Ch. 6 quiz

Jennifer did not work during college. She just obtained a bachelor's degree in marketing, and is now looking for a marketing job in the retail industry. Jennifer is considered

frictionally unemployed.

Which item is NOT included in the GDP deflator?

imported mangoes

The GDP deflator is an index that includes prices of all of these EXCEPT

imports.

Which one of these would NOT lead to higher prices?

an increase in the supply of food

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living

fell by 1%.

Other things equal, if a recession gets worse, the number of discouraged workers _____, and the number of those in the labor force _____.

increases; decreases

The twin perils of the modern macro economy are said to be

inflation and unemployment.

According to the table, what is the labor force of this economy? Population = 500 Number employed = 300 Number unemployed = 50

Labor force = 300 + 50 = 350

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%

creditors gain at the expense of debtors.

When the economy is operating at the natural rate of unemployment _____ unemployment is zero.

cyclical

_____ is a reduction in the rate of inflation.

disinflation

If Kim's salary was $50,000 last year, and this year she receives a cost-of-living increase tied to the consumer price index (CPI), what will her salary be this year assuming the CPI has risen from 110 to 114?

% change in price = [(CPI in current year/CPI in original year) x 100] - 100 % change in price = [(114/110) x 100] - 100 % change in price = 3.64% salary = $50,000 x 1.0364 salary = $51,820

If the current year's consumer price index is 214 and last year's consumer price index was 209, then the rate of inflation is

% change in price = [(CPI in current year/CPI in original year) x 100] - 100 % change in price = [(214/209) x 100] - 100 % change in price = 2.4%

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing

deflation

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is

Real = nominal x (base year index / current year index) $16,000 = $20,000 x (100/current year index) $16,000/$20,000 = 100/current year index current year index x ($16,000/$20,000) = 100 current year index = 100 x ($20,000/$16,000) current year index = 125

According to the table, nominal GDP for 2013 is approximately Base year index = 100 Real GDP = $5,865 billion Current year index = 86.1

Real = nominal x (base year index / current year index) $5,865 billion = nominal GDP x (100/86.1) $5,865 billion/(100/86.1) = nominal GDP $5,050 billion = nominal GDP

According to the table, real GDP for 2014 is approximately Base year index = 100 Nominal GDP = $8,511 billion Current year index = 112.7

Real = nominal x (base year index / current year index) Real = $8,511 billion x (100/112.7) Real = $7,552 billion