Unit 2 AP MACRO

Suppose the consumer price index (CPI) was 100 on January 1st, 2017 and 110 on January 1st, 2018 with no changes in nominal wages. Which of the following is definitely true about the economy between January of 2017 and January of 2018?

The inflation rate was 10%

Which statement is true about the circular flow diagram of an economy?

The market for factors of production connects spending by firms to household income.

The Business cycle

The national economy goes up and down like a roller coaster over time

The normal rae around which the actual unemployment rate fluctuates

The natural rate of unemployment

Inflation

The real wage is the wage rate divided by the price level

When an economy is at the trough of the business cycle, which of the following is then true about the state of the economy?

There is a recessionary gap.

Which of the following will happen when the actual inflation rate exceeds the expected inflation rate?

This will harm lenders with fixed-interest rate loans

Structural unemployment

Unemployment that results when there are more people seeking jobs in a labor force than there are jobs available at the current wage

1. Add up all the raw added of all producers 2. Add up all the aggregate spending on domestically produced final goods and services 3. Add up all the income paid to factors of productions economists keep track of the flow of many between sectors with the national income and product account or national accounts.

Ways to calculate GDP

Inflation rate

price index in year 2-price index in a year 1/ price index in year 1 x 100

Labor force participation

rate=labor/ population age 16 and older x 100

Suppose Miguel wants to know the value of real gross domestic product (GDP) for 2011 in terms of the base year 1984 dollars. In 1984 nominal GDP was $10 billion. In 2011 nominal GDP was $15 billion and the price deflator was 200. Real GDP in 1984 dollars would be equal to which of the following?

$7.5 million

Factors affect the natural rate of unemployment

1. Changes in labor force characteristics 2. Changes in labor market institutions 3. Changes in government policy

Full employment

1. macro goal

Price stability

2. Macro goal

Economic growth

3. Macro goal

Natural employment

=frictional unemployment structural unemployment

Cyclical unemployment

A deviation in the actual rate of unemployment from the natural rate

Recession

Bad

Which of the following terms describes a slowdown in the rate of increase in the consumer price index?

Disinflation

Private savings = to disposable income minus consumer spending

Disposable income that is not spent on consumption

GDP

Does not include the raw of intermediate goods

Frictional unemployment

Due to the time spend in job search

Goods and services bought from one firm to another firm that are inputs for production of final goods and services.

Final goods and services

The banking, stock, and loan markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing.

Financial Market

Organizations that products goods and services

Firm

Investments

Firms

Will always be the unemployments that are part of the economy

Frictional and structural

Measures the total value of a final goods and services produced in the economy during a given year

GDP

A given year is 100 times the ration of nominal GDP to real GDP in that year

GDP deflator for a given year

Inflation is higher than expected

Borrower gain the expense of lender

Price index in a given year

Cost of market basket in a year 1/ cost of market in year x 100

Consists of other/either individual or group of people who share their income

Households

Consumption

Households

Earn income fro the factor markets from wages

Households

Are stocks or goods and raw materials held to facilitate business operations

Inventories

Spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories.

Investment Spending

Price index

Is the ratio of the current cost of that market based to the cost in a base year x 100

Which of the following describes a limitation of gross domestic product (GDP)?

It does not account for the distribution of income in a nation or income inequality.

Jan works a 30-hour week for a minimum wage of $10 an hour. Suppose that last year is the base year for the Consumer Price Index (CPI). Which of the following is true about Jan's real wage if at the end of this year the CPI is 125 ?

Jan's real wage is $8 per hour at the end of the year.

The percentage of the population aged

Labor force

Employment

Number of people currently employed in the economy, either full time or part time

Unemployment

Number of people who are actively looking for work but aren't currently employed

Government purchases of goods and service (G)

Paid for by tax receipts as well as government borrowing

The unemployment rate

Percentage of the total number of people in the labor force who are unemployed

Better for measuring actual growth

Real GDP is better than nominal GDP

Which of the following is the correct calculation of Real Gross Domestic Product (GDP)?

Real GDP= Nominal GDP/ GDP deflator

Which of the following is classified as a discouraged worker?

Sara has been unable to find a job and abandoned her job search.

Which statement is true about the approaches used to measure the value of a nation's gross domestic product (GDP) ?

The expenditure approach to calculating GDP sums consumption spending, investment spending, government spending, and net exports.

Labor force

Equal to the sum of employment and unemployment (put together)

C+I+G+X=Im

Equation GDP

Exporos

Lea to an inflow of funds into the country from the rest of the world

Import

Lead to an outflow of funds to the rest of the world

Inflation is lower than expected

Lender gain at the expense of borrowers

CPI

Measure of the cost of the market of a typical urban American family

GDP deflator

Measures the price level by calculating the ration of nominal to real GDP

Last year, Myron purchased a $10,000 certificate of deposit with a 3% rate of interest from his bank. The government reported that prices, on average, have fallen by 5% during the current year. Which of the following can be concluded as a result of this transaction?

Myron gains, while the bank loses

Almost all countries calculate a set of numbers known as the national income and product accounts

National Accounts

Which of the following describes a difference between nominal gross domestic product (GDP) and real GDP?

Nominal GDP uses current prices to measure the value of final output, while real GDP uses constant prices.

Real GDP equation

Nominal GDP/ Real GDP x 100

GDP deflator equation

Nominal GDP/Real GDP x 100

Government

Spending

What type of unemployment describes the situation of factory workers displaced by automation?

Structural

As a measure of economic performance, the United States gross domestic product (GDP) accounts for which of the following?

The cleanup of an oil spill

The output gap is measured by which of the following?

The difference between actual and potential GDP

Labor unions negotiated a 3-year contract with employers in the automobile industry. They agreed to a 3 percent per year increase in pay over the 3 years. How would each group be affected by an actual inflation rate of 4% next year?

Workers would be worse off, and the employers would be better off

Aggregate price level

a measure of the overall level of prices in the economy

Nominal GDP

deflator x real GDP/100