Exam 1 Macro

3 Stages of CPI

1- Selecting CPI Basket 2- Conducting Monthly Price Survey 3- Calculating CPI

In the business cycle, what immediately precedes the time when real GDP is falling?

Peak

What is NOT a source of bias in the CPI

Quantity Change Bias

If the federal government expands its support of education and restraining of workers who have been unemploymed for a relatively long length of time, what unemployment would be targeted?

Structural

If a private wage contract is agreed upon with a cost of living adjustment such that wage hikes are equal to increases in the CPI,

Workers benefit because the CPI increases more rapidly than does the cost of living

Gross Domestic Product equals

Y = C + I + G + NX

The concept of human capital describes

human skills, that is, the quality of labor

Potential GDP is

the amount of real GDP that the economy would produce if it were at full employment of all resources

The business cycle describes

the behavior of real GDP over time

Formula for inflation

(Current CPI-Previous CPI)/Previous CPI x 100

Formula for CPI

CPI Basket current prices/CPI basket at base prices. All times 100

in constructing the CPI, the BLS has to deal with commodity substitution bias, which is defined as

Consumer subsitution of cheaper goods for goods whose prices have increased

During the great depression of the 1930s when the unemployment rate was exceptionally high, the government instituted programs such as the civilian conservation core, to reduce what type of unemployment?

Cyclical

Which item has the largest weight in the CPI basket?

Housing

The Natural Unemployment Rate

includes only frictional and structural unemployment.