ECON Exam #2 Ch.8-12

In the treatment of U.S. exports and imports, national income accountants (for calculating GDP)

add exports, but subtract imports

how do we find GDP

adding C + Ig + G + Xn

Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is

not in the labor force

An economy is employing 2 units... An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Total output is 640 units. The per-unit cost of production in this economy is

$0.10.

Suppose that this year a small country has a GDP of $100 billion. Also assume that Ig = $30 billion, C = $60 billion, and Xn = − $10 billion. What is the value of G?

$20 billion

If foreigners spend $7 billion on U.S. exports in a given year and Americans spend $5 billion on imports from abroad in the same year, what is the value of U.S. net exports?

+$2 billion

Graphically, cost-push inflation is shown as a

leftward shift of the AS curve.

The sale of a used automobile would not be included in GDP of the current year because it is a

nonproduction transaction (secondhand good)

In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are

not counted (no good or service is produced)

The losers from inflation are those with those who gain from inflation are

fixed incomes in nominal terms borrowers

Final goods and services refers to

goods and services purchased by ultimate users, rather than for resale or further processing.

the immediate short run aggregate supply curve is a

horizontal line

Economists include only final goods and services when measuring GDP because

if intermediate goods were counted then multiple counting would occur

Phases of the business cycle:

in order: peak, recession, trough, expansion

What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

prices are sticky in the short run

What reduces the purchasing power of money?

inflation

a check for $250 sent by a parent to a daughter at college would be considered a

private transfer payment

In national income accounting, the personal... In national income accounting, the personal consumption expenditures category includes -purchases of automobiles for personal use but not houses. -both new and used consumer goods. consumer nondurable goods and services but not consumer durable goods. -consumer durable and nondurable goods but not services.

purchases of automobiles for personal use, but not houses

The more reliable measure for comparing changes in the standard of living over a series of years is

real GDP

If nominal GDP rises,

real GDP may either rise or fall.

Which of the following formulas is correct? Percentage change in -nominal income approximates percentage change in price level minus percentage change in real income. -real income approximates percentage change in price level minus percentage change in nominal income. -price level approximates percentage change in real income minus percentage change in nominal income. -real income approximates percentage change in nominal income minus percentage change in price level.

real income approximates the percentage change in nominal income minus percentage change in the price level

Productivity measures

real output per unit of input.

The phase of the business cycle in which real GDP declines is called

recession

If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, its real GDP per capita will

remain constant

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called

structural unemployment

The Bureau of Labor Statistics (BLS) calculates the inflation rate from one year to the next by

subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the previous year.

Graphically, demand-pull inflation is shown as a

rightward shift of the AD curve along an upsloping AS curve.

Net exports may be negative if

Americans spend more on imports than foreign countries spend on American exports

Inflation initiated by increases in wages or other resource prices is labeled

cost-push inflation (aggregate supply shifts left)

Real GDP measures

current output at base year prices

Other things equal, appreciation of the dollar

decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.

Net exports are a country's export of

goods and services less its imports of goods and services.

suppose that the CPI was 110 last year and is 107 this year. What is this year's inflation rate?

-2.7%

Government purchases include government spending on

gov't consumption goods and public capital goods

the long run aggregate supply curve is

a vertical line

Which one of the following would not shift the aggregate demand curve? -an increase in personal income tax rates -a change in the price level -a decline in the interest rate at each possible price level -depreciation of the international value of the dollar

-a change in the price level

Which of the following transactions would be included in GDP? -peter buys a newly constructed house -mary buys a used book for $5 at a garage sale. -nick buys $5000 worth of stock in Microsoft -Olivia recieves a tax refund of $500

-peter buys a newly constructed house *stocks are legal document replacements and the money is not converted into goods and services so it is not counted

Which of the following do national income accountants consider to be investment? -the purchase of gold coins -the purchase of a new house -the purchase of corporate bonds -the purchase of an automobile for private nonbusiness use

-the purchase of a house

Suppose that a country has 9 million people working full-time. It also has 1 million people who are actively seeking work but are currently unemployed, along with 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this country's unemployment rate?

10% (1/10 x 100)

Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 in millions, what is the labor force?

102 million

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is

11%

The CPI was 110 last year and is 126 this year. What is this year's inflation rate?

14.5% ((126-110/110) x 100)

f potential GDP is $400 billion and there is a negative GDP gap of $15 billion, actual GDP is

385 mil

a country's real GDP this yr is $27 billion and was $18 billion last yr. what is the growth rate of real GDP from year 1 to 2

50% (27-18/18)x100

Which of the following is not seen by economists as an underlying cause of business cycle fluctuations? -unexpected financial bubbles that eventually burst -shocks to the money supply by the nation's central bank -supply shocks caused by major innovations -All of these are identified as causes of business cycle changes.

All of these

What is the efficiency factor of economic growth??

The level of economic efficiency and full employment needed to reach full production potential.

A large negative GDP gap implies

a high rate of unemployment

The GDP price index is

a measure of the price of a specified collection of goods and services compared to the price of a highly similar collection of goods and services in a reference year.

Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to

a price level that is inflexible downward.

The Consumer Price Index (CPI) is determined each month by

comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in a base year.

What effects would each of the following have on aggregate demand or aggregate supply, other things equal? a. A widespread fear by consumers of an impending economic depression. b. A new national tax on producers based on the value added between the costs of the inputs and the revenue received from their output. c. A reduction in interest rates. d. A major increase in spending for health care by the federal government. e. The general expectation of coming rapid inflation. f. The complete disintegration of OPEC, causing oil prices to fall by one-half. g. A 10 percent across-the-board reduction in personal income tax rates. h. A sizable increase in labor productivity (with no change in nominal wages). i. A 12 percent increase in nominal wages (with no change in productivity). j. An increase in exports that exceeds an increase in imports (not due to tariffs).

a. Aggregate demand will decrease b. Aggregate supply will decrease c. Aggregate demand will increase d. Aggregate demand will increase e. Aggregate demand will increase f. Aggregate supply will increase g. Aggregate demand will increase h. Aggregate supply will increase i. Aggregate supply will decrease j. Aggregate demand will increase

For each of the following events, indicate whether it causes a demand-side or supply-side change, other things equal, and how the change will affect that side of the economy. a. Consumers become more pessimistic about the economy. b. Technological changes enable workers to be more productive. c. Manufacturing firms expect steel prices to decrease significantly. d. Employers are required to provide paid sick leave to part-time as well as full-time employees. e. Government spending increases. f. A hurricane destroys manufacturing plants. g. A stock market crash reduces people's wealth. h. The spread of democracy around the world increases consumer confidence in the United States. i. The United States enters into an arms race with China, resulting in a significant increase in military spending. j. A revolution in Iran results in a significant reduction in the world's oil production k. A new computer chip is developed that is faster and cheaper than previous chips.

a. Demand decreases b. Supply increases c. Supply increases d. Supply decreases e. Demand increases f. Supply decreases g. Demand decreases h. Demand increases i. Demand increases j. Supply decreases k. Supply increases

Which of the following goods are usually intermediate goods and which are usually final goods? a. Running shoes: b. Cotton fibers: c. Watches: d. Textbooks: e. Coal: f. Sunscreen lotion: g. Lumber:

a. Final good b. intermediate c. final d. final e. intermediate f. final g. intermediate

Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. a. Tim just graduated from college and is looking for a job. b. A recession causes a local factory to lay off 30 workers. c. Thousands of bus and truck drivers permanently lose their jobs to self-driving vehicles. d. Hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India.

a. frictional unemployment b. cyclical unemployment c. structural unemployment d. structural unemployment

Which of the following are included in this year's GDP? Which are excluded? a. Interest received on an AT&T corporate bond: b. Social Security payments received by a retired factory worker: c. Unpaid services of a family member who painted the family home: d. Income of a dentist from the dental services she provided: e. A monthly allowance that a college student receives from home: f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim: g. The publication and sale of a new college textbook: h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay: i. A $2 billion increase in business inventories: j. The purchase of 100 shares of Alphabet (the parent company of Google) stock:

a. included b. excluded c. excluded d. included e. excluded f. excluded g. included h. excluded i. included j. excluded

At the current price level, producers supply $375 billion of final goods and services while consumers purchase $355 billion of final goods and services. The price level is:

above equilibrium

The GDP gap measures the difference between

actual GDP and potential GDP

Which of the following would most likely shift the aggregate demand curve to the right?

an increase in stock prices that increases consumer wealth

Economic growth can be portrayed as (on a graph)

an outward shift of the production possibilities curve.

the short run aggregate supply curve is

an upward-sloping curve

The immediate-short-run aggregate supply curve represents circumstances where

both input and output prices are fixed.

Given the annual rate of economic growth, the "rule of 70" allows one to

calculate the # of yrs required for real GDP to double

increase in the prices of imported resources would

cause aggregate supply to decrease (shift left)

if the inflation rate is a negative number - what do economist call this?

deflation!

The phrase "too much money chasing too few goods" best describes

demand pull inflation

Economic growth is best defined as an increase in

either real GDP or real GDP per capita.

in which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

expansion

The largest contributor to increases in the productivity of American labor is

technological advance

In the accompanying figure, a shift from AD2 to AD1 would be consistent with what economic event in U.S. history?

the Great Recession of 2007-2009

what is the demand factor of economic growth

the level of purchases needed to maintain full employment

What are the four supply factors of economic growth?

the level of technology, the stock of capital goods, the quality and quantity of natural and human resources

Nominal GDP is

the market or money value of all final goods and services produced by the economy in a given year, whereas real GDP is adjusted for inflation.

GDP excludes -the production of nondurables -the production of services -the market value of unpaid work in the home -positive changes in inventories

the market value of unpaid work in the home.

the nominal interest rate minus the inflation rate equals

the real interest rate

Per-unit production cost is calculated by

the total input cost divided by the units of output

When measuring GDP, economists don't include the value of the used furniture bought and sold because

the value was already counted in GDP of some previous year

The shape of the immediate-short-run aggregate supply curve implies that

total output depends on the volume of spending.

phase of the business cycle in which real GDP is at a minimum

trough