to be 8.3%. If frictional unemployment was 3.1% and structural unemployment was 3.2%, then the natural rate of unemployment was

2%

South Korea has real GDP per capita of $25,000, while England has real GDP per capita of $50,000. If real GDP per capita in South Korea grows at 7% and England's real GDP per capita grows at 3.5%, how long will it take for real GDP per capita in the two nations to converge?

20 years.

A survey reveals that on a small island 40 people have jobs, 10 people are not working but looking for jobs, and 30 people are neither working nor looking for work. the unemployment rate on the island is

20%

In February 2012, the Bureau of Labor Statistics calculated the unemployment rate to be 8.3%. If frictional unemployment was 2% and structural unemployment was 3.2%, then cyclical unemployment was:

3.1%

suppose the real interest rate is 2.1% and the nominal interest rate is 5.4%. the inflation rate is

3.3%

Suppose a panel of economists predicts that a nation's real GDP per capita will double in approximately 20 years. According to the rule of 70, what must be the predicted annual growth rate of real GDP per capita?

3.5% (divide 70 by all the answers and see which equals 20)

From 2010 to 2011 nation As real GDP increased from $100 billion to $106 billion and its population grew from 50 million to 51 million. Its annual growth rate in real GDP per capita was approimatly

4%

Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. the real rate of interest is

4%

If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural rate of unemployment is:

5%

The Republic of Livonia has an adult population of 100 million; 60% of Livonia's population is employed, and 10% of the people are unemployed. The labor force participation rate here is:

70%

A fixed interest rate of ____ with _____ inflation will yield the highest rate of return for a lender.

8%; 1%

Suppose a lender expects a real interest rate of 6% and the inflation rate is expected to be 3%. In this case, the nominal interest rate is

9%

An example of physical capital is:

A truck a company purchases for deliveries.

Diminishing returns to physical capital suggests that:

At some point, increasing the amount of physical capital per worker is not worth the cost of the additional amount of capital.

A bond is

Both a promise to pay interest each year and to repay the principal on a specified date and a liquid asset, since it is a standardized product with a market in which the owner can sell it

The idea that relatively poor nations should have higher rates of growth of real GDP per capita than relatively rich nations is known as the:

Convergence hypothesis.

Which of the following is most liquid?

Currency ISNT: checking account balance, stock in a publicly traded company, a townhouse

According to the Bureau of Labor Statistics, the actual unemployment rate was 8.3% in February 2012 and the natural rate of unemployment was 5.2%. The _____ unemployment rate was:

Cyclical; 3.1%

All of the following are factors that drive productivity growth EXCEPT:

DO: physical capital, technological progress and human capital. DONT: Growth convergence

Which of the following causes an outflow of funds from a domestic economy?

DOESN'T: Household savings, government tax collections and government transfer payments. DOES: Imports

The GDP deflator is

Equal to 100 in the base year

If real GDP rises while nominal GDP falls, then prices on average have:

Fallen.

Unemployment that is due to the time workers spend in job search is ____ unemployment

Frictional

In the product market:

Households demand goods and services.

An example of an intermediate good is:

IS: Steel purchased by aircraft manufacturers. NOT: Wages paid to an employee, vegetables purchased for your dinner, and electric bills for the office.

Which of the following is an example of cyclical unemployment?

IS:An autoworker is laid off because a recession has caused a decline in sales. ISNT: A geologist is permanently laid off from an oil company because of a technological advance. A worker at a fast-food restaurant quits work and attends college. A real estate agent leaves a job in Texas and searches for a similar higher-paying job in California.

Shoe-leather costs are the:

Increased cost of transactions due to inflation.

If the consumer price index changes from 120 to 125 between December 2009 and December 2010, the:

Inflation rate for 2010 is 4.2%

To acquire human capital a person would:

Learn to use a printing press.

Four types of financial intermediaries are:

Mutual funds, pension funds, life insurance companies and banks

The convergence hypothesis says that international differences in GDP per capita tend to ____ over time

Narrow

According to the text, productivity is driven by all of the following EXCEPT

Natural resources

You are a college student and not working or looking for work. You are:

Not part of the labor force.

A country's living standard is best measured by:

Per capita real GDP.

If nominal GDP of 2012 was higher than nominal GDP of 2011:

Production or prices or both were higher in 2012 than 2011.

Efficiency wages are usually set by employers to:

Provide an incentive for better performance.

Technological change:

Raises total factor productivity.

The total value of all final goods and services produced in a given year, calculated using the prices of a selected base year is:

Real GDP

A survey reveals that on a small island initially 40 people have jobs, 10 people are not working but looking for jobs, and 30 people are neither working nor looking for work. Suppose that 10 of the 30 people who weren't working or looking for work now begin looking for work. There are now 20 people without jobs but looking for work and 40 people are working. The unemployment rate:

Rises to 33.3%

All other things unchanged, a general increase in government borrowing will typically:

Shift the loanable funds demand curve to the right and increase interest rates.

Which of the following is FALSE?

TRUE: is aggregate output. Is the total production of final goods and services. Grows during an expansion. FALSE: is the total production of all final and intermediate goods and services.

Intermediate goods are not counted in GDP because:

To do so would result in double counting.

Jim has a part-time job and would prefer to have a full-time job but has been unable to find one. Jim is classified as:

Underemployed.

Suppose that Allison has an accounting degree, but she lost her job two months ago when her company merged with another firm. Allison hasn't been able to find another accounting job, so she has taken a part-time job as a sales clerk at a clothing store. The Bureau of Labor Statistics classifies Allison as:

Underemployed.

Deflation is

a decreasing aggregate price level

a shift away from taxing asset income and toward taxing consumption would lead to

a larger supply of loanable funds, a lower interest rate and more investment spending.

Efficiency wages are

above equilibrium to encourage better performance

From the standpoint of economic growth, banks are important to

channel savings into investment

when disinflation occurs

and inflationary expectations do not change, an economy may have a recession

when inflation rises quickly, borrowers will _____ and lenders will ______

benefit; be hurt

Ron quit his job in retail management and moved to Florida with his wife, a physician who opened a new practice there. He was not successful in his job search for the next 4 months. His unemployment is

frictional

an example of structural unemployment is a

geologist who is permanently laid off because of an increase in wages won by labor unions

unanticipated inflation

helps borrowers and hurts lenders

if the actual inflation rate is less than the expected inflation rate

lenders gain and borrowers lose.

Natural resources are

less reliable indicators of productivity today than they were a century ago

Unit-of-account costs refer to the:

loss of the reliability of money as a relative unit of measurement

In general, for the US economy, the relation between unemployment and economic growth is

negative

The main source of Kuwait's wealth is ____, while the main source of Germany's wealth is _____.

oil; manufacturing

A mutual fund:

owns a diversified portfolio

Economists say that long-run economic growth is almost entirely due to

rising productivity

The introduction of ATMs reduced the:

shoe-leather costs of inflation

If the population and GDP increase by the same percentage, then real GDP per capita:

stays the same

If a worker becomes unemployed because of an increase in the minimum wage, that worker is

structurally unemployed

Last month Brent lost his job at the auto parts factory because the factory relocated to asia. brent has been looking for similar jobs in his town but has found no opening. he is classified as

structurally unemployed

National savings is the sum of private savings and

the budget balance

human capital is

the improvement in labor made possible by education and knowledge that is embodied in the workforce

Shoe-leather costs are the costs of

the increased number of transactions as inflation increases

A household's wealth is

the value of its accumulated savings

Jim has a part-time job and would prefer to have a full-time job but has been unable to find one. Jim is classified as

underemployed