CH 8, 9, 10 HWs

Which of the following would result in GDP for an economy equal to​ $10 trillion?

C​ = $5 trillion I​ = $5 trillion G​ = $2 trillion NX​ = −​$2 trillion

If a​ 3-month Treasury bill pays​ 5.5% and the change in the consumer price index​ (CPI) is​ 4.7%, what is the real interest rate​ (the true return to​ lending)?

0.8%

Monthly expenditures for a family of 4 in 2015 averaged​ $1,400. In​ 2016, the cost of the same purchases was​ $1,500. If 2015 is the base​ year, what was the CPI in​ 2016?

107

Imagine that you borrow​ $1,000 for one year and at the end of the year you repay the​ $1,000 plus​ $100 of interest. If the inflation rate was​ 7%, what was the real interest rate you​ paid?

3 percent

Assume the average annual CPI values for 2015 and 2016 were 207.3 and​ 215.3, respectively. What was the percent increase in the CPI between these two​ years?

3.86

Suppose that the economy enters into a recession and​ that, as a​ result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy​ recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck​ mechanic?

Cyclically unemployed

Product Quantity​ (2011) Price​ (2011) Expenditure​ (2011) Price ​(2016) Expenditure ​ (on base year​ quantities) (2016) Computers 1 ​ $1,200 ​ $1,200 ​ $900 ​ $900 Books 10 25 250 30 300 Burgers 50 3 150 4 200 Total ​$1,600 ​$1,400

Suppose an economy has only three goods and the typical family purchases the amounts given in the table above. If 2011 is the base​ year, then what is the CPI for​ 2016? 87.5

Denim Jeans 1 ​$70 ​$70 ​$140 ​$140 ​$105 ​$105 Pizzas 20 14 280 20 400 18 360 Coffee Drinks 20 6 120 6 120 7 140 Total ​$ 470 ​$ 660 ​$ 605

The CPI in 2014 equals 140.43 The CPI in 2016 equals 128.72

Base Year​ (2011) 2016 Product Quantity Price Price Cokes 100 ​$0.50 ​$0.75 Hamburgers 200 2 2.50 CDs 10 20 21

The Consumer Price Index for 2016 equals 121.

Which equation represents the relationship between GDP and the four major expenditure​ components?

Y=C+I+G+NX

A recession occurs when an economy experiences a period in which there is

a decrease in total production.

To calculate GDP by the expenditure method one must add

consumption​ spending, investment​ spending, government​ spending, and net exports.

Nominal GDP is another term for

current−dollar GDP.

Workers who lose their jobs because of a recession are experiencing

cyclical unemployment.

Which of the following is not an example of a transfer​ payment?

health insurance payments to an army private

During the expansion phase of the business​ cycle, which of the following eventually​ increases?

income employment production

The labor force equals the number of people

employed plus unemployed.

In the circular flow​ model, the value of total income for an economy​ ________ the value of total production.

equals

In the circular flow​ model, the value of total production for an economy​ ________ the value of total expenditures on final goods and services.

equals

The sum of the value added of every firm involved in producing all final goods and services​ ________ gross domestic product.

equals

When the economy is at full​ employment, which types of unemployment​ remain?

frictional and structural

When the economy enters a recessionary phase of the business​ cycle, unemployment tends to

increase.

As the economy nears the end of a​ recession, which of the following do we typically​ see?

increased spending on capital goods by firms

During the recession phase of the business​ cycle,

interest rates are usually falling.

The real interest rate

is equal to the nominal interest rate minus the inflation rate.

The labor force participation rate

is the percentage of the​ working-age population in the labor force.

If real GDP in a small country in 2015 is​ $8 billion and real GDP in the same country in 2016 is​ $8.3 billion, the growth rate of real GDP between 2015 and 2016

is​ 3.75%.

A good measure of the standard of living is

real GDP per capita.

Which of the following is the best measure of the standard of living of the typical person in a​ country?

real GDP per person

As the economy nears the end of an​ expansion, which of the following do we typically​ see?

rising interest rates

The unemployment rate

shows the percentage of the labor force that is considered unemployed.

Potential GDP is

sometimes​ greater, sometimes​ less, and sometimes equal to actual real GDP.

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called

structural unemployment.

When the economy is at full​ employment,

the natural rate of unemployment prevails. the unemployment rate is greater than zero. all remaining unemployment is either frictional or structural.

As of August​ 2015, which of the following demographic groups has the highest unemployment​ rate?

African Americans

Sweatshirts 50 ​$35 Dental examinations 40 75 Coffee drinks ​1,000 4 Coffee beans ​2,000 0.50 Suppose that a simple economy produces only four goods and​ services: sweatshirts, dental​ examinations, coffee​ drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above​ table, nominal GDP for this simple economy equals

$8,750

Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment​ rate?

(# of unemployed/# in labor force) * 100

Total Population ​20,000 Workingminus−Age Population ​15,000 Employment ​1,000 Unemployment 100 Consider the data in the table above for a simple economy. The unemployment rate for this simple economy equals

(100/1100)*100

Imagine that you borrow​ $5,000 for one year and at the end of the year you repay the​ $5,000 plus​ $600 of interest. If the inflation rate was​ 4%, what was the real interest rate you​ paid?

8 percent

2011 2016 Product Quantity Price Quantity Price Camera 100 ​ $10 120 ​ $12 Legal services 50 15 45 20 Books 200 40 210 45 What is the GDP deflator in 2011 if 2016 is the base​ year?

87

Why is the unemployment​ rate, as measured by the Bureau of Labor​ Statistics, an imperfect measure of the extent of joblessness in the​ economy?

Discouraged workers are not considered unemployed. It does not account for inaccurate responses to the Current Population Survey. It fails to account for illegal activities. Underemployed people are considered employed.

What is the general relationship between the business cycle and unemployment and​ inflation?

During an​ expansion, unemployment falls and inflation increases.

Which of the following equations correctly measures GDP in an​ economy?

GDP​ = C​ + I​ + G​ + NX

Population​ = 291 million Labor force​ = 134 million The number of people employed​ = 121.9 million The number of people unemployed​ = 12.1 million

Given the information​ above, the unemployment rate is 9​%

Which of the following is a true statement about real and nominal​ GDP?

If real GDP increases from one year to the​ next, we know that production of goods and services has risen.

Use the graph to help determine which one of the following statements regarding flucuations in real GDP is​ true:

In the first half of the twentieth​ century, real GDP had much more severe swings than in the second half of the twentieth century.

Suppose an economy has an inflation rate of 2.3​% and a bank makes a loan with an interest rate of 5.2%.

In this​ case, the real interest rate is 2.9​%

During an​ expansion, how do inflation and unemployment typically​ change?

Inflation rises and unemployment falls.

Between 2015 and​ 2016, if an​ economy's exports rise by​ $8 billion and its imports fall by​ $8 billion, by how much will GDP change between the two​ years, all else​ equal?

Net exports will increase GDP by​ $16 billion.

If the GDP deflator is​ 142, by how much have prices changed since the base​ year?

Prices have increased by​ 42%.

Which of the following can give an early warning of future increases in the price​ level?

Producer price index

Assume the market basket for the consumer price index has two​ products, bread and​ milk, with the following values in 2011 and 2016 for price and​ quantity: Base Year​ (2011) 2016 Product Quantity Price Price Milk 50 ​$1.20 ​$1.50 Bread 100 1.00 1.10

The Consumer Price Index for 2016 equals 116

Use the graph to help determine which one of the following statements is​ true:

The average American in the year 2006 could buy nearly eight times as many goods and services as the average American in the year 1900.

Suppose the​ economy's consumer price index​ (CPI) in 2008 was 183 and the CPI in 2009 was 195.

The inflation rate over the period from​ 2008-2009 was equal to 6.6%

Suppose the​ economy's consumer price index​ (CPI) in 2008 was 184 and the CPI in 2009 was 198.

The inflation rate over the period from​ 2008-2009 was equal to 7.6​%

Population​ = 268 million ​Working-age population​ = 177 million Labor force​ = 136 million The number of people employed​ = 128 million The number of people unemployed​ = 8 million

The labor force participation rate for this economy is 76.8%

Which of the following is not true about the composition of GDP in​ 2014?

The majority of consumer spending is on durable goods.

2015 2016 Nominal GDP ​ $10,000 ​ $12,000 Real GDP 9,500 ​ 10,500

The price level has risen.

How would it affect the unemployment rate if the Bureau of Labor Statistics counted as unemployed both​ (1) discouraged workers and​ (2) people who work​ part-time but would prefer to work​ full-time?

The unemployment rate would increase.

What is the largest component of spending in the​ U.S.?

consumption spending

​Investment, as defined by​ economists, would include the purchase of a

computer by an accounting firm.

Which of the following price indices comes closest to measuring the cost of living of the typical​ household?

consumer price index

Which of the following would be the best measure of the cost of​ living?

consumer price index

What index is used to measure the average prices paid by a typical​ family? An average of the prices of the goods and services purchased by a typical family is​ the:

consumer price index​ (CPI).

The purchase of a new automobile is included in

consumption expenditures on durable goods.

Gross domestic product in the economy is measured by the

dollar value of all final goods and services produced in the economy.

Your grandfather tells you that he earned​ $7,000/year in his first job in 1961. You earn​ $35,000/year in your first job in 2016. You know that average prices have risen steadily since 1961.

less than 5 times as much as your grandfather in terms of real income.

Disposable personal income equals personal income

minus personal tax payments.

In​ 2014, which component of GDP had a negative​ value?

net exports

One major component of GDP that can be negative is

net exports.

The purchase by a Chinese household of a CD produced in the United States is included in U.S.

net exports.

The stated interest rate on a loan is the

nominal interest rate.

The Bureau of Labor Statistics would categorize a retiree who is not working as​ _________.

out of the labor force

The nominal interest rate equals the real interest rate​ ________ the inflation rate.

plus

The broadest measure of the price level that includes all final goods and services is

the GDP deflator.

The most widely used measure of inflation is based on which of the following price​ indices?

the consumer price index

The CPI is also referred to as

the cost−of−living index.

Potential GDP refers to

the level of GDP attained when all firms are producing at capacity.

The​ "normal" underlying level of unemployment in the economy is

the natural rate of unemployment. the​ full-employment rate of unemployment. the sum of structural unemployment and frictional unemployment.

Depreciation is

the value of worn−out ​equipment, machinery, and buildings.

The nominal GDP of the U.S. in 2015 was approximately​ $17.3 trillion. This means that

total income in 2015 was around​ $17.3 trillion. the value of final output in 2015 was around​ $17.3 trillion. total spending on final goods and services in 2015 was around​ $17.3 trillion All of the above

The business cycle exists because

total production experiences periods of increases and periods of decreases.

Transfer payments are not included in GDP calculations because

transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.

Consumption expenditures ​$800 Investment expenditures 200 Government purchases 300 Exports 100 Imports 200 Wages 800 Refer to the table above. Consider the data above​ (in billions of​ dollars) for an​ economy: Gross domestic product​ (in billions of​ dollars) for this economy equals

​$1,200.

Consumption expenditures ​$800 Investment expenditures 300 Government purchases 300 Government transfer payments 400 Exports 300 Imports 100 Refer to the table above. Consider the data above​ (in billions of​ dollars) for an​ economy: Gross domestic product​ (in billions of​ dollars) for this economy equals

​$1,600.

2011 2016 Product Quantity Price Quantity Price Camera 100 ​ $10 120 ​ $12 Legal services 50 15 45 20 Books 200 40 210 45 A very simple economy produces three​ goods: cameras, legal​ services, and books. The quantities produced and their corresponding prices for 2011 and 2016 are shown in the table above. What is real GDP in​ 2016, using 2011 as the base​ year?

​$10,275

2011 2016 Product Quantity Price Quantity Price Camera 100 ​ $10 120 ​ $12 Legal services 50 15 45 20 Books 200 40 210 45 What is real GDP in​ 2016, using 2016 as the base​ year?

​$11,790

Shoes 40 ​$60 DVDs 100 18 Tomatoes ​2,000 1 Ketchup 300 4 Suppose that a simple economy produces only four goods and​ services: shoes,​ DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above​ table, nominal GDP for this simple economy equals

​$6,400

2011 2016 Product Quantity Price Quantity Price Movies 20 ​ $6.00 30 ​ $7.00 Burgers 100 2.00 90 2.50 Bikes 3 ​ 1,000.00 6 ​ 1,100.00 What is nominal GDP in​ 2016?

​$7,035

If the nominal interest rate is​ 6% and the inflation rate is​ 9%, then the real interest rate is

​-3%.

If the GDP deflator rises from 185 to​ 190, what is the rate of inflation between the two​ years?

​2.7%

2013 ​$8,700 2014 ​$8,875 2015 ​$9,000 2016 ​$9,280 Using the table​ above, what is the approximate growth rate of real GDP from 2015 to​ 2016?

​3%

If the nominal rate of interest is​ 6.5% and the inflation rate is​ 3.0%, what is the real rate of​ interest?

​3.5%

What are the four major components of expenditures in​ GDP?

​Consumption, Investment, Government​ Purchases, and Net Exports

When the economy reaches a trough in a business​ cycle, which of the following will​ occur?

​Income, production, and employment will begin to rise.

Which of the following categories make up about​ three-quarters of the market​ basket?

​housing, transportation, and food

Recessions typically cause the unemployment rate to​ ________ and the inflation rate to​ ________.

​rise; fall