ECO EXAM 2
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
# of unemployed ------------------- x 100 # in labor force
Imagine that you borrow $1000 for one year and at the end of the year you repay the $1000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rat you paid?
3 percent
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%
Assume the average annual CPI values for 2017 and 2018 were 207.3 and 215.3, respectively. What was the percent increase in the CPI between these two years?
3.86
Which equation represents the relationship between GDP and the four expenditure components?
Y=C+I+G+NX
During the expansion phase of the business cycle, which of the following eventually increases?
all of the above
The "normal" underlying level of unemployment in the economy is
all of the above
When the economy is at full employment,
all of the above
A recession occurs when an economy experiences a period in which there is
a decrease in total production
When the economy is at full employment, which types of unemployment remain?
frictional and structural
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 2018. You know that average prices have risen steadily since 1961. You earn...
less than 5 times as much as your grandfather in terms of real income.
Which of the following is the best measure of the standard of living of the typical person in a country?
real GDP per person
Recessions typically cause the unemployment rate to ____ and the inflation rate to ---.
rise; fall
The unemployment rate
shows the percentage of the labor force that is considered unemployment
Potential GDP is
sometimes greater, sometimes less, and sometimes equal to actual real GDP
What is the general relationship between the business cycle and unemployment and inflation
during an expansion, unemployment falls and inflation increases
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
As the economy nears the end of a recession, which of the following do we typically see?
increased spending on capital goods by firms
If the nominal rate is 6% and the inflation rate is 9%, then the real interest rate is
-3%
The nominal GDP of the U.S. in 2016 was approximately $18.6 trillion. This means that
-total spending on final goods and services in 2016 was around $18.6 trillion. -total income on 2016 was around $18.6 trillion. -the value of final output in 2016 was around $18.6 trillion -All Of The Above Are True
Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?
8 percent
Which of the following equations correctly measures GDP in an economy?
GDP=C+I+G+NX
Between 2017 and 2018, if an economy 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
Gross domestic product in the economy is measured by the
dollar value of all final goods and services produced in the economy
Disposable personal income equals personal income
minus personal tax payments
In 2016, which component of GDP had a negative value?
net exports
The purchase by a Chinese household of a CD produced in the United States is included in U.S.
net exports
one major component of GDP that can be negative is
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
If the GDP deflator is 142, by now 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
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
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
Depreciation is
the value of worn - out equipment, machinery, and buildings
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 2017 averaged $1400. In 2018, the cost of the same purchases was $1500. If 2017 is the base year, what was the CPI in 2018?
107
If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?
2.7%
As of April 2017, which of the following demographic groups has the highest unemployment rate?
African Americans
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
All of the above
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
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, Rustys previous employer rehires him. What is the best classification for his time as an unemployed truck mechanic?
Cylically unemployed
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.
Which of the following is not true about the composition of GDP in 2016?
The majority of consumer spending is on durable goods
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
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
What is the largest component of spending in the U.S.?
consumption spending
To calculate GDP by the expenditure method one must add
consumption spending, investment spending, government purchases, and net exports
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
When the economy reaches a trough in a business cycle, which of the following will occur?
income, production, and employment will begin to rise
When the economy enters a recessionary phase of the business cycle, unemployment tends to
increase
During an expansion, how do inflation and unemployment typically change?
inflation rises and unemployment falls
During the recession phase of the business cycle,
interest rates are usually falling
If real GDP in a small country in 2017 is $8 billion and real GDP in the same country in 2018 is $8.3 billion, the growth rate of real GDP between 2017 and 2018
is 3.75%
The real interest rate
is equal to the nominal interest rate minus the inflation rate
A good measure of the standard of living is
real GDP per capita
As the economy nears the end of an expansion, which of the following do we typically see?
rising interest rates
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called
structural unemployment
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