Econ test 1

nominal interest rate

the stated interest rate on a loan

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

housing, transportation, food & beverages

the three categories of the CPI market basket which make up the largest shares (almost three-fourths, combined) of total expenditures

Nominal GDP is GDP in a given year

valued in the prices of that year????

final goods

goods and services that have been purchased for final use and not for resale or further processing or manufacturing

intermediate goods

goods used in the production of final goods

The output of U.S. citizens who work in Canada would be included in the

gross domestic product of Canada.

The output of Mexican citizens who work in Texas would be included in the

gross national product of Mexico.

Gross domestic product understates the total production of final goods and services because of the omission of

household production.

Stage of Production Seller Buyer Price 1 Steel mill Auto manufacturer $10,000 2 Auto manufacturer Auto dealer 18,000 3 Auto dealer Consumer 25,000 The value added by the automobile dealer equals

$7,000

Gross Domestic Product

- the total market value of all final goods and services produced annually in an economy

Recent estimates put the size of the underground economy in the United States at ________ of measured GDP.

8 percent

value added

An alternative method to measure GDP is to measure the _________________: the market value a firm adds to a product. The _____________ at each stage of production is that firm's selling price minus the cost of all intermediate goods.

negative

During a deflationary period, when the inflation rate is __________, the real interest rate will be higher than the nominal rate

menu costs

Even if inflation is expected and anticipated, there are costs involved, including ____________, the costs to firms of having to change their prices (reprint menus, change web sites, etc.)

Suppose Bob works for Mary as a proofreader. Mary and Bob fall deeply in love, marry and have eight children. Bob stops working for Mary in order to care for the children. What will be the effect on GDP?

GDP will decrease.

The value of what a U.S.-owned McDonald's produces in South Korea is included in the U.S. ________ and the South Korean ________.

GNP; GDP

unemployment

Governments often attempt to directly influence unemployment Other policies try to reduce frictional unemployment, for example by subsidizing new hires. However some other government policies probably increase _________________, like Unemployment insurance, and Minimum wage laws

unemployment rate

Of these statistics, the most watched is known as the _______________: the percentage of the labor force that is unemployed.

Four major categories of expenditures included in GDP

Personal Consumption Expenditures, or Consumption (C)- is (by far) the largest component of spending in GDP Gross Private Domestic Investment, or Investment (I) Government Consumption and Gross Investment, or Government Purchases (G) Net Exports of Goods and Services, or Net Exports (NX) GDP can be expressed as the sum of these: Y = C + I + G + NX

Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?

Real GDP grows by 2.3% in the second quarter

16+ years of age (working age) who have looked for work in the previous 4 weeks

The only people counted as "unemployed" (and thus, included in the labor force) by the BLS are those:

Labor force

The sum of employed and unemployed workers in the economy.

frictional, structural, cyclical

The three types of unemployment are:

frictional and structural

There is always some degree of ___________ and __________ unemployment as part of the normal functioning of an economy

If prices rise on average in the U.S. economy, the purchasing power of a dollar declines.

True

Household production or the production of underground economy

Two important types of production are omitted from the BEA's measurement of GDP:

Cyclical unemployment

Unemployment causes by a business cycle recession

structural unemployment

Unemployment that arises from a persistent mismatch between the skills and attributes of workers and the requirements of jobs

inflation rate

We refer to the percentage increase in the price level from one year to the next as the is the CHANGE in the price level from one year to the next.

natural rate of unemployment

When there is no cyclical unemployment and all remaining unemployment is either frictional or structural, the economy is at the ______________ (also known as being at "full employment")

nominal interest rate real interest rate

When you lend money to someone, they typically agree to pay you back with interest. If the interest rate is 6 percent, for example, then a $1,000 loan paid back in a year will be paid back with $1,060. 6 percent is the _____________________: the stated interest We can adjust for inflation by calculating the ____________, equal to the nominal interest rate minus the inflation rate.

unpredicted

_________ inflation makes borrowing and lending risky. If inflation is higher than expected, borrowers gain and lenders lose. If inflation is lower than expected (or there is deflation), borrowers lose and lenders gain.

Governments

___________ try to reduce structural unemployment with job retraining programs, and frictional unemployment by subsidizing the hiring of new workers and creating online job boards, etc.

consumption

______________ is (by far) the largest component of spending in GDP

Which of the following goods is directly counted in GDP?

a 12-inch Subway sandwich purchased by a student

Price level

a measure of the average prices of goods and services in the economy.

Inflation

affects the distribution of income and wealth. People that are hurt by _____________ include those on fixed incomes (or locked wages) and those holding cash or other nominal assets

The GDP deflator is a measure of the

average level of prices of final goods and services in the economy.

Investment, as defined by economists, would not include which of the following? Ford

buys U.S. government bonds.

100

calculating CPI, and that the CPI in the base year is ALWAYS equal to __________.

Cyclical unemployment

can go to zero during economic expansions

The factors of production include

capital

Which of the following is not a durable good?

clothing

The size of the underground economy would tend to decrease if the government of a country

decreased government regulations on businesses.

The U.S. work week has declined from 60 hours in 1890 to 40 hours today. The impact of the decline in working hours

decreases U.S. GDP and increases the well-being of a typical working person in the U.S.

The best measure of the income households actually have available to spend is

disposable personal income.

In the circular flow model, the value of total production for an economy ________ the value of total expenditures on final goods and services.

equals

The sum of the value added of every firm involved in producing all final goods and services ________ gross domestic product.

equals

Nominal GDP will increase

if either the price level or the quantity of goods and services produced rises.

Legalizing all forms of illegal activities

increases GDP and reduces the size of the underground economy.

seasonal unemployment

is considered part of frictional unemployment

GDP per capita

is often used to represent differences in standards of living from country to country. However, even if it accurately measured total production, it would not reflect: The value of leisure Pollution and other negative effects of production Crime and other social problems The distribution of income In fact, improvements in many of these will result in lower GDP per capita.

investment

is spending by firms on new factories, office buildings, and additions to inventories, plus spending by households and firms on new houses. ________________ includes capital investments by firms (buildings and machinery), changes in business inventories, and residential housing It is NOT stocks, bonds, savings accounts Net Exports (NX) = Exports - Imports

National income equals gross domestic product

minus the consumption of fixed capital.

The purchase by a household in China of a CD produced in the United States is included in U.S.

net exports

real interest rate

nominal interest rate - inflation rate

Presently, GDP is ________ to compensate for the costs of environmental damage.

not adjusted

CPI

one measure of the price level, but includes every item in GDP (industrial equipment, highways, military items, etc.), including many items which are not purchased by the average household. is a much better measure of the cost of living of the average household, and is the most widely used measure of the price level. Year-to-year changes in the CPI are what you typically hear used to report the inflation rate.

Real GDP will increase

only if the quantity of final goods and services produced rises.

transfer payments

payments to households for which the government does not receive a good or service in return

Gross national product, GNP, of the United States is the market value of all final goods and services

produced by citizens of the United States anywhere in the world.

To examine how the total production of an economy has changed over time, it would be better to examine

real GDP.

Frictional unemployment

term unemployment that arises from the process of matching workers with jobs

Gross Domestic Product

the market value of all final goods and services produced in a country during a period of time, typically one year.

Suppose that nominal GDP in 2016 was less than real GDP in 2016. Given this information, we know for certain that

the price level in 2016 was less than the price level in the base year.

Gross domestic product is calculated by summing up

the total market value of final goods and services produced in the economy during a period of time

Gross domestic product understates the total production of final goods and services because of the omission of

the underground economy.

Employed, Unemployed, Not in the Labor Force

three classifications from Current Population Survey (also known as the "household survey")

GDP deflator The consumer price index (CPI) The producer price index (PPI)

to measure changes in the price level. By measuring changes in the prices of different baskets of goods, we would come up with different measures. Two commonly-used measures are:

GDP

total production = total expenditures = total income

The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that

total spending in 2015 was around $17.3 trillion. total income in 2015 was around $17.3 trillion. the value of output in 2015 was around $17.3 trillion.

If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy.

true

discouraged workers

who have given up and stopped looking for work are classified as "not in the labor force"