ECON Quiz #2

Composition of an economy's GDP by spending category: Fixed business investment - 3700.00 Durable goods - 2400.00 Exports - 650.00 Federal government purchases - 1300.00 New home construction - 1050.00 Imports - 780.00 Change in inventories - -200.00 Nondurable goods - 4300.00 Services - 9400.00 State and local government purchases - 2400.00

Consumption = spending on durable goods + nondurable goods + services - ($2,400.00 + $4,300.00 + $9400.00 = $16,100 billion) Investment = fixed business investment + change in inventories + new home construction - ($3,700.00 + $-200.00 + $1,050.00 = $4550 billion) Government = federal spending + state and local spending ($1,300.00 + $2,400.00 = $3,700.00 billion dollars) Net exports = exports - imports ($650.00 - $780.00 = $-130 billion dollars) GDP = Consumption + Investment + Government + Net Exports GDP = $24,220 billion dollars.

While rooting through the attic, you discover a box of old tax forms. You find that your grandmother made $225 working part-time during December 1964, when the CPI was 31.3. How much would you need to have earned in December 2016, when the CPI was 240.1, to have at least as much real income as your grandmother did in 1964?

$1725.96 240.1/31.3 x 225 = 1725.96

Which of the following can be responsible for a drop in the unemployment rate? a) More people with full-time jobs become part-time workers b) More people become employed c) The labor force shrinks d) There is an increase in the number of discouraged workers

B & D b) More people become employed d) There is an increase in the number of discouraged workers

Bonita, age 30, used to work at a small college teaching anthropology. This year she quit her job to take care of her five-month-old daughter. She is currently not looking for a job. The survey conducted by the Bureau of Labor Statistics will count Bonita today as Choose one: A. not in the working-age population. B. unemployed. C. employed. D. not in the labor force. E. a discouraged worker.

D) not in the labor force

Recent news reports in the United States suggest a downward swing in the stock market. The result will be Choose one: A. an upward movement along the aggregate demand curve. B. a downward movement along the aggregate demand curve. C. a leftward shift of the aggregate demand curve. D. a rightward shift of the aggregate demand curve.

D. a rightward shift of the aggregate demand curve.

CIA Factbook - Countries Percentage change in real GDP Iran P.L 2.5% NGDP 2% Norway P.L 6.9% NGDP 8.5% Peru P.L 3% NGDP 7.1% Nigeria P.L 11% NGDP 10%

Percent change in real GDP= % change in Nominal GDP - % change in Price Level Iran: % change = 2.5% -2% = -0.5% Norway: % change = 6.9% - 8.5% = 1.6% Peru: % change = 3% - 7.1% = 4.1% Nigeria: % change = 11% -10% = -1.0%

Match the following definitions to the correct resource Physical Capital Human Capital Natural Resources

Physical Capital - This includes the tools and equipment used in the production of goods and services Human Capital - This is the resource represented by the quantity, knowledge, and skills of workers in an economy Natural Resources - This includes physical land and the inputs occurring naturally in or on the land

Beginning in 1991, improvements in technology led to increases in aggregate _________ and caused real GDP to ________.

Supply;increase

What is the correct definition of economic growth?

e) percentage change in real per capita GDP

Which of the following is true of real gross domestic product a) it only measures income b) it measures price inflation c) it can be used to measure a firm's output d) it only measures output e) when determined on a per capita basis, it can give us guidance on the living standards of a nation f) it is an exact measure of output

e) when determined on a per capita basis, it can give us guidance on the living standards of a nation

Which of the following equations is used to calculate economic growth?

economic growth = % change nominal GDP - % change in price level - % change in population

Nominal GDP in Argentina has grown rapidly in recent years. But historically, Argentina is a country that has struggled with inflation rates. The table below gives statistics fo Argentina in recent year. Nominal GDP growth rate = 14.8% GDP deflator growth rate = 6.9% Population growth rate = 1.1% What is the rate of economic growth for Argentina? If Argentina continues to grow at its current rate of economin growth, how long will it take to double the level of per capita real GDP?

economic growth = 6.8% (14.8-6.9-1.1) per capita real GDP = 10.3 years (70/6.8)

In 2015, the consumer price index (CPI) was 238, whereas it was about 100 in 1982. Suppose that one of your parents had a job that paid $28,000 annually in 1982 and a job that paid $60,000 annually in 2015. Relative to 1982, we could say that your parent's nominal income_______ in 2015 and that your parent's real income _______ in 2015

increased; decreased

You are writing a letter to the editor of the local paper trying to explain why the percentage change in real GDP is important. You want to illustrate the change in real GDP, but you only have two pieces of data Percentage change in nominal GDP - 8% Percentage change in the price level - 12% Given this data, what is the percentage change in real GDP?

percentage change in nominal GDP = % change in real GDP + % change in price level 8%= % change in real GDP + 12% 8%-12% = -4% -4% (negative number we know that real GDP has actually shrunk in the past year

If the price level rose from 116 to 119 but economic output remained the same, nominal GDP would ___________ If the price level rose from 116 to 119 but economic output remained the same, real GDP would _________

rise stay the same

Business cycles examines______time horizons while growth theory focuses on _________ time horizons.

short-run;long-run

Which of the following is true when the economy is at full employment?

True: - the cyclical rate of unemployment is zero - the unemployment rate is equal to the natural rate of unemployment False: - the unemployment rate is equal to zero - the unemployment rate is equal to the cyclical rate of unemployment - the natural unemployment rate is equal to zero - the employment rate is 100%

Place each item in the correct category: 1) affects long-run aggregate supply (LRAS) or 2) does not affect LRAS

1) affects long-run aggregate supply (LRAS) -Institutions -Technology -Resources 2) does not affect LRAS -the price level -expected future prices

1)Which of the following _______ is the best measure of a nation's standard of living over time 2)Which of the following occurs during an expansion? 3)Suppose U.S. Nominal GDP changed by 2.50% from 2019 to 2020, and the price level changed by 0.00%. Therefore, real GDP changed by approximately ___________%

1) per capita real GDP 2) real GDP rises; employment rises; income rises 3)2.50% (2.50-0.00=2.50)

The table below shows the prices for consumer's typical basket of goods. Assume 2014 is the base year. Bottles of BBQ (2014) quantity 300 unit price $3.15 Wheels of chees (2014) quantity 10 unit price $20.00 Bottles of BBQ (2016) unit price $3.37 Wheels of chees (2016) unit price $23.00 What are the basket prices for 2014 and 2016? What is the CPI for 2014 and 2016?

2014: 1145.00 -> 3.15x 300 = 945 & 10 x 20.00 = 200 (945+200=1145) 2016: 1241.00 -> 3.37x 300 = 1011 & 10 x 23.00 = 230 (1011+230=1241) 2014 CPI: 100 (base year) 2016 CPI: 108.38 (p2-p1/p1 x100)?

Table below reports nominal GDP, real GDP, and the GDP deflator from 2018 to 2020. Complete the table by solving for the missing values. 2018: nominal GDP = $10,000, real GDP = $9,346, the GDP deflator = _______ 2019: nominal GDP = 10,400, real GDP = ________ the GDP deflator = 100 2020: nominal GDP = ________ real GDP = 11,263.16 the GDP deflator = 95

2018: nominal GDP/real GDPx100 the GDP deflator = ____107___ 2019: real GDP = __10,400______ -the real GDP had to be the same as nominal GDP because the deflator was 100 2020: nominal GDP = ___10,700_____ multiply real GDP by the deflator and then divide by 100

Chapter 8 The macroeconomic data collection department for the country of the United Republic of Neverland reported the consumer price index as 217.5 in December 2011, and 256.6 December 2015. What was the inflation rate from the end of 2011 to the end of 2015?

256.6-217.5 x 100/217.5 18%

Suppose the CPI level is 292.00 at the beginning of a year and 309.00 at the end of that year. What was the inflation rate for the year?

5.82 % 309-292/292x100

Institutionalized - 14 Full-time workers - 103 Less than 16 years of age - 40 Armed forces (noncivilian) - 20 Part-time workers - 27 Total Population - 314 Looking for work - 14 What is the unemployment rate for this economy based on the data provided?

9.72% Part-time + Full-time + Looking for work = 144 Unemployed(looking)/LFx100 - 14/144x100=9.72

Which of the following can lower the level of frictional unemployment over time? a) reducing the regulations on hiring practices in a country b) stringent government labor-market regulations c) an increase in the number of online job search engines d) an increase

A&C a) reducing the regulations on hiring practices in a country c) an increase in the number of online job search engines

Suppose that the U.S. of Durbin, a small nation, has consumption, investment, government purchases, imports, and exports as follows. consumption - $150 investment - $50 government purchases - $45 imports - $30 exports - $10 Calculate the U.S. of Durbin's GDP.

GDP = $225 150+50+45-20

All else being equal, which of the following would lead to a lower unemployment rate, and which would lead to a higher unemployment rate? Higher Rate? Lower Rate?

Higher Rate: - a new accounting system automates most of the billing process done by accountants - actual real GDP falls below potential real GDP - discouraged workers reenter the labor force because they believe they can now find a job - U.S. Congress passes a new law requiring firms to pay severance to the workers they fine Lower Rate: - an increase in the job hiring rate - laid off autoworkers relocate from Michigan to Kentucky

Which of the following situations would increase U.S aggregate demand, and which would decrease U.S. aggregate demand?

Increase U.S. aggregate demand: -an increase in federal govt. spending -a decrease in taxes -an increase in the value of the value of the Chinese yuan (Chinese currency) Decrease U.S. aggregate demand: -U.S. consumers become less wealthy -investors become less confident in U.S. companies relative to foreign companies

Chapter 7 What is the labor force participation rate for this economy? Institutionalized - 14 Full-time workers - 123 Less than 16 years of age - 40 Armed forces (noncivilian) - 20 Part-time workers - 27 Total Population - 314 Looking for work - 16

LFPR Part-time + Full-time + Looking for work ______ divide work eligible pop. x 100 27+123+16=166/240 x 100 =69.2% Work eligible pop: Total pop - 314 Institutionalized - 14 Less than 16 - 40 Armed forces - 20 subtract above: 240

Chapter 6 - Equations regarding nominal GDP, real GDP, and the GDP deflator

Nominal GDP= Current Price x Current Quantities Real GDP= Base Year Price x Current Quantities GDP Deflator= (Nominal GDP/Real GDP)x100 *Review Ch. 6 announcement video.

Which of these individuals are in the labor force and which are not?

Not in the labor force: -a former accountant who now stays at home to watch his children -a college student who isn't working and isn't looking for a job -a former executive who now is retired and living in Florida In the labor force: -a dishwasher at Denny's who wants a better job -a person who got laid off from his job last week and has a job interview today -the CEO of Coco-Cola

King of the small island nation of Littleston to present the labor force fata listed below # of employed - 20,000 # working-age pop. - 40,000 # Labor force - 32,000 Using this data, calculate the number of unemployed people, the unemployment rate, and the labor force participation rate

Number of unemployed people: 32,000-20,000=12,000 (LF-# of employed) Unemployment rate: 12,000/32,000x100 = 37.5% (# of unemployed/LFx100) LFPR: 32,000/40,000x100 = 80% (LF/work eligible pop. x100)

Many goods and services are illegally sold or legally sold but not reported to the government. If we increased efforts to count those goods and services, GDP would _____________

Rise

Sort the following events by their impact on the U.S. economy. Determine whether each event shifts only the SRAS curve, both the SRAS and the LRAS curve, or neither

SRAS only: -Canada cuts oil exports from Alberta oil sands pending the outcome of an environmental review -a milder-than-usual winter produces a bumper citrus crop in Florida Both the SRAS and the LRAS curve: -a new oil field is discovered just off the coast of Oregon, significantly increasing the national supply of oil -an innovation in irrigation makes U.S. farms more productive Neither: -incomes in the U.S. increase by 5% in real terms

Which of the following people are frictionally unemployed? Sarah, whose mother told her she should keep looking for work, as there are plenty of jobs for which she is qualified Roberto takes advantage of a new government website that matches employees and employers Michelle, who just graduated from Caltech with a petroleum engineering degree

Sarah, Roberto, and Michelle

There are five statements below related to problems inflation can bring. Sort the statements into the relevant problem of inflation

Shoe-Leather - the prevalence of debit cards has reduced this problem Money illusion - Isabella is happy she got a 20% raise to move to NYC. It costs a lot more to live there. Wealth - Donald borrowed $1,000 form Mickey. Inflation was much higher than expected Price Confusion - Vito wonders if there is a shortage of mile. His cheese prices has risen again Menu Costs - Heather walked out of Nordstorm when she sees shoe prices have risen again

Consider each situation and determine whether the person is structurally unemployed, frictionally unemployed, or cyclically unemployed.

Structurally unemployed: -Jim got laid off from his job at an auto manufacturer as the company became more automated Frictionally unemployed: -Julie graduated from college and is looking for a job as an accountant -Julie had to leave her old job when she moved to a new city. She works in customer service and is looking for a new job. Cyclically unemployed: -Bob loses his job as the economy slips into a recession

You have been hired to determine if unemployment is running too high. First you must determine the natural rate of unemployment. You have been provided the data in the table below. Frictional unemployment - 2% Structural unemployment - 2% Cyclical unemployment - 1% Determine the natural rate of unemployment.

The natural rate of unemployment = 4.00% Structural + Frictional

To which component of U.S. GDP expenditure does each of the following belong: a) Swiss chocolates bought from a firm in Europe: b) Prescription medications purchased by the Health Department of a country: c) a donut you buy from a local bakery: d) a new home:

a) Swiss chocolates bought from a firm in Europe: net exports b) Prescription medications purchased by the Health Department of a country: government c) a donut you buy from a local bakery: consumption d) a new home: investment

Which of the following will be counted in this year's GDP? a) Toyota produces 10,000 new Camrys that remain unsold at the end of the year b) you purchase a historic home without the help of a real estate agent c) you purchase a new hard drive for your old laptop d) your therapist performs $300 of physical therapy on you but does not report it e) Apple buys 1,000 motherboards for use in making new computers f) you purchase an Investing for Dummies book at Barnes & Noble g) you bought a new Wii at GameStop last year and resold it on eBay this year h) you detail your car so that it it spotless inside and out.

a) Toyota produces 10,000 new Camrys that remain unsold at the end of the year c) you purchase a new hard drive for your old laptop f) you purchase an Investing for Dummies book at Barnes & Noble

The aggregate demand-aggregate supply model is used to study a) business cycles b) why gas prices go up in summer c) growth economics d) the theory of why busine

a) business cycles

Which of these statements about GDP are true? a) money received for services is included in GDP b) GDP is the output produced by workers and resources owned by residents of a nation c) GDP is calculated using market values

a) money received for services is included in GDP c) GDP is calculated using market values

An institution is a significant practice, relationship, or organization in a society. Institutions are the official and unofficial conditions that shape the environment in which decisions are made Which of the following institutions do economists see as necessary for economic growth? a) private property rights b) efficient taxes c) stable money and prices d) representative democracy

a) private property rights b) efficient taxes c) stable money and prices

Chapter 13 In 2011, a devasting tsunami hit Thailand, destroying roads and buildings, and killing thousands of people. How will this natural disaster impact the U.S. economy in the short run?

a) real GDP will decrease; price level will decrease; unemployment will increase

a) What effect would an increase n Americans' expected future incomes have on the U.S. aggregate demand curve? Shift the curve in the appropriate direction b) which other factors woudl shift the U.S. aggregate demand curve in the same direction as an increase in Americans' expected future income? -an increase in government spending -an increase in real wealth - an increase in tax rates -an increase in the dollar's value on the world currency market

a) shift to the right b) -an increase in government spending -an increase in real wealth

Aggregate supply is the total supplu of final goods and services in an economy. The way in which we model aggregate supply changes depending on whether we are looking at the short run or the long run. a) in the short-run, the aggregate supply curve is _____________ b) in the long run, the aggregate supply curve is ______________ Which of the following explain the shape of the short run aggregate supply curve?

a) upward sloping b) vertical -money illusion -menu costs -inflexible input prices

Years Growth Rate AD 1-1800 = 0.02% 1800-1890 = 0.64% 1900-1950 = 1.04% 1950-2000 = 2.12% Table above indicates world economic growth rates for specific historical eras. During which of the following time periods with it take real per capita GDP approximatley 3500 years to double? a) 1900-1950 b) AD 1-1800 c) 1800-1890 d) 1950-2000

b) AD 1-1800 70/0.02=3500

Chapter 11 Consider the case of Internet service. In Chile, there are 20 providers of Internet service. On the other hand, in Cambodia, Internet service is largely regulated by the government with only one firm as the sole provider of this service. Under these circumstances, it is expected that a) Chile will have lower growth potential than Cambodia b) Chile will have higher growth potential than Cambodia c) Chile and Cambodia wil have similar growth potential Which Institution explains your answer above? a) stable money and property b) competitive markets c) rule of law d) private property

b) Chile will have higher growth potential than Cambodia b) competitive markets

Assume real per capita GDP in North Metropolania is $8,000 while South Darlinia it is $2,000. The annual growth rate in North Metropolania is 2.33%, while South Darlinia it is 7%. How many years will it take for South Darlinia to catch up to the real per captia GDP of North Metropolania? a) about 10 years b) about 30 years c) about 40 years d) about 120 years e) South Darlinia will never be able to catch up with North Metropolania What will the income of the 2 countries be when it is equal?

b) about 30 years $16,000 *see announcement for video

Inflation is: a) a one-time increase in the price of all goods and services b) an increase in the average level of prices of goods and services over time c) an increase in the purchasing power of the dollar over time d) not an economic problem because each individual's income rises in proportion to the price level

b) an increase in the average level of prices of goods and services over time

Suppose your father earned $30,000 a year after he graduated from college. You have been offered a job paying $90,000 a year. Since the price level has increased since your father graduated from college, in real terms you will earn. a) three times more than your father b) less than three times more than what your father earned c) more than three times what your father earned

b) less than three times more than what your father earned

Which of the following statements is true?

b) taxes on both consumers and businesses restrict economic growth; hence an efficient tax system is necessary to fund government activities without largely impeding production and consumption decisions

Look at the data plotted in the graph. Each blue diamond represents a country. Which of the following statements best explains the relationship between per capita income and the HDI? a) as per capita income increases, development increases at a constant rate b) as per capita income increases, development increases at a increasing rate c) as per capita income decreases, development decreases d) as per capita income increases, development increases at a decreasing rate

d) as per capita income increases, development increases at a decreasing rate

Suppose Lilian's wage rose from $20.00 to $23.00. The consumer price index (CPI) rose from 150 to 180. Therefore, Lilian's real wage has _________ and the purchasing power of her income has ________ a) risen; fallen b) risen; risen c) fallen; fallen d) fallen; risen

c) fallen; fallen

Which of the following was responsible for slower economic growth prior to the Industrial Revolution? a) technological growth was controlled by the government b) there was no technological innovation c) population growth was consistent with the rate of technological innovation d) the rate of technological innovation outpaced population growth

c) population growth was consistent with the rate of technological innovation

Economic growth is also correctly called

d) real per captia GDP growth

If an economy starts at its full-employment equilibrium, what happens to employment if aggregate demand increases?

d) unemployment drops below the natural rate of unemployment