Econ 201 Exam 2 - Ken Baker

Which of the following shows the stages of the business cycle in correct order?

peak,contraction,trough,expansion

Confirm your answer above. What is the new total revenue per week from Oreo sales?

$810 per week

What is the cost of the market basket in 2001?

$1,050

What is the cost of the market basket in 2002?

$1,060

Hoorah! In 2020, after graduation, you land your first professional job as a law clerk, running errands, making copies and getting coffee for the higher ups. Your salary is $35,000 per year. By the year 2040 you have made senior partner in the law firm, earning an annual salary of $100,000. The CPI in 2020 is 210. The CPI in year 2040 is 650. Use that information to answer the next few questions (144 - 147). What is your 2020 salary expressed in 2040 dollars?

$108,333

What was total consumer spending?

$11,500

What was Econlandia's official GDP for 2018?

$15,500

What was the real GDP in 1997?

$18,300

What is the nominal GDP in 1998?

$19,170

What was total government spending?

$2,000

What was total investment spending?

$2,400

Hoorah! In 2020, after graduation, you land your first professional job as a law clerk, running errands, making copies and getting coffee for the higher ups. Your salary is $35,000 per year. By the year 2040 you have made senior partner in the law firm, earning an annual salary of $100,000. The CPI in 2020 is 210. The CPI in year 2040 is 650. Use that information to answer the next few questions (144 - 147). What is your 2040 salary expressed in 2015 dollars?

$32,308

Use the following information to answer the next several questions (34-38). You work at Granny Grieves, a local campus grocery. The manager wants to raise the price of a box of Oreo Cookies from $5 to $6 (a 20% price increase). At the old price ($5), you sold 150 boxes per week. From past data, you have estimated the elasticity or demand for a box of Oreos to be 0.5. Use the official formula in your calculation for #35. What was your original revenue per week from sales of Oreos (when you charged $5)?

$750 per week

What is the cost of the market basket in 2000?

$940

What was net exports?

-$400

Which of the following is true about market failure?

-For various reasons, sometimes markets, on their own, cannot find the socially efficient level of quantity (Q*) -It is extremely difficult to provide some goods that people value because of their nature, it is hard to collect money from everyone who uses it -Sometimes, the behavior of market participants affects parties not involved in the market -Market failure and government attempts to help are generally controversial topics

Consider the potential level of real GDP for an economy (Ŷ). Graphically, it ________

-Is vertical -Does not depend on the general price level

What does the term 'full-employment' mean?

-It means that cyclical unemployment is 0, but we still have frictional and structural -It means that the country is currently producing as many goods and services as it sustainably can

Label curve 3:

-Long-run aggregate supply -Potential GDP

in order for the market to correctly do its job, what conditions must be present?

-Many buyers must simultaneously be competing against one another for the order for the market to correctly do its job, what conditions must be present? resource/good/service -Many sellers must simultaneously be competing against one another to provide/sell the resource/good/service -The price found by the market accurately represent the social value of the resource/good/service -The quantity found by the market accurately represents the amount desired by society -Everyone impacted by the production/distribution/consumption of the resource/good/service is represented in the market

When we say that U.S. GDP was roughly $20 trillion for 2018, what does that even mean?

-The U.S. created $20 trillion in new economic value for the year -The U.S. produced and sold $20 trillion in new goods and services for the year -The U.S. (as a whole) earned $20 trillion for the year

The Long-Run Aggregate Supply curve (LRAS) is also known as ______

-potential GDP -the full-employment level of output

Suppose that a farmer can produce both corn and wheat. If she must give up 20 bushels of corn to grow 5 bushels of wheat, then what is her opportunity cost of 1 bushel of corn? Of 1 bushel of wheat?

1 bushel of corn costs 1⁄4 bushels of wheat; 1 bushel of wheat costs 4 bushels of corn

What was the rate of inflation for 2002?

1.0%

What was the rate of inflation (approximately) from 1996 - 1997?

1.5%

What was the rate of inflation (as measured by the GDP Chain Price Index) for 2013?

1.8%

What was the rate of inflation (as measured by the GDP Chain Price Index) for 2014?

1.9%

What are the values of the GDP chain price index for the years 1995 - 1998?

100, 100.9, 102.4, 104.8

What was the rate of inflation for 2001?

11.7%

How many boxes of Oreos do you predict you will sell per week after the price increase?

135

If a good has a price elasticity of demand of 3, this means that if price changed by 6%, quantity demanded would change by _____

18%

In what year are nominal and real GDP equal?

1995

In what year did real GDP NOT grow?

1997 - 1998

How many measures of GDP are there?

2 - Nominal GDP and Real GDP

How much did the real U.S. economy grow for the year 2012?

2.25%

What was the rate of inflation (approximately) from 1997 - 1998?

2.3%

What is the elasticity of demand between a price of $70 and $80?

2.45

How much did the real U.S. economy grow for the year 2014?

2.5%

Which of the following time periods depict one full business cycle?

2004 through 2010

Which year(s) would you label as 'Peak' years?

2004, 2010 and 2017

Which year(s) would you label as 'Troughs'?

2006 and 2012

What year is the Base Year?

2012

Hoorah! In 2020, after graduation, you land your first professional job as a law clerk, running errands, making copies and getting coffee for the higher ups. Your salary is $35,000 per year. By the year 2040 you have made senior partner in the law firm, earning an annual salary of $100,000. The CPI in 2020 is 210. The CPI in year 2040 is 650. Use that information to answer the next few questions (144 - 147). In terms of purchasing power, when were you better off?

2020

If a good has a price elasticity of demand of 0.5, this means that if price changed by 6%, quantity demanded would change by ______

3%

What is the elasticity of demand between a price of $90 and $100?

3.17

What was the rate of inflation for 2000?

3.3%

Riverdale is a small town with a total civilian population of 800. Of this population, 125 are under the age of 16. Of the population 16 and over, there are 350 working full-time and another 50 working part-time. Of the remaining adult population, 30 people recently quit their jobs in order to look for better employment. Finally, there are 30 full-time students (not working), 200 retired and another 15 stay-at-home spouses. The size of the labor force is ______ and the BLS would officially count ____ as unemployed

430; 30

Your brother-in-law Wayne wishes to borrow $500 for one year. You anticipate the rate of inflation for the year to be 3%. You would like to earn a real return of 4%. How much should you charge him?

7%

Riverdale is a small town with a total civilian population of 800. Of this population, 125 are under the age of 16. Of the population 16 and over, there are 350 working full-time and another 50 working part-time. Of the remaining adult population, 30 people recently quit their jobs in order to look for better employment. Finally, there are 30 full-time students (not working), 200 retired and another 15 stay-at-home spouses. The unemployment rate is _____ and the labor force participation rate is _______

7.0%; 63.7%

Using 2000 as the base year, what are the values of the CPI in 1999, 2000, 2001 and 2002?

96.8,100,111.7,112.8

What is the GDP Chain Price Index for the years 2011 - 2014?

98.1, 100, 101,8, 103.7

Why can't normal, private businesses provide public goods?

Because of the properties of public goods, private businesses can't stop those who don't pay from enjoying their use

For the next five questions, use the following information. Suppose that Spain and France produce both computers and cell phones. In one month, France can produce 20 thousand computers or 50 thousand cell phones, or some combination. In one month, Spain can produce 30 thousand computers or 30 thousand cell phones, or some combination. Given your previous four answers, what can we say about trade between Spain and France?

Both Spain and France can gain from trade if Spain specializes in computers while France specializes in cell phones

Which government organization is in charge of calculating and reporting the consumer price index?

Bureau of Labor Statistics

Suppose that given their available resources and level of technology, Chile can produce more cheese than Argentina (that is, Chile has an absolute advantage in cheese production). Given that information it must mean that ____________

Chile can produce more cheese than Argentina

Suppose that the natural rate of unemployment is estimated to be 5.5%. Suppose further that the actual unemployment rate is 6.5%. Which of the following statements must be true?

Cyclical unemployment is 1%.

How would we term what happened to prices for the economy in 2002?

Disinflation

What is the official formula for the price elasticity of demand?

Ed = %ΔQd / %ΔP

What is the midpoint formula for the price elasticity of demand?

Ed = [ΔQd / avg Qd] / [ΔP / avg P]

Consider Australia. About 30% of Australia's exports go to China (or China buys 30% ofAustralia's exports). The Chinese economy has been significantly slowing recently. Use that information for the next two questions. How might this impact Australia's overall economy (GDP, unemployment and prices)?

Fall in GDP, rise in unemployment, fall in overall prices

Use the following scenario to answer the next five questions (171-175). Suppose that the economies of several large U.S. trading partners experience a significant slowdown. Suppose further that up until then, the U.S. was operating at its potential level of output, with unemployment equal to the natural rate. Eventually, what do we expect will happen to the economy over the long run (if we allow it to self-stabilize)?

Fall in the price level; output and unemployment return to the original values

In Theory, when is it typically harder to find a job - when the unemployment rate is high or low?

Finding a job is easier when the unemployment rate is low

Wrigley Field is a historic baseball park in Chicago where the Cubs play. It is also pretty well known for its nearby apartments, where people can gather on the rooftops and watch the live game for free. What is this problem known as?

Free-rider problem

In what years did contractions occur?

From 2004 through 2006 and from 2010 through 2012

In what years did expansions occur?

From 2006 through 2010 and from 2012 through 2017

When policy-makers and news organization talk about "the economy" or "the size of the economy", what are they generally referring to?

GDP - Gross Domestic Product

Suppose that at the end of the year, Ken's Kars has 10 new Ford cars left on the lot that went unsold. Each car has a price of $15,000. How does this affect GDP, and through which component?

GDP increases by $150,000; it shows up in the Investment component

There is some debate over how the AS behaves. Graphically, the Keynesian AS curve is _________ and seems to do a better job of explaining supply behavior when real GDP is _______ the potential level of GDP

Horizontal; below

Consider the following actions for the next two questions. I) The government decreases tax rates II) There is a fall in nominal interest rates III) There is rising consumer confidence IV) The government reduces its spending on U.S. goods and services V) There is a fall in foreign wealth VI) The Federal Reserve increases the money supply VII) There is a fall in consumer wealth Which of the above would cause an increase in Aggregate Demand?

I, II, III and VI

Consider the following events: I) There is an increase in the productivity of labor II) There is a decrease in the labor force participation rate III) There is an increase in government spending on U.S. goods/services IV) There is an increase in the nation's stock of physical capital V) Unrest in the Middle East causes a disruption in the supply of oil to the U.S. VI) There is an advance in technology of production Which of the above events would cause an increase in the aggregate supply?

I, IV and VI

Consider the following events: I) There is an increase in the productivity of labor II) There is a decrease in the labor force participation rate III) There is an increase in government spending on U.S. goods/services IV) There is an increase in the nation's stock of physical capital V) Unrest in the Middle East causes a disruption in the supply of oil to the U.S. VI) There is an advance in technology of production Which of the above events would cause an increase in the potential level of real GDP?

I, IV and VI

Consider the following statements: I) The economy is at long-run macroeconomic equilibrium II) The economy is operating at its potential (or full-employment) level III) The unemployment rate is higher than the natural rate IV) The unemployment rate is lower than the natural rate V) The current unemployment rate is equal to the natural rate VI) Real output is equal to the potential level of output VII) Real output is less than the potential level of output VIII) Real output is higher than the potential level of output Given the graph above, which of the statements above is TRUE?

III and VII

Consider the following actions for the next two questions. I) The government decreases tax rates II) There is a fall in nominal interest rates III) There is rising consumer confidence IV) The government reduces its spending on U.S. goods and services V) There is a fall in foreign wealth VI) The Federal Reserve increases the money supply VII) There is a fall in consumer wealth Which of the above would cause a decrease in Aggregate Demand?

IV, V and VII

What would be one economic method the government can use to fix the situation?

Impose a tax on gas stations to force them to pay for the pollution generated, and impose some regulations on underground storage tanks requiring them to fix and monitor all tanks

For the next five questions, use the following information. Suppose that Spain and France produce both computers and cell phones. In one month, France can produce 20 thousand computers or 50 thousand cell phones, or some combination. In one month, Spain can produce 30 thousand computers or 30 thousand cell phones, or some combination. What is opportunity cost of computers in Spain? What is the opportunity cost of computers in France?

In Spain, one computer costs 1 phone; In France one computer costs 5/2 (2 and 1⁄2) phones

For the next five questions, use the following information. Suppose that Spain and France produce both computers and cell phones. In one month, France can produce 20 thousand computers or 50 thousand cell phones, or some combination. In one month, Spain can produce 30 thousand computers or 30 thousand cell phones, or some combination. What is the opportunity cost of cell phones in Spain? What is the opportunity cost of cell phones in France?

In Spain, one phone costs 1 computer; in France one phone costs 2/5 computers

Suppose that the inflation rate, as calculated by the CPI, is reported to be 5% from year 1 to year 2. Use that information to answer the next two questions. It is generally agreed that because of the way that the CPI is constructed, it may"overstate" the true effects of inflation. What does this mean?

In actuality, the purchasing power of the dollar probably fell by slightly less than 5%

Use the following scenario to answer the next five questions (171-175). Suppose that the economies of several large U.S. trading partners experience a significant slowdown. Suppose further that up until then, the U.S. was operating at its potential level of output, with unemployment equal to the natural rate. Which way should the curve you mentioned above shift?

Increase - shift right

Most economists use a 'hybrid' or compromise version of the AS (between the Keynesianand Classical versions). Graphically, this supply curve (AS)

Is (more or less) upward sloping

Suppose that Domenic Toretto buys 4 used tires for $250 at the tire store for his Dodge Charger. How does this affect GDP?

It has no effect on GDP because the transaction is not counted

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

Kingston Pike

how would most economists characterize markets and the free market system?

Markets do a spectacular job of efficiently organizing economic activity for the majority of goods, services and inputs desired by a society, but not all

Hooray! You just landed a job earning $30,000. You spend all your money on comic books, which cost $5 each. What is your money (nominal) wage? What is your real wage?

Money wage is $30,000; real wage is 6,000 comic books

Consider the coal market for the next several questions. Coal mining companies mine, producedand sell coal to the buyers, electric companies. Let's say that a mining company extracts 2,000tons of coal per day. In order to do this, it ONLY pays for both its workers and the equipment it uses. However, to extract the coal, the mining company also leaves giant, barren holes in the mountain that need to be replanted with trees. Replanting trees cost $10 per ton of coal. Also, when electric companies burn the coal to produce electricity, it pollutes the air, leading to numerous health problems. Placing pollution control devices on the electric plants would cost $15 per ton of coal. What is the economic problem caused by the mining and burning of coal?

Negative externalities

This type of problem is known as (a) _____

Negative externality

What is the difference between nominal and real GDP?

Nominal GDP is affected by price changes while real GDP is not

Suppose an economy experienced deflation for the year. When thinking about the general prices of all things, what does this mean?

On the whole, prices actually went down (things became cheaper compared to last year)

Suppose an economy experienced inflation for the year. When thinking about the general prices of all things, what does this mean?

On the whole, prices for everyday consumer items became more expensive than last year

Suppose an economy experienced hyperinflation for the year. When thinking about the general prices of all things, what does this mean?

On the whole, prices for everyday consumer items became much more expensive than last year

Suppose an economy experienced disinflation for the year. When thinking about the general prices of all things, what does this mean?

On the whole, prices went up (things became more expensive), but not by as much as last year

So, how would you characterize the current U.S. labor market? What is the job market like? Consider important indicators like the unemployment rate, the labor force participation rate, and the monthly number of new hires.

Overall, it looks pretty good. The unemployment rate is near historic lows and the labor force participation rate appears to be stabilizing. Monthly new hires was positive, a bit higher than average.

If the market were left alone, what would be the equilibrium price (P*) and quantity (Q*) of gasoline?

P* is $2.50; Q* is 380 million gallons per day

Great! Now what does that mean in English?

The mining company and the electric company do NOT account for tree planting and pollution control in their decision, and too much coal is mined and burned

Suppose that the production of a good generates a negative impact upon third parties. If the market does NOT take these negative consequences into account, then what is the expected market price and quantity?

Price will be lower and quantity higher than the efficient price and quantity

When we say that the economy is "overheating", what does that generally mean?

Real GDP is rising faster than the potential rate

Consider Australia. About 30% of Australia's exports go to China (or China buys 30% ofAustralia's exports). The Chinese economy has been significantly slowing recently. Use that information for the next two questions. Thinking about Australia, which curve would this shift and in which direction?

Shift AD to the left

For the next five questions, use the following information. Suppose that Spain and France produce both computers and cell phones. In one month, France can produce 20 thousand computers or 50 thousand cell phones, or some combination. In one month, Spain can produce 30 thousand computers or 30 thousand cell phones, or some combination. What is true about absolute advantage (AA)?

Spain has the AA in computers while France has the AA in cell phones.

For the next five questions, use the following information. Suppose that Spain and France produce both computers and cell phones. In one month, France can produce 20 thousand computers or 50 thousand cell phones, or some combination. In one month, Spain can produce 30 thousand computers or 30 thousand cell phones, or some combination. Given your previous two answers, what is true about comparative advantage (CA)?

Spain has the CA in computers while France has the CA in phones

Which of the following is not an example of market failure discussed in class?

When the market price of a new car is more than you can afford

In 2008, there were roughly 80,000 Americans working in the coal mining industry. Ten years later, 2018, there are now roughly 50,000. Although environmental regulations are usually blamed for the loss of 30,000 jobs, in reality the vast majority were lost due to technology and automation of the coal mines, and in addition, alternate forms of energy became significantly cheaper, reducing the demand for coal. We would say these 30,000 people became _______

Structurally unemployed

Given your answer above, what would happen in the market for gasoline?

Supply of gasoline decreases, price of gas rises and less is produced and used

Use the following scenario to answer the next five questions (171-175). Suppose that the economies of several large U.S. trading partners experience a significant slowdown. Suppose further that up until then, the U.S. was operating at its potential level of output, with unemployment equal to the natural rate. How would we model the event above?

The AD curve would decrease - shift left

What are the two main measures of inflation used in the U.S.?

The Consumer Price Index and the GDP chain price index

Use the following scenario to answer the next five questions (171-175). Suppose that the economies of several large U.S. trading partners experience a significant slowdown. Suppose further that up until then, the U.S. was operating at its potential level of output, with unemployment equal to the natural rate. The economy is thought to be able to 'self-stabilize' in the long run. That is, theeconomy can, on its own, return back to Long-Run Macroeconomic Equilibrium. Which curve accomplishes this?

The Short-Run Aggregate Supply curve

What are the total costs of mining and burning coal?

The cost of the labor, the equipment, tree replanting, and installing pollution control devices

Given your answer above, what can we say about the market price and quantity of gasoline?

The current market price is too low, and gas should be priced higher and too much gas is produced and bought, and Q* should be less than what it is

What are the private costs of mining and burning coal?

The labor and equipment costs to the mining company

Suppose that the inflation rate, as calculated by the CPI, is reported to be 5% from year 1 to year 2. Use that information to answer the next two questions. In theory, what does this information mean?

The purchasing power of the dollar has fallen by 5%

Which of the statements regarding market failure would most economics agree on?

There are failures in almost every single market. The questions (and debates) revolve around how serious the failures are and whether (and to what extent) government action is necessary

Mr. Smith buys a used American-made widget for his house. How does this transaction affect U.S. GDP?

This transaction would not affect U.S. GDP.

Consider the following events: I) There is an increase in the productivity of labor II) There is an increase in the labor force participation rate III) There is an increase in the supply of labor IV) There is an advance in the technology of production V) There is an increase in the nation's amount of human capital VI) Unrest in the Middle East causes a disruption in the supply of oil to the U.S. Which of the above events would cause a decrease in potential GDP?

VI only

There is some debate over how the AS behaves. Graphically, the Classical AS curve is _________ and seems to do a better job of explaining supply behavior when real GDP is _______ the potential level of GDP

Vertical; at (or near)

Which of the following is the best example of a negative externality?

When a person next you is smoking, which makes you cough

If the United States and Peru only made shoes, the U.S. could make more per month. If the U.S. and Peru only made computers, the U.S. could make more per month. Should the U.S. still trade with Peru?

Yes. Even though the US can make more of both goods, Peru can make one of them cheaper. This makes both countries better off from trade.

Hooray (again!) It is 10 years later, and now your salary is $35,000, and comic books are now $6. What has happened to your money (nominal) wage and your real wage?

Your money wage has increased, but your real wage has decreased

To say that demand for a good is elastic, it means that

a 1% rise in price results in a drop in quantity demanded by more than 1%.

If demand for a good or service is elastic, then an increase in price will lead to _____

a decrease in revenue because the increase in price will be outweighed by the loss in quantity demand.

supply and demand is ____

a model that is a simplification of the real world, and a two-dimensional simplistic representation of how consumers and businesses behave

If demand for a good or service is inelastic, then an increase in price will lead to _____

an increase in revenue because the increase in price will outweigh the loss in quantity demand

If demand for a good or service is elastic, then a decrease in price will lead to _____

an increase in revenue because the increase in quantity demanded will outweigh the decrease in price

Label curve 1:

aggregate demand

The real balances effect, the interest-rate effect and the net export effect all explain why

aggregate demand is downward sloping

What agency is in charge of calculating/reporting the U.S. GDP?

bureau of economic analysis

Which government agency is in charge of calculating and reporting the nation'sunemployment figures?

bureau of labor statistics

If the general price level of new goods and services falls from year 1 to year 2 while thequantity of goods and services produced rises, what happens to nominal and real GDP?

change in nominal GDP cannot be determined; real GDP will rise

Continue with the example above. Suppose that the expected price of corn next year is $150 per ton, while the expected wholesale price of wheat is expected to be $300 per ton. In that case, she should produce ______

corn

The actual rate of unemployment is equal to _____

cyclical plus frictional plus structural unemployment

When someone becomes unemployed because of a slowdown in the growth of real GDP, we say in general that the person is ______

cyclicallyunemployed

Use the following scenario to answer the next five questions (171-175). Suppose that the economies of several large U.S. trading partners experience a significant slowdown. Suppose further that up until then, the U.S. was operating at its potential level of output, with unemployment equal to the natural rate. How would we expect this to affect our economy in the short-run?

fall in the general price level; fall in real output; rise in unemployment

Hooray! Judy just gave birth to her first child. As a result, she is currently taking maternity leave from her corporate sales job and will return in 3 months. During this time, Judy is ____

employed

Suppose that buyers and sellers make up a market, and through their actions of supply and demand, they determine the price and quantity of a good/product. However, also suppose that others not involved (third parties) are affected by the buyers and sellers actions. What type of market failure do we call this?

externalities

The natural rate of unemployment is equal to _____

frictional plus structural unemployment

Suppose that John Doe quits his job and becomes unemployed while he looks for a job more to his liking. This is an example of

frictional unemployment

Riverdale is a small town with a total civilian population of 800. Of this population, 125 are under the age of 16. Of the population 16 and over, there are 350 working full-time and another 50 working part-time. Of the remaining adult population, 30 people recently quit their jobs in order to look for better employment. Finally, there are 30 full-time students (not working), 200 retired and another 15 stay-at-home spouses. How would you characterize those that are unemployed in Springfield?

frictionally unemployed

When someone is unemployed because they haven't found the job that best matchestheir skills, then we say in general that the person is _______

frictionally unemployed

Public goods are often best provided (supplied) by

governments

When a country has an absolute advantage in a certain good, it means that they ______

have the ability to produce more of that good than another country over some time period

When a country has a comparative advantage in a certain good, it means that they _____

have the ability to produce that good at a lower opportunity cost than another county

Consider the events below, along with the graph above, for the next two questions: i) New businesses open ii) Many businesses close/shut down iii) Household incomes and spending are down iv) Household incomes and spending are up v) Businesses let workers go and unemployment rises vi) Businesses hire more workers and unemployment fall vii) Businesses see improved sales and profits viii) Businesses see falling sales and profits Which of the above most likely occurred during the years 2112 - 2017?

i, iv, vi and vii

A good generally tends to be more elastic (elasticity of demand)

if the good is a luxury

Consider the events below, along with the graph above, for the next two questions: i) New businesses open ii) Many businesses close/shut down iii) Household incomes and spending are down iv) Household incomes and spending are up v) Businesses let workers go and unemployment rises vi) Businesses hire more workers and unemployment fall vii) Businesses see improved sales and profits viii) Businesses see falling sales and profits Which of the above most likely occurred during the years 2010 - 2012?

ii, iii, v and viii

Consider the categories given below. What are the three categories used by the BLS to classify the civilian, adult population? i. Children ii. employed (all - full and part time) iii. employed (full-time only) iv. employed (part-time only) v. retired vi. not in the labor force vii. unemployed

ii, vi and vii

Suppose that the natural rate of unemployment is estimated to be 5%. Suppose further that the actual unemployment rate is 5%. Which of the following statements are true? i) Structural unemployment is 0% ii) Frictional unemployment is 0% iii) Cyclical unemployment is 0% iv) The economy is at full-employment v) The economy is not at full-employment

iii and iv are both true

What is the main concern when the economy is "overheating"?

inflation

Consider the situation of many less developed countries (such as Thailand, the Philippines) where labor costs are very low, and many more developed countries (such as the U.S. or German) where labor costs can be much higher. Given that, we can say that the ______

less developed countries will have a comparative advantage in the production of some goods

Consider the following for the next two questions. Suppose that in Econlandia, the general price level rises and as a result, the country exports less goods and services to foreign buyers. Graphically, this would be shown as a(n)

movement up along the AD curve

Consider the following for the next two questions. Suppose that in Econlandia, the general price level rises and as a result, the country exports less goods and services to foreign buyers. This is known as the _______

net export effect

If the general price level of new goods and services increases from year 1 to year 2 while thequantity of goods and services produced remains the same, what happens to nominal and real GDP?

nominal GDP will rise; real GDP will remain the same

Betty Lou recently quit her job so that she can go back to school full-time to earn her MBA. How would she be classified by the BLS?

not in the labor force

What category are retired people placed in by the BLS when calculating unemployment figures?

not in the labor force

Suppose that the town of Springfield takes up a collection to put on a fireworks display. Homer, however does not pay, but can still watch the show. What type of market failure does this represent?

public goods

Use the following information to answer the next several questions (34-38). You work at Granny Grieves, a local campus grocery. The manager wants to raise the price of a box of Oreo Cookies from $5 to $6 (a 20% price increase). At the old price ($5), you sold 150 boxes per week. From past data, you have estimated the elasticity or demand for a box of Oreos to be 0.5. Use the official formula in your calculation for #35. The increase in price is 20% (from $5 to $6). How do you expect quantity demanded to change?

quantity demanded will fall by about 10%

What is the formula for the real interest rate (r)?

r= I - inflationrate

When policy-makers and the news reports that "the economy is expanding", this means thatduring the last period ____

real GDP increased at the potential rate or faster

When policy-makers and the news reports that "the economy contracted", this means thatduring the last period ____

real GDP increased slower than the potential rate or decreased

A nation's standard of living is usually measured as

real GDP per person

Awkwafina is a typical 20-year-old college student. She is enrolled full time, taking 15 hours of coursework. In addition, she works 15 hours per week waiting tables at a local restaurant. How does the BLS officially classify her?

she is unemployed

Label curve 2:

short run aggregate supply

Which of the following would be included as part of the labor force?

someone let go from work and who is looking for work

Which of the following is NOT a component of aggregate demand?

stocks and bonds

When someone becomes unemployed because their current set of skills are no longer in demand by society, then we say that the person is ______

structurally unemployed

Which country has the largest economy in the world (as measured by nominal GDP)?

the U.S.

Suppose a country does not have an absolute advantage in the production of any good or service. This means that _____

the country can still gain from trade if it specialized in the goods/services where it has a comparative advantage

The labor force is defined as

the employed plus the unemployed

The total civilian, non-institutionalized adult population (16 and over), according to the BLS, is equal to

the employed plus the unemployed plus those not in the labor force

The graph above shows

the model of aggregate demand / aggregate supply

Gross domestic product (GDP) is

the value of all final goods and services produced within an economy in a given year

What category are children under 16 placed in by the BLS when calculating the unemployment figures?

they aren't counted at all

Mr. Smith buys a new American-made widget for his house. How does this transaction affect U.S. GDP?

through the consumption component

Mr. Smith buys a new American-made widget for his business. How does this transaction affect U.S. GDP?

through the investment component

What do you predict will happen to total revenue after raising the price?

total revenue will rise, since demand is inelastic

When someone wants a full-time job, but can only find part-time work, we say the person is

under-employed

The unemployment rate (as calculated by the BLS) is the

unemployed divided by the labor force

If a good is a necessity with no close substitutes, then demand will most likely be

very inelastic

Hoorah! In 2020, after graduation, you land your first professional job as a law clerk, running errands, making copies and getting coffee for the higher ups. Your salary is $35,000 per year. By the year 2040 you have made senior partner in the law firm, earning an annual salary of $100,000. The CPI in 2020 is 210. The CPI in year 2040 is 650. Use that information to answer the next few questions (144 - 147). What happened to your purchasing power from 2020 to 2040?

your purchasing power decreased over time