unit 3

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what is G when C=500, S=200, T=200, I=300, Y=900

100

what is I when S=200, T=600, G=700

100

what is the CPI for the base year?

100

what is a family automobile an example of?

a durable good

what is a cube of butter sold at a grocery store an example of?

a final good

deflation

a general decrease in price level

bond

a loan

What is GDP equal to?

both total income and total expenditure

a financial intermediary

brings lenders and borrowers together

which of these is a component of the relatively low interest rate on a three-month U.S. government bond?

expected inflation rate

net exports are equal to:

exports (-) imports

what is exchanged in a factor market?

factors of production

which sector of the economy brings together lenders and borrowers

financial intermediaries

which activity takes place in the product market

finished goods and services are traded

which sector of the economy rents factors of production

firms

In the short-run, GDP:

fluctuates

what does a market basket include?

food, housing, clothing, transportation

which activity takes place in the financial market

money is loaned and borrowed

Who earns income?

owners of the factors of production

found on a graph of GDP over time

peaks, troughs, expansions, contractions

unemployment rate measures the percentage of:

people in the labor force who are without jobs and actively seeking jobs

What does per-capita GDP account for?

population changes

what is a component of the interest rate on a 10-year inflation-indexed U.S. government bond?

positive rate of time preference

price index

prices between years

one problem with the unemployment rate

the data includes part-time workers as fully employed

what happens when households expect the inflation rate to increase in the future?

the demand curve shifts to the right

what happens when the rate of time preference for consumers rises?

the demand curve shifts to the right

what is the government's chief tool for predicting future changes in the business cycle?

the index of leading indicators

what does the term "rate" mean in "interest rate"?

the interest depends on the size of the loan

if top government officials claim that more people are working now than ever before which of the following must be true?

the number of people employed is higher now than ever before

what happens when there's decreasing uncertainty among firms about the future?

the quantity of borrowing increases

the economy is considered to be at full employment when:

the rate of cyclical unemployment is zero

a recession

the total output of the economy not rising for six or more months

Gross domestic product

the value of all final goods and services produced in a n economy in one year

GDP is a good way to determine

the value of goods and services produced by a country in a year

When the economy is operating at the full-employment level of output:

there is a rough balance between the number of jobs available and the number of qualified job applicants

why do bonds with a B or C rating have a higher interest rate than bonds with a AAA rating?

they carry a greater risk of default

what happens to CPI when prices have increased since the base year?

they increased

how are the unemployment rate and real GDP related?

they move in opposite directions

How is growth illustrated on the PPF?

through an outward shift

how do most interest rates move

together, in the same direction

what Is not a component of the interest rate on a 30-year U.S. government bond?

transaction costs of screening and monitoring borrowers?

what is the difference between government expenditures and transfers?

transfers do not involve the purchase of goods and services

structural unemployment

unemployment caused by a mismatch in the demand for workers with certain skills and the skills of unemployed workers

capital goods

used again and again in the production of other goods

If the United States sells $100 worth of grain to the rest of the world and buys $80 worth of watches from the rest of the world, what are net exports for the USA?

$20

components of the interest rate

1. the positive rate of time preference 2. inflation 3. costs of monitoring and investigation 4. default risk

Over the last 60 years, the United States has grown at an average yearly rate of

3%

The United States economy has long-run average growth rate of:

3%

what is C when Y=1000, G=400, S=300, I=200, and T=300

400

according to most economists, the United States is at full employment when the unemployment rate is about:

5%

financial instruments are tools:

that use savings to earn interest

equation for calculating GDP

I+G+X= S+T+M

when did deflation last occur in the USA?

In the early 1930s during the Great Depression

What are the savings of all the sectors of the economy always equal to?

Investment

What is depreciation?

The approximation of a value for wear and tear that capital goods sustains of the course of a year

How is GDP calculated

all final goods and services produced in one year

why is the interest rate on a credit card generally much higher than government bond interest rates?

all five of the interest rate components apply to credit card debt

the household sector is made up of:

all the people in a nation

How is growth represented in the economy through factors of production?

an increase in quantity available

what is a cube of butter sold to a movie theater to put on the popcorn an example of?

an intermediate good

what is a taxi an example of?

an investment good

example of frictional unemployment

construction workers who are on temporary layoff

what does CPI stand for

consumer price index

total expenditure in an economy is composed of the sum of:

consumption spending, investment expenditure, government expenditures on goods and services, and net exports

the five categories of expenditure

consumption, investment, government expenditures on goods and services, imports, and exports

sally lost her job when her company went out of business because of a recession. what is this an example of?

cyclical unemployment

Why is the number of people officially unemployed not the same as the number of people who can't find a job?

discouraged workers aren't counted

prime rate

given only to the banks best customers and is lower than the normal rate

what sector of the economy is consumption an expenditure for?

household

part of the circular glow and considered leakages

household savings, tax payments, and purchases of imports

which sector of the economy lends money

households

which sector of the economy owns the factors of production

households

the four sectors of the economy

households, businesses, government, rest of the world

one social benefit of unemployment is:

improved allocation of labor when workers who experience unemployment change to different jobs

Where is frictional unemployment present?

in any dynamic economy

What issues need to be addressed when measuring economic growth?

income distribution, standard of living, environmental externalities, per capita levels of GDP

the unemployment rate will increase whenever there is a:

increase in the number of unemployed persons relative to the size of the labor force

What is the difference between nominal and real values?

inflation

a general increase in the price level

inflation

the payment made for the use of money

interest

What happens when there's a decrease in the risk of default?

interest rates decrease

what happens when firms are more optimistic about future prospects?

interest rates increase

What is considered injections in the circular flow?

investment, government expenditure, and net exports

example of an injection

investments

In the USA, what does the maximum production possible in the economy do in the long run?

it increases

a country's firms import $20 million worth of raw materials and export $25 million worth of goods. What impact does this have on GDP?

it increases

which activity takes place in the factor market

land rented

federal funds rate

rate banks charge each other on overnight loans

What is the difference between real GDP and nominal GDP?

real GDP is calculated in constant prices, nominal GDP is calculated with changing prices

if a sizable number of workers were switched from full-time to half-time employment, the official unemployment rate would:

remain unchanged

What is the investment in new ideas called?

research and development

example of a leakage

savings

a school teacher out of work over the summer is an example of which type of unemployment?

seasonal unemployment

a ski instructor out of work during the summer months is an example of which type of unemployment?

seasonal unemployment

full employment is the situation in which the economy operates at an unemployment rate equal to the sum of:

seasonal, structural, and frictional unemployment

four types of unemployment

seasonal, structural, cyclical, frictional

What does investment illustrate the trade-off between?

short-run and long-run growth

What are two sources of economic growth that are related to investment?

technological advancement and increased capital


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