Econ 104 Final Exam

If the CPI went from 100 last year to 110 this year, and if a newspaper's nominal price was $1 last year, in this year's values it would be worth ___.

(110/100)•$1.00

Say that the CPI this year is 200 and that last year it was 180. The nominal price of a gallon of milk was $4.00 last year. After adjusting for inflation, what would it be in today's prices?

(200/180)*4

Which of the following currently has the largest value: the percent of the unemployed who are unemployed more than 27 weeks, the unemployment rate, the labor force participation rate

LF participation rate

How do economists measure money? That is, how do they count how much money there is in the economy?

M1 = cash (or currency) + checkable deposits (i.e., checking accounts). M2 = M1 + savings accounts

What does the per‐worker production graph describe? When would you move to the right on this curve? When would the curve shift up? Be sure to include a graph in your answer

Move right - more quantity of same capital Shift up when technology is added - more human capital, more organized business, or better capital

What can have a negative value in our real GDP equation?

NX

If federal expenditures fall, then all else equal the federal deficit will most likely do what?

fall

If millions of people quit looking for a job this month what would happen? The unemployment rate would ___ and the labor force would ___.

fall, fall

True or false: A recession is defined as an event that lasts at last 6 months where real GDP falls at least 2%.

false

True or false: The number employed could be larger than the labor force.

false

True or false: When we measure GDP by income, production, or spending, one is certain to be larger than the others.

false

True or false: capital goods are final goods, but their production is not part of GDP.

false

True or false: the business cycle is the same thing as economic growth

false

true or false: A capital good can also be an intermediate good.

false

true or false: According to the assigned article on acquiring human capital in college, colleges do a good job of adding to the skills of all students.

false

true or false: Fiscal policy was used to fight the Covid Recession, but monetary policy was not.

false

true or false: In the most recent inflation report, the core rate of inflation was higher than the headline rate.

false

true or false: In today's world, when one country's real per capita GDP grows this usually causes another country's real per capita GDP to fall.

false

true or false: The Covid Recession had an equal impact on all income groups.

false

true or false: The U.S. has regained less than half the jobs lost due to the Covid Recession of 2020.

false

true or false: The response to the Covid Recession by the federal government and the Federal Reserve was smaller than what has typically been seen with other postwar recessions.

false

true or false: The sort of growth seen in the last two centuries is typical of the last thousand years

false

true or false: While China's growth rate over recent decades has been impressive, there has been little change in the number of Chinese living in severe poverty.

false

true or false; The CARES Act worked to stimulate the U.S. mainly through tax cuts.

false ; transfer payments

In our AD-SRAS graph, if the "value of the dollar fell," we mean that there has been inflation.

false, by value of a dollar we mean its value compared to foreign currencies

What has caused recessions in the postwar era (since 1945)? What must happen in our graph of AD‐SRAS for it to explain a recession?

real GDP declines

Which of the following is the smallest in the U.S. economy: real GDP per person or Y/L

real GDP per person; they have same numerator but real GDP per person has a larger denominator

what is used to track the business cycle?

real gdp

What would be the most likely result if K/L increased over a period of many years?

real per capita income would grow

___ GDP is used to track the economy since it ___ correct for the impact of inflation (rising prices).

real, does

What would be the most likely cause of a fall in the natural rate of unemployment?

Employers and jobs seekers use technology to speed up the job search process

How is the AD‐SRAS graph used to explain inflation? Also, how is equilibrium achieved with AD and SRAS? Be sure to include a correctly labeled graph.

Equilibrium is achieved by adjusting prices Inflation is seen when demand increases but supply does not, prices rise OR supply shifts left but AD remains

How is the AD‐SRAS graph used to explain inflation? Also, how is equilibrium achieved with AD and SRAS? Be sure to include a correctly labeled graph.

Equilibrium is achieved by adjusting prices. Inflation is seen when demand increases but supply does not, prices rise. OR supply shifts left but AD remains.

True or false: An increase in P has the same effect on the AD curve as an increase in G.

False, P creates movement along the curve, G creates a shift

Which common cause of recessions will shift the AD curve to the left?

Fed policy

Which of the following government actions would be the most harmful to economic growth: fixing prices, granting patents, reducing corruption, increasing protecting for property rights

Fixing prices - there would be no signals and incentives

What is not part of disposable income: income, T, G, or transfers

G

what would happen if costs to businesses fell?

SRAS shifts right

In class we mentioned four causes of recessions since 1945 (i.e., the postwar era). Pick any one of these five causes and use our AD‐SRAS graph to explain why it would cause a recession.

Severe pandemic, oil shock, financial shock, fiscal policy, monetary policy. Oil shocks - if the price of oil skyrockets, the SRAS curve shifts left, harming production immensely. Financial shock - lending plummets so investment and consumption decreases and AD shifts left. Fiscal shock - taxes rise or cut government spending so AD shifts left. Monetary shock - raise interest rates too high and AD shifts left.

In which situation would the labor force participation rate stay the same?

Someone is laid off and immediately starts looking for a new job

We've used both the CPI and the GDP deflator. Which one uses a market basket and how is it used?

The CPI uses a market basket. It is used as follows: a hypothetical household purchases the same set of goods and services at two separate times and their ratio is used to compute prices in one period compared to the base period.

If the Fed could select the rate of inflation, would it prefer a 0% or 2% rate? Please provide one complete explanation.

The Fed needs 2% inflation because inflation is what causes change in wages and prices. This change provides incentives and signals such as basing what major you choose off of salary or high gas prices influencing people to buy electric cars. Workers are encouraged to find better jobs when industries decline, but employers do not have to cut their wages. Inflation is a factor that adjusts wages without anyone having to do anything. In addition to this, the workers' salaries will stay the same but the rest of the economy's prices will increase, therefore resulting in loss because nominal - inflation = real wage, and their real wage is technically at loss since they have less purchasing power. This is another incentive encouraging these workers to consider moving into another industry that is more productive.

What did Chairman Powell recently say that the Fed would likely start doing?

The Fed will likely start slowing asset purchases that support the economy and increase interest rates again in order to lower the inflation rate to a stable level. This will get markets to be able to support themselves economically on their own.

True or false: Markets seem to be an essential ingredient for sustained economic growth.

true

True or false: one type of investment occurs when new capital is produced or sold

true

True or false: the calculation for rate of inflation and economic growth is similar

true

Which is not an example of investment: mcdonalds building a new restaurant, amazon adding books for consumers, paying tuition, purchasing a new home

tuition

Which is most likely if U.S. real GDP was less than potential GDP: unemployment rate is 4 or 10%

unemployment rate is 10%

In which direction would we be moving on the AD-SRAS graph if the Fed stimulated the economy?

up and to the right

If both G and T grow, the AD curve will __

we cannot tell, need more info

What do we mean by "costs" in this part of the course?

what companies pay for things they purchase

We sometimes compute %Δnominal price - %ΔCPI. Which of the following are times when we do?

when computing the change in real price

when do you move along PWPF curve?

when more of same type of capital is added

For the sake of this question, say that China's long-run growth rate was cut by half. In two generations, this change most likely ___ (will, will not) be noticed.

will

If there is more production of final goods in the economy, then income ___.

will rise

Rising real incomes are due to ___.

workers becoming more productive

Say that both interest rates fell and that the U.S. dollar depreciated against foreign currencies. The AD curve then ___.

would shift right

Is it possible for some goods to be both intermediate goods and final goods?

yes

Is it possible for the economy to produce above potential GDP, and thus above the economy's capacity?

yes

If the price of final goods and services (P) increases then ___.

you move up along the SRAS curve

what would happen to the AD curve if GDP deflator rose?

you would move up along the curve

Which is most likely to decline in a U.S. recession: nominal or real GDP. Keep in mind that we almost always have inflation.

real

Which of the following would occur if disposable income rose?

AD would shift right

If the market basket doubled in value from one year to the next, then the inflation rate is for sure ___.

100%

The long run rate of growth of the U.S. is about ___.

2%

If nominal GDP was $20 trillion and real GDP was $10 trillion, then the GDP deflator would be ___.

200

Let's say that over the last year your nominal salary increased by 4% and that the CPI increased by 1%. Then your real salary increased by ___.

3%

Say that the price of cat food increased by 5% one year and the CPI increased by 2%. Then you know that the real price of cat food changed by __.

3%

If an economy grows at 10% a year, it would double in size in about ___ .

7 years

If a country's real per capita GDP went from $10,000 to $20,000 in a decade, which of the following would be the closest to its average annual growth rate?

7%

Which graph explains inflation: AD-SRAS or PWPF

AD-SRAS

According to the equations used in this section, what would be the impact of more education in a country?

A and Y would rise

do fiscal and monetary policy shift AD, SRAS, or both?

AD

What curves must you use if you are asked about what happens to the GDP deflator and real GDP?

AD and SRAS

We described the two most common causes of recessions in the years since the end of World War II in 1945. Which curve would be shifted as a result of these shocks?

AD and SRAS; The two most common causes of recessions in the postwar era (the period since the end of World War II in 1945) are oil shocks (which shift the SRAS curve) and monetary policy (which shifts the AD curve).

What describes how recessions occur in AD and SRAS graphs?

AD or SRAS quickly shifts left

Shift or movement: firms investing less due to higher interest rates

AD shifts left

What would happen if NX declined?

AD shifts left

What would happen if household disposable income rose?

AD shifts right

Carefully explain what might cause a movement up along the AD curve (i.e., not a shift in AD). What is happening to total spending when this is occurring? Be sure to include the relevant graph.

According to our graph an increase in prices in the economy would be due to the SRAS curve shifts either left or up. Total spending would decline when this occurs. As prices rise, real wealth declines and this leads to less consumption, which leads to less total spending. In addition, the prices of U.S. goods rise in comparison to foreign goods, so net exports decline. Finally, a prices rise, loan demand does too as good as more expensive and this leads to higher interest rates, so C and I decline. In short, as one moves up the AD curve total spending is declining.

Which of the following is not technology: workers attending a conference on using microsoft access, adding an improved latte machine, UPS adding more trucks, or finding a better way to serve customers

Adding more trucks - does not indicate the trucks are better

New symbols in this section include A, Y, L, pop, and combinations of them, like Y/pop and Y/L. As you know, they are interrelated. Which of the following is correct?

An increase in A indirectly affects Y/pop and indirectly affects Y/L.

For which of the following do we NOT use percentage change when calculating their values: inflation, CPI, or economic growth

CPI

How can the recent actions of the Fed be explained by their dual mandate for inflation and maximum employment?

Bringing interest rates back up to normal to ensure inflation rates do not increase too much

what does change in interest rate affect?

C and I

what would happen to consumption if disposable incomegrew?

C would rise

What is core CPI?

CPI for all goods and services excluding volatile compenents like food and energy

We use g = (final value/initial value) (1/(years between)) - 1 extensively. It can be applied to one or more of the following -- which one or ones?

CPI, GDP deflator, real GDP

Please briefly describe the four components or parts of Aggregate Demand (AD) and what we assume about their behavior.

Consumption (C) is spending by household in our model. It is influenced by disposable income (income - taxes + transfers), wealth, interest rates, and population. As any of these increase (except interest rates), consumption will grow. If interest rates grow, consumption falls. Investment (I) is spending on new capital goods by firms, the purchase of new homes and apartments, and additions to inventories by firms. As both taxes and interest rates rise, I declines. Government purchase (G) is when the government purchases a newly produced good or services. Note that changes in taxes (T) do not influence it. Next export is exports - imports (NX). As the value of the dollar versus foreign currencies falls or as foreign income rises, NX grows.

What is the relationship between GDP measured by production, GDP measured by expenditures, and Gross Domestic Income? Please explain.

GDP by production, GDP by expenditures, and Gross domestic income all equal each other. GDP for a nation is meausred by using the market value for final goods; that being said production is measuring the price the item is sold for. Expenditures, or spending, is what consumers must pay to obtain the good/service - which is going to be that same price because it is the market price. Gross domestic income is what someone earns from selling the good/service, not their profit. Therefore, the revenue they are receiving is going to be this same market price. Basically, they are all the same number since the GDP is based off of market price. The good/service is just being produced, bought, and sold for this value.

Which is least likely to fall in the recessions since 1970?

GDP deflator

In the year 2030 the base year for GDP changes to 2025. Which of the following would change in value?

GDP deflator and real GDP

Are government purchases part of government expenditures, or government expenditures part of purchases?

Government purchases are part of government expenditures

Which would you prefer if you were borrowing money to buy a car: high or low inflation. Assume that your nominal income rises at the rate of inflation.

Higher inflation - a car loan interest rate of 8% and inflation of 6% would mean 2% real interest rate

Using the AD‐SRAS graph, show how fiscal policy can be used to increase real GDP. Be sure to carefully explain your thinking and all shifts.

If G is increased, AD shifts right If taxes decreased, AD shifts right

Using AD‐SRAS, show how monetary policy can be used to increase real GDP. Be sure to use a graph in your answer and to explain all shifts.

If the Fed decreases interest rates, AD will shift right. Investment and consumption would increase; When AD shifts right, real GDP increases

In this section, how did we describe what influences investment (I) and net exports (NX)?

If the value of the US depreciates compared to foreign currency, then NX will increase, shifting AD right If interest rates decrease, investments increase, shifting AD right

We've done two graphs so far this semester. One was for long-run growth and one for aggregate supply and demand. How are the vertical and horizontal axes on these graphs different?

In the per-worker production function, we have Y/L (production per worker) on the vertical axis and K/L (capital per worker) on the horizontal axis. With AD and SRAS, we have P (all prices, or the price level, measured by the GDP deflator) on the vertical axis and Y (real GDP) on the horizontal one. With AD and SRAS, we interpret Y as both production (with SRAS) and spending (with AD).

If a country has a high GDP per capita, which of the following is most likely for that country?

K/L is high

Technology plays a role in both the AD-SRAS graph and the per-worker production function. Which of the following would NOT occur if human capital grew?

K/L would NOT grow; if humancapital improves/grows, there would still be same amount of capital but the workers' training, knowledge, and skills would improve their productivity, therefore Y/L would grow

If prices have been rising since the base year for GDP (which was years ago), which will be smaller: real or nominal GDP

real GDP

Say 50 years ago the CPI had a value of 70 and today's value is 260. Would (70/260)50 - 1 be the average rate of inflation over these years?

No; It would be (260/70)(1/50) - 1 (and note that you'd multiply by 100 to make it a percent).

Explain the concept of the real interest rate and carefully explain why someone should care about it.

Nominal - inflation = real interest rate Easier for someone to pay off a loan

Please briefly describe the following symbols or terms: P, I, costs to businesses, and the dollar appreciates.

P = price level, average prices in the economy I = investment - the purchase or production of capital goods, the production or purchase of new houses and apartments, and changes in inventories held by businesses Costs to businesses = cost of inputs - labor costs, energy costs, and the cost of capital

What would be the impact if it used to take $1.50 to buy one euro and it now took $1.75?

P and Y would rise

What would most likely happen to P and Y if transfers to households from the government increased?

P and Y would rise

Which of the following would occur if technology improved: the per-worker production function curve shifts up and the SRAS curve shifts right, the SRAS shifts right and the AD curve shifts right, or the AD curve shifts right and the per-worker production function curve shifts up

PPF shifts up and SRAS shifts right

If college and high school graduates have more skills than earlier graduates of years past, then the ___ .

PWPF shifts up

If you wanted to explain growth in real GDP per worker over decades, what graph would you use? Also, use this graph to show the impact of better technology.

PWPF; shifts up

Carefully explain how the computation of real GDP is different than the computation of nominal GDP.

Real GDP is computed by multiplying the current year quantity produced by base year prices (currently 2012). Nominal GDP is computed by multiplying current year quantity produced by current year prices.

At many points in your life, you'll take out a loan. Which matters most when you do so - the real or nominal interest rate on that loan? Why?

Real interest rate - inflation is taken into account More inflation = lower real interest rate = easier to pay off loan

what curve doe the increase in the price of oil shift?

SRAS

How are pollution and GDP related?

The value of produced goods that lead to pollution are counted in real GDP, pollution is not counted in real GDP

What do economists mean by the term money? That is, what functions or uses does money provide?

To economists, money has four functions: (i) Medium of exchange - we use it to make purchases. In everyday use, this means cash (currency) or a checking account (via a debit card or writing a check). (ii) Store of value - it is one of many ways to store our wealth. Other ways include real estate, houses, gold, stocks, and bond. (iii) Unit of account - we use it to price items. Recently, I purchased gas for about $2.60/gallon. (iv) Standard of deferred payment - we pay off our debts in the future with money. For example, if you have a student loan you're expected to use dollars in your payments.

True or false: In one of our charts we looked at the number of jobs in the economy every year since 1970. It shows that about 80 million jobs were created from 1970 to today. But, in reality, many more jobs were created.

True; creative destruction, as old jobs become obsolete new jobs take over. Millions of jobs are lost during expansion and millions more are created The charts look at the net growth

Why is unanticipated inflation harmful?

Unanticpated inflation is harmful because workers whose wages are not adjusted accordingly will experience severe loss. Even if they receive a 3% raise, if inflation for the year is 10% then they are at loss because their money has less purchasing power. Nominal - inflation = real wage, so in this case 7 - 10 = -3, you lose 3% of your salary. Their employer may think they are helping their employees, but due to unanticipated inflation they unfortunately are not.

You saw this type of calculation: price2000 = nominal price1995 • (CPI2000 / CPI1995). When is it used?

When putting a price from one year in terms of prices in another year.

If a country started to use markets, A would most likely ___. Why?

With the use of markets, firms are more likely to have an incentive to develop better capital and better ways of producing goods.

If A increased, which of the following would change: K/L or Y/L

Y/L

What would happen on the per-worker production function graph if A increased?

Y/L would increase

Consider the per-worker production function. On the vertical axis you'll find ___ and on the horizontal axis you'll find ___.

Y/L, K/L

What would change with the per-worker production function if firms added more capital of existing types?

Y/L, K/L

If there was deflation over a year in an expansion, which would grow the most over that year?

real GDP

WHat falls during a recession?

real GDP

Which would be the best example of an institution?

a country's legal system

Which of the following would NOT have a market value: a meal a mother made for her children, a new car purchased by a family, a crane bought by a construction company

a meal a mother made for her children

Which situation would cause the labor force participation rate to rise: 18 year old quits job and goes to college, someone is laid off and searches for a job, a retired person dies, someone is laid off and goes on vacation

a retired person dies

Which is the best example of capital: a family buying a newly produced home, a shoe store adding to its inventories, production and sale of a new delivery van for UPS, or a ship used to carry oil across the ocean

a ship used to carry oil across the ocean

Who of the following best meets our definition of being unemployed: a stay-at-home parent who just had a job interview after 10 years of not working, a person who quit working 3 years ago and hasn't searched for a job since then, someone who is working and has been searching for a new job for the past year

a stay-at-home parent who just had a job interview after 10 years of not working

Which of the following best explains the cause of recessions: workers decide that they want to work less so they quit, a sudden event reduces spending and production, the economy runs out of resources like capital and labor

a sudden event reduces spending and production

Which of the following is the best example of a capital good?

a tool used by Toyota to install tires on trucks they are assembling

Based on data since the end of the U.S Civil War in 1865, roughly how long does it take for U.S. real per capita GDP to double?

about 40 years

in years since WWII how long was the average recession?

about one year

Which of the following leads to diminishing returns: Adding existing types of capital, increases in the money supply, improving human capital, finding better ways to organize production

adding existing types of capital

Across the economy the following take place: (i) people have more education, (ii) firms add machines that are more efficient (iii) firms import ideas to run factories more efficiently. For how many of the above listed reasons does the curve in the per-worker production function shift up?

all 3

Transfer payments ___ counted in GDP. Also, they ___ a payment for a good or service the government received.

are not, are not

When was the most rapid growth in the CPI in the period since 1970?

at the start of the period

What is most likely to change in a recession: real or potential GDP?

real GDP

Currently, employment is ___ its peak value before the Covid Recession while real GDP is ___ its peak value before the Covid Recession

below, above

Which would not be an investment: baking company buying a new oven, a car dealership adding to the number of cars it has to sell to its customers, a completed home purchased by a household, or a household buying company stock

buying stock

What is a generator in a power plant that makes electricity an example of?

capital

what is a delivery truck owned by UPS an example of?

capital

In which economy would prices be the least important?

command economy

I came across a report that found that from 2010 to 2019 the real price of the average airline ticket fell by 8%. What does this mean?

compared to other consumer goods, flying became cheaper

Over the last year, which experienced the most inflation: consumers or the economy as a whole

consumers

Which of the following tends to be more stable from year to year: core or headline CPI

core

did covid or great recession see a greater decrease in employment?

covid

In the U.S., which type of unemployment varies the most from year to year?

cyclical

Which type of unemployment is most likely to change dramatically from one year to the next?

cyclical

Which of the following would be near zero when potential GDP equals real GDP?

cyclical unemployment

IS debt or deficit larger in the US?

debt

If you were using the AD and SRAS graph and oil prices rose, total spending would ___ due to a ___.

decrease, shift in the SRAS curve

Which real price calculation method is sure to directly include the base year value of a price index?

deflation

a severe recession

depression

the CPI goes from 260 to 266 to 268: is this considered inflation, deflation, or disinflation?

disinflation

One would ___ (add, subtract, multiply, divide) when you're converting a nominal price from one year to another.

divide

Which best describes Jay Powell's' approach to monetary policy in his first term as chair of the Fed?

dovish

In our recent graphs, we have P on the vertical axis and Y on the horizontal axis. In an expansion with deflation, the economy would be moving ___ .

down and to the right

If a country was experiencing deflation, then its plot of the GDP deflator would be ___ and the rate of inflation would be ___.

downward sloping, negative

In the years since 1970, which is longer in the U.S.: recessions or expansions

expansions

A report on GDP says that income fell. Then spending measured by GDP __.

must have fallen

true or false: As this question is being written, Congress is considering increasing transfer payments to help speed economic growth as the economy climbs out of the Covid Recession. This would be an example of the dual mandate being used.

false; dual mandate is part of monetary policy (carried out by the Fed). the dual mandate is maximum employment and stable prices

True or false: capital is used up in production

false; that is intermediate goods

the total amount that the government has borrowed. Thus, it is the accumulated deficits

federal debt

federal expenditures (all the checks that the federal government writes; this is for both for transfers and for purchases) - federal taxes

federal deficit

If the inflation rate was 2% and the dollars people earned at work was unchanged, then real wages ___.

fell

What would be the best explanation if you saw that prices in the economy fell while total spending increased?

firms become more efficient

Is the federal budget (where money is spent, what is taxed) part of fiscal or monetary policy?

fiscal

Is the government raising taxes fiscal or monetary policy?

fiscal

What is the CARES act an example of?

fiscal policy

what is federal debt created by?

fiscal policy

Which type of unemployment would a person be experiencing if they quit their job due to a dispute with their boss and began searching for a new one?

frictional

If a technological advance made it easier to match potential employees with employers, we most likely would see less ___ unemployment and the natural rate of unemployment would ___.

frictional, fall

If someone moved with their spouse and was looking for a new job they would be considered ___ unemployed.

frictionally

If the core CPI was increasing faster than the headline (or regular) CPI, then what is most likely happening?

gas prices are falling

The government budget deficit will most likely ___ if fiscal policy is being used to help the economy grow.

grow

Which two are most likely to go together? ___ inflation and ___ in the GDP deflator. (high, low, large decreases, large increases)

high, large increases

Economic growth is likely to be ___ hindered, strengthened) if the government fixed or set the price of important goods to make them affordable for consumers.

hindered

Why is the AD curve downward sloping?

household real wealth declines

Labor productivity is described as:

how much one worker can produce

Human health generally ___ as economies grow.

improves

What is happening to inventories if final sales equals GDP by production?

inventories are constant

For this question, say that over 20 years you see an economy with the fraction of the population working increasing from 45% to 55%, prices growing by 1.5% a year, total factor productivity (TFP, which measures A in the per-worker production function) grew from 2,000 to 3,000, and the average amount of capital each worker has grew from $50,000 to $75,000. What likely happened to real per capita GDP over these years?

it grew

What is true about potential GDP and unemployment if the economy has been in an expansion for 5 years?

it is unlikely the economy is below potential GDP or above natural rate of unemployment

how was the covid recession unusual?

it was short and deep

If the President and Congress made decisions that increase the federal budget deficit, how will GDP growth change?

it will grow more quickly; taxes will fall or expenditures will increase, allowing households and firms to spend more

If CPI is growing 8% per year what will the Fed do?

it will riase interest rates

If the population of a country grew while the number of workers stayed the same, what would happen to real per capita GDP?

it would fall

What would happen to the GDP deflator if over ten years nominal GDP tripled in size and real GDP doubled in size?

it would grow

Which of the following would you most likely see in citizens' health when a country's real per capita GDP grows?

it would likely improve

For the sake of this question, let's assume that the economy has just come out of a severe recession and growth is booming. The labor force grows as many who thought that they could not find a job during the recession now think that they can and have started to look. But, these workers do not find a job this month. What do you think would happen to the labor force this month?

it would rise

What would happen to the labor force if a person who retired two years ago started to look for a job?

it would rise

What would most likely happen to potential GDP if structural unemployment was eliminated?

it would rise

What would most likely happen to potential GDP over a 10-year long expansion?

it would rise

What would happen to the labor force participation rate if someone quit their job and immediately started to look for a new one?

it would stay the same

Which of the following is the most remarkable element of the Chinese economy?

its growth rate

When we calculate the usual unemployment rate, the denominator would not include which of the following?

jobless people who have not searched for ajob

Who of the following individuals would be least likely to be in the labor force: person who interviewed yesterday, jobless person who searched 2 years ago, new grad who attended a job fair

jobless person who has not searched for a job in two years

President Biden would like to ___ (keep, reduce) the independence of the Fed.

keep

In which direction would we be moving on the AD-SRAS graph if there was a recession?

left

If the CPI was improved to remove its known inaccuracies, the reported rate would be ___.

lower

Which of the following is an example of an intermediate good: a drill used by a carpenter, a computer owned by amazon that processes orders, lumber used in the construction of homes, a delivery truck owned by FedEx

lumber used in the construction of homes

Which of the following would be the best example of a final good or service: flour used to make pizza, machine purchased to build cars, jet fuel used, meal a family makes

machine used to build cars

If A rose and K/L declined, then Y/L would ___.

might rise or fall

What would happen to the AD curve if wealth rose while transfer payments received by households fell?

might shift right or left

is the current value of real GDP more or less than 18 trillion?

more

If the President and Congress make decisions that decrease the budget deficit, GDP will most likely grow ___.

more slowly

For the U.S., which matters more for its long-run growth: increase money supply, more K/L, more technology

more technology

How do K and L directly affect SRAS? Be sure to use a graph in your explanation.

more/better K shifts SRAS right More L shifts SRAS right

shift or movement: prices fall and total spending rises

movement down AD

shift or movement: firms produce more due to a higher prices for produced goods

movement up SRAS

If you computed nominal GDP every year over a decade, which is fixed or held constant over these years?

neither prices nor quantities

Are items produced a few years ago and resold to a new owner counted in this year's GDP?

no

Are transfer counted in GDP?

no

Could you compute the percentage change in someone's real wage if you were given the current CPI and the percentage change in their nominal wage?

no

Does the calculation of GDP include the value of time off of work or in retirement by households?

no

If the U.S. GDP deflator's base year changed from 2012 to 2020, would nominal GDP in 2021 change?

no

There are a number of factors that shift the aggregate demand (AD) and short run aggregate supply (SRAS) curves. Can a shift in the SRAS curve shift the AD curve?

no

For the sake of this question, say that total inventories in the U.S. was $1 trillion in one year and then $1 trillion the next year. Would there be any inventory investment?

no, inventory did not change

Is this the correct definition of GDP when measured by production? "GDP for a nation's economy is all goods and services produced domestically in a year."

no; "GDP for a nation's economy is all *final goods and services produced domestically in a year *measured by their market value."

In a problem you're computing labor productivity (also known as worker productivity) for Germany. in U.S. dollars. They are very prosperous, like the U.S. The number you come up with is $900,000. Is this a reasonable value?

no; in US it is $132,200

What kind of interest rate are you most likely to see when you sign a loan contract: nominal or real

nominal

WHich has the largest value in the US: real GDP, nominal GDP, GDP deflator

nominal GDP

If from this year to the next year, the amount produced in the US was constant but prices rose, what would likely follow?

nominal GDP and GDP deflator would grow

When we calculate the usual unemployment rate, the numerator has ___.

number of unemployed people

In class we described two common causes of recessions since World War II. Explain how either of these can cause a recession using our static version of AD and SRAS.

oil and monetary shock

What would NOT be measured in terms of dollars (i.e. would NOT have a dollar sign in front)?

price index

What do you need to calculate GDP?

prices and quantities of produced goods and services

If the GDP deflator had a value of 200, you could be sure that ___

prices have doubled since the base year

Which of the following would be correct if a report said that the CPI increased by 2% over the last year?

prices increased

GDP has various shortcomings in measuring well-being. Which of the following is not one of these; Production of intermediate goods, value of leisure, harm from pollution, crime and other societal problems

production of intermediate goods

Which of the following would not be in real GDP when measured by production: a car produced and sold in NYC, government purchasing a new truck, a pencil manufactured in the US and sold in Japan, production of steel that is in turn used to make a car

production of steal that is in turn used to make a car

what matters most for economic growth over centuries?

productivity of workers

Which of the following items would be in GDP: value of pollution, company building used for decades, purchasing tax advice from an accountant, person cleaning their clothes

purchase tax advice from an accountant

If the rule of law improved in a country, K would most likely ___

rise

Say that after graduation you live in Manhattan and you walk to work. Then, you got a raise and you take a taxi most days. As a result, GDP would most likely ___.

rise

Since 1970, U.S. real GDP has generally __. This is most likely due to ___.

risen, more production

Since 1970, real GDP ___ in most years.

rose

Which is least likely to be an investment: household buying a new home, saving money for retirement, GM building a new factory, a car dealer adding to its cars on hand

saving money for retirement

What does the federal government do when they have a deficit?

sell bonds to the public

Who of the following individuals would be most likely to be in the labor force: unemployed grad living at home, stay at home parent, just started new job, jobless quit looking two years ago

someone who just started a new job

Who of the following would be counted in the numerator of the U-6 measure of unemployment but not the numerator of the U-3 measure: someone who has been working every month for the past 3 years, someone who quit searching for a job 2 months ago to take care of their children, a person who is not working but has been searching for a job every month for the last year, or a person who retired a decade ago and has not worked since

someone who quit searching for a job 2 months ago to take care of their children

If an unemployed person was searching for a job and they start work at a new job, the labor force participation rate would ___.

stay the same

If economic growth was zero-sum, real GDP per person would ___ as economies grow

stay the same

If someone is laid off from their job and is searching for a new job, the labor force participation rate will ___

stay the same

Someone would use ___ (addition, subtraction) when they have the rate of inflation and want to compute ___ (real, nominal) prices.

subtraction, real

What would be the best explanation if you saw an economy with rising prices and rising real GDP?

taxes fell, interest rates fell, G increases

You hear about an economy with no change in the number of workers or capital. Yet, production increases. What idea does this illustrate?

technology

what captures what happens when there is an increase in production per worker when there is no change in how much capital each worker has.

technology

What would be the best explanation if you saw an economy with falling prices and rising real GDP?

technology increased

What is meant by "labor market churn?"

that millions of jobs are created and destroyed every year

Why is the current value of the GDP deflator so much smaller than the current value of the CPI?

the CPI's base year was years before the GDP deflator's base year

Based on what happened in the years since the end of World War II (1945), which is most likely to lead to a recession?

the Fed raising interest rates

what will cause potential GDP to decline?

the amount of capital shrinks, the number of potential workers shrinks

Which of the following items would NOT be in U.S. GDP this quarter: dress produced and sold, crane produced and sold two years ago then resold this year, plane produced and sold to europe, purchase new home

the crane that was resold

Consider the per-worker production function. If technological change occurs (measured by an increase in total factor productivity), then ___

the curve shifts up

Which of the following would most likely occur if fiscal policy was used to stimulate the economy?

the government sells Treasury bonds and taxes are raised

If federal expenditures suddenly increased (say to fight a pandemic), which is most likely to happen?

the government will borrow more

Which of the following would occur if all prices in the CPI were rising at 2% and then suddenly gasoline prices doubled?

the headline inflation rate would be more than the core inflation rate

Which of the following rose most consistently in the years since 1970: unemployed, labor force, employed

the labor force

Which of the following falls the most in a recession? The: number employed, unemployed, labor force, unemployment rate

the number employed

Say that you wanted to compute the market basket in each of 1990, 2000, 2010, 2019, and 2020. when you compare your calculations, what is kept constant over these years?

the number of goods in the market basket

What was disappointing about the latest jobs report?

the number of jobs created by employers was below expectations

Which of the equations used in this section would be affected first if technology in a country improved? real per capita or labor productivity

the one describing labor productivity

If a house owner painted their own house, what part of this activity would be in GDP?

the paint and supplies the homeowner purchased

True or false: A basic difference between a capital good and an intermediate good is that an intermediate good is used up or transformed in the production process while a capital good is not.

true

Say that you calculated a country's CPI in 2021 when their base year was 2010. Then, the base year is changed to 2020. What would change in your calculation?

the prices in the denominator

Which of the following would be the best example of "markets allocating resources?": property rights become part of the law in a country, institutions improve in a country, the prices of new houses rise and more choose to work in construction profits provide a strong incentive for innovation

the prices of new houses rise and more choose to work in construction

how would capital show up in GDP?

the production of capital is counted in GDP

If real GDP doubled in 10 years then you know that ___.

the rate of economic growth is 7%

What would happen if the U.S. CPI was corrected for its inaccuracies?

the rate of inflation would be lower

Assume that there were 100 million in the labor force and 5 million people without work were searching for a job. Then, another 1 million start searching for a job who had not been employed or searching before. What would then happen?

the unemployment rate would rise and the labor force would rise

Which of the following is the best reason for the difference in economic growth between North and South Korea?

the use of markets

If nominal GDP is growing quicker than real GDP, what is most likely?

there are rising prices

Ten years after the base year, a country's nominal GDP is less than its real GDP. What must be the case?

there was deflation

Why did growth in the former Soviet Union decline before its collapse in 1991?

there was little incentive to innovate

Which is largest in an advanced economy like the U.S: GDP by production, spending, or income

they are all equal

Some years ago, a nationally known figure said the following (I put comment in brackets to clarify two parts): "...that although the government reported that there were 120,000 new jobs created in November, the 8.6 percent figure [unemployment rate] ignores the fact that 315,000 people left the workforce [we call it the labor force] entirely. Given that almost three times the number of people left the workforce than actually got jobs, it is impossible, ... for unemployment to have dropped by almost a half a percentage point." Is this person correct? That is, it is impossible for the unemployment rate to have dropped when people leave the labor force.

they are not correct

If all else remains the same and the demand for bonds rise, what will happen to interest rates?

they will fall

When do you need to compute the market basket?

to find CPI

WHat are unemployment payments an example of?

transfer payments