Econ 101 Midterm 2 6-10 HW Answers
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
$70,288
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%
Although _____ percent of all firms are corporations, corporations account for _________ of revenue and profits earned by all firms
20; the majority
If real GDP equals $11,567 billion in 2006 and $11,916 billion in 2007, and assuming population is constant over those two years, how many years will it take for real GDP per capita to double? _____ years.
23.2
What are the four major categories of expenditure?
Consumption, investment, government purchases, and net exports.
CPI equation
Cost of the market basket in current year/Cost of the market basket in base year x 100
personal income minus personal taxes.
Disposable personal income
What is the general relationship between the business cycle and unemployment and inflation?
During an expansion, unemployment falls and inflation increases.
Suppose John Q. Worker is currently unemployed. Each day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John Q. what he does for work, he tells them that he is currently "in-between jobs." Which of the following best classifies John Q.'s unemployment status?
Frictionally unemployed
Why is GDP an imperfect measurement of total production in the economy?
GDP does not include household production or production from the underground economy.
National income is
GDP minus depreciation.
Which of the following does NOT lead to long-run economic growth?
Increase in average wages
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
It does not account for inaccurate responses to the Current Population Survey, Underemployed people are considered employed, It fails to account for illegal activities, Discouraged workers are not considered unemployed
Which of the following takes place in the direct finance market?
Loans to corporations are made from the sale of corporate bonds.
Even perfectly anticipated inflation imposes costs. Why?
Menu costs, Paper money loses its purchasing power by the rate of inflation, Some wages will fail to keep up with anticipated inflation
Which of the following is the most important of the over minus the minus counter markets?
NASDAQ
GDP deflator equation
NGDP/RGDP x 100
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
Number of unemployed/Number in labor force x 100
national income minus retained corporate earnings plus government transfer payments and interest on government bonds.
Personal income
Which of the following can give an early warning of future increases in the price level?
Producer price index
Which of the following would be included in the gross national product (GNP) of the United States?
Production from a U.S. firm that operates in Mexico.
Firms that act as financial intermediaries match households that have excess funds with firms that want to borrow funds. What other key services does the financial system provide to savers and lenders? (Mark all that apply.)
Provides an easy method of exchanging a financial security for money, Allows savers to spread their money among many financial investments, Collects and communicates information about borrowers to savers
the difference between the value of a corporation's assets and the value of its liabilities; also known as net worth.
Stockholders' equity
Suppose that Sally J. Society recently lost her job as an underwater welder. In looking for a new job, she discovers that the only available jobs are for economists and that there are no openings for underwater welders because the trade is now obsolete. If Sally J. Society decides to return to school to earn an Economics degree, what is the best classification of her unemployment status?
Structurally unemployed
Which of the following causes changes in the CPI to overstate the true inflation rate?
Substitution bias, increase in quality bias, new product bias
Public Savings formula
T-G-TR
Real GDP per capita LOADING... is often used as a measure of general well-being. While increases in real GDP often do lead to increases in the well-being of the population, why is real GDP not a perfect measure of well-being?
The value of leisure is not included, The costs of pollution are not included, GDP does not include crime rates or income distribution.
The loanable funds market is given in the figure above. If the current real interest rate is 5 percent, which of the following is true?
There is a surplus of loanable funds in the market.
How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?
They decrease the opportunity cost of job search.
Private Savings formula
Y+TR-T-C
In a closed economy, which of the following equations reflects investment? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
Y-C-G
Government Purchases Formula
Y-C-I
n a closed economy, private saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
Y-C-T+TR
Which of the following equations sums up the components of Gross Domestic Product (GDP)?
Y=C+I+G+NX
Which of the following transactions represents the purchase of a final good?
Your father buys a new John Deere riding lawn mower.
a firm owned jointly by two or more persons and not organized as a corporation
a partnership
The high point of economic activity is called
a peak
The period between the high point of economic activity and the following low point is called
a recession
The low point of economic activity is called
a trough
A bond is a financial security that represents a promise to repay
a yearly interest payment and a principal payment.
The principal-agent problem occurs when
an agent pursues his own interests rather than the interests of the principal who hired him.
It is the role of ________ to transfer funds from savers to borrowers.
an economy's financial system
The period between the low point of economic activity and the following high point is called
an expansion
Economic profit is equal to a firm's revenues minus its costs, _______________________. Accounting profit is _____________ economic profit.
both explicit and implicit; larger than
An income statement shows a firm's
costs, profits, & revenues
During the recession phase of the business cycle, production, employment, and income________
decrease
If Walmart issues $250 million in new stock to finance the renovation of their retail stores, this is an example of
direct finance
When Twitter sells newly issued shares of stock this is an example of
direct finance in a primary market.
payments by a corporation to its shareholders.
dividends
he financial system of a country is important for long-run economic growth because
firms need the financial system to acquire funds from households.
Crowding out occurs when
governments must borrow funds which causes interest rates to rise and thus private investment is reduced.
Bonds ________ and stocks ________.
have a fixed number of interest payments; may pay dividends forever
During the expansion phase of the business cycle, production, employment, and income________
increase
Potential GDP
increases over time as technological change occurs, increases over time as the labor force grows
A flow of funds from savers to borrowers through financial intermediaries such as banks is ______ finance, while a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange is _____ finance
indirect; direct
Even though individuals earn interest on financial investments such as bonds, mutual funds, and certificates of deposits, they may still hold wealth in checking accounts because
individuals need money that is available to be spent on goods and services.
The owners of corporations have
limited liability
The ease with which a financial security can be exchanged for money is referred to as
liquidity
Changes in the value of a firm's stocks and bonds offer important information for a firm's managers. If the price is decreasing investors are _______ and are providing information that indicates the firm's managers might want to _________ the business.
more pessimistic; contract
In a closed economy, which of the following components of GDP is not included?
net exports
Subtracting the value of a firm's liabilities from the value of its assets leaves its
net worth
Which of the following is the best measure of the standard of living of the typical person in a country?
real GDP per person
When compared to the Great Depression, the typical length of unemployment in the modern (post-Great Depression-era) U.S. economy is
relatively brief
Profits that are reinvested in a firm rather than paid to the firm's owners are called
retained earnings
Potential GDP is
sometimes greater, sometimes less, and sometimes equal to actual real GDP.
A(n) _____ is a financial security that represents partial ownership of a firm, while a _____ is a financial security that represents a promise to repay a fixed amount of funds.
stock; bond
An increase in the government budget deficit will shift the ________ curve for loanable funds to the ________ and the equilibrium real interest rate will ________.
supply; left; rise
Gross Domestic Product is calculated by summing up
the total market value of final goods and services produced in the economy during a period of time.
When the economy is at full employment,
the unemployment rate is greater than zero, all remaining unemployment is either frictional or structural, the natural rate of unemployment prevails.
In August 2013, the working-age population of the United States was 245.9 million. The working-age population is divided into those in the labor force (155.5 million) and those not in the labor force (90.4 million). The labor force is divided into the employed (144.2 million) and the unemployed (11.3 million). Those not in the labor force are divided into those not available for work (84.1 million) and those available for work (6.3 million). Finally, those available for work but not in the labor force are divided into discouraged workers (0.9 million) and those currently not working for other reasons (5.4 million).
unemployment rate: 11.3 million/155.5 million x 100 = 7.3% labor force participation rate: 155.5 million/245.9 million x 100 = 63.2%
The largest component of gross domestic income is
wages
What are the four categories of income?
Wages, Interest, Rent, and Profit.
