EXAM 2 ECON 2301
Which of the following goods are usually intermediate goods and which are usually final goods? a. Running shoes:
A. FINAL GOOD
Which of the following are included in this year's GDP? Which are excluded? a. Interest received on an AT&T corporate bond:
A. INCLUDED
Which of the following are included in this year's GDP? Which are excluded? d. Income of a dentist from the dental services she provided:
Included
Which of the following are included in this year's GDP? Which are excluded? g. The publication and sale of a new college textbook:
Included
Which of the following are included in this year's GDP? Which are excluded? i. A $2 billion increase in business inventories:
Included
b. What is the demand factor?
The level of purchases needed to maintain full employment.
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.
Discretionary fiscal policy will likely cause budget
deficits during recessions and surpluses during periods of demand-pull inflation
With the expenditures programs and the tax system shown in the diagram,
deficits will occur at income levels below K, and surpluses above K.
Fiscal policy refers to
deliberate changes in government spending and taxes to promote economic growth, full employment, and price level stability.
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. i. The United States enters into an arms race with China, resulting in a significant increase in military spending.
demand increases
The phrase "too much money chasing too few goods" best describes
demand-pull inflation.
Final goods and services refers to
goods and services purchased by ultimate users, rather than for resale or further processing.
Government purchases include government spending on
government consumption goods and public capital goods.
The immediate-short-run aggregate supply curve is
horizontal.
Economists include only final goods and services when measuring GDP because
if intermediate goods were counted, then multiple counting would occur.
a. The problem of time lags in enacting and applying fiscal policy is
in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed.
b. 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.
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called
structural unemployment.
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 market value of unpaid work in the home.
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. 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 potential GDP is $400 billion and there is a negative GDP gap of $15 billion, actual GDP is
$385 billion.
The public debt for the economy is
$460 billion. (treasury bills + treasury notes + treasury bonds + us savings bonds)
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 Correct
Suppose the CPI was 120 last year and is 138 this year. b. In contrast, suppose that the CPI was 120 last year and is 116 this year. What is this year's inflation rate?
-3.3% [(116 - 120)/120) × 100].
What annual growth rate is needed for a country to double its output in each of the following cases? d. In 140 years:
0.5 % (70/140)
What annual growth rate is needed for a country to double its output in each of the following cases? c. In 70 years:
1% (70/70)
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 percent Unemployment rate = (unemployed/labor force) × 100.
What annual growth rate is needed for a country to double its output in each of the following cases? a. In 7 years:
10% (70/7)
The table contains information about the hypothetical economy of Scoob. All figures are in millions. The labor force in Scoob is
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 percent.
Suppose the CPI was 120 last year and is 138 this year. a. What is this year's inflation rate?
15% [(138 - 120)/120) × 100].
What annual growth rate is needed for a country to double its output in each of the following cases? b. In 35 years:
2% (70/35)
Consider the following data for a particular country. YEAR | POPULATION | REAL GDP 1 | 400 MILLION | 16 TRILLION 2 | 480 MILLION | 24 TRILLION b. What is the growth rate of real GDP per capita from year 1 to year 2?
25 % ([($50,000 − $40,000)/$40,000] × 100.) Real GDP per capita for year 1 is $40,000 = [$16,000,000,000,000 (real GDP)/400,000,000 (population)]. Real GDP per capita for year 2 is $50,000 = [$24,000,000,000,000 (real GDP)/480,000,000 (population)].
In the diagram, the economy's immediate-short-run AS curve is line ______, its short-run AS curve is _____, and its long-run AS curve is line ______.
3; 2; 1
In the diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines
4 and 3.
Consider the following data for a particular country. YEAR | POPULATION | REAL GDP 1 | 400 MILLION | 16 TRILLION 2 | 480 MILLION | 24 TRILLION a. What is the growth rate of real GDP from year 1 to year 2?
50 % ([($24 trillion − $16 trillion)/$16 trillion] × 100.)
The table contains information about the hypothetical economy of Scoob. All figures are in millions. The unemployment rate in Scoob is
6.9 percent.
Refer to the diagram, in which Qf is the full-employment output. Contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at
AD3.
Politicians recognize a sudden recession, but it takes many months of political deal making before they finally approve a stimulus bill.
Administrative lag
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.
Aggregate demand will decrease
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? c. A reduction in interest rates.
Aggregate demand will increase
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? d. A major increase in spending for health care by the federal government.
Aggregate demand will increase
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? e. The general expectation of coming rapid inflation.
Aggregate demand will increase
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? g. A 10 percent across-the-board reduction in personal income tax rates.
Aggregate demand will increase
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? j. An increase in exports that exceeds an increase in imports (not due to tariffs).
Aggregate demand will increase
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? 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.
Aggregate supply will decrease
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? i. A 12 percent increase in nominal wages (with no change in productivity).
Aggregate supply will decrease
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? f. The complete disintegration of OPEC, causing oil prices to fall by one-half.
Aggregate supply will increase
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? h. A sizable increase in labor productivity (with no change in nominal wages).
Aggregate supply will increase
Which of the following is not seen by economists as an underlying cause of business cycle fluctuations?
All of these are identified as causes of business cycle changes.
Net exports might be a negative amount if
Americans spend more on imports than foreign countries spend on American exports. Correct
Identify the following arguments about economic growth as either anti-growth or pro-growth. a. Growth means worker burnout and frantic schedules:
Anti-growth
Identify the following arguments about economic growth as either anti-growth or pro-growth. c. Earth has only finite amounts of natural resources:
Anti-growth
Identify the following arguments about economic growth as either anti-growth or pro-growth. d. Even the richest countries still have poverty, homelessness, and discrimination:
Anti-growth
c. Who gains from inflation?
Borrowers
b. A recession causes a local factory to lay off 30 workers.
Cyclical unemployment
Suppose the CPI was 120 last year and is 138 this year. c. What term do economists use to describe this second outcome?
Deflation
e. Which of the following statements is true?
Deflation means that the price level is falling, whereas with inflation overall prices are rising. Correct
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.
Demand decreases
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. g. A stock market crash reduces people's wealth.
Demand decreases
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. e. Government spending increases
Demand increases
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. h. The spread of democracy around the world increases consumer confidence in the United States.
Demand increases
Which of the following are included in this year's GDP? Which are excluded? b. Social Security payments received by a retired factory worker:
Excluded
Which of the following are included in this year's GDP? Which are excluded? c. Unpaid services of a family member who painted the family home:
Excluded
Which of the following are included in this year's GDP? Which are excluded? e. A monthly allowance that a college student receives from home:
Excluded
Which of the following are included in this year's GDP? Which are excluded? f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim:
Excluded
Which of the following are included in this year's GDP? Which are excluded? h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay:
Excluded
Which of the following are included in this year's GDP? Which are excluded? j. The purchase of 100 shares of Alphabet (the parent company of Google) stock:
Excluded
Which of the following goods are usually intermediate goods and which are usually final goods? C.Watches:
Final good
Which of the following goods are usually intermediate goods and which are usually final goods? d. Textbooks:
Final good
Which of the following goods are usually intermediate goods and which are usually final goods? f. Sunscreen lotion:
Final good
a. Tim just graduated from college and is looking for a job.
Frictional unemployment
Which of the following goods are usually intermediate goods and which are usually final goods? B. Cotton fibers:
INTERMEDIATE GOOD
Which of the following goods are usually intermediate goods and which are usually final goods? e. Coal:
Intermediate good
Which of the following goods are usually intermediate goods and which are usually final goods? g. Lumber:
Intermediate good
To fight a recession, Congress has passed a bill to increase infrastructure spending—but the legally required environmental-impact statement for each new project will take at least two years to complete before any building can begin.
Operational lag
To fight a recession, the president orders federal agencies to get rid of petty regulations that burden private businesses—but the federal agencies begin by spending a year developing a set of regulations on how to remove petty regulations.
Operational lag
Place the phases of the business cycle in order, starting with the highest level of GDP: recession, trough, peak, expansion.
Peak, recession, trough, expansion
Which of the following best describes the built-in stabilizers as they function in the United States?
Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.
Which of the following transactions would be included in GDP?
Peter buys a newly constructed house.
Which of the following best describes the idea of a political business cycle?
Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
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.
Identify the following arguments about economic growth as either anti-growth or pro-growth. b. Rising incomes allow people to buy more education, medical care, and recreation:
Pro-growth
Identify the following arguments about economic growth as either anti-growth or pro-growth. e. Richer countries spend more money protecting the environment:
Pro-growth
Identify the following arguments about economic growth as either anti-growth or pro-growth. f. Natural resource prices have fallen rather than increased over time:
Pro-growth
Which of the following statements is true?
Real GDP is nominal GDP divided by the price index
Distracted by a war that is going badly, politicians take no notice until inflation reaches 8 percent.
Recognition lag
c. Thousands of bus and truck drivers permanently lose their jobs to self-driving vehicles.
Structural unemployment
d. Hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India.
Structural unemployment
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. d. Employers are required to provide paid sick leave to part-time as well as full-time employees.
Supply decreases
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. b. Technological changes enable workers to be more productive.
Supply increases
a. What are the four supply factors of economic growth?
THE LEVEL OF TECHNOLOGY, THE QUALITY AND QUANTITY OF HUMAN RESOURCES, THE QUALITY AND QUANTITY OF NATURAL RESOURCES, THE STOCK OF CAPITAL GOODS
Illustrate these factors in terms of the production possibilities curve.
There is an outward (rightward) shift of the production possibilities curve.
The public debt is held as
Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.
Even though the United States has an unemployment compensation program that provides income for those out of work, should we still worry about unemployment?
Yes, because the unemployment compensation program merely gives the unemployed enough funds for basic needs
Which one of the following would not shift the aggregate demand curve?
a change in the price level
Which of the following is a private transfer payment?
a check for $250 sent by a parent to a daughter at college
Which of the following is a final good or service?
a haircut purchased by a father for his 12-year-old son
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.
Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it is experiencing
a negative GDP gap.
Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to
a price level that is inflexible downward.
The phase of the business cycle in which real GDP declines is called
a recession.
The crowding-out effect is
a reduction in investment spending caused by an increase in interest rates arising from an increase in government spending.
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.
In the treatment of U.S. exports and imports, national income accountants
add exports, but subtract imports, in calculating 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
an outward shift of the production possibilities curve.
In national income accounting, the personal consumption expenditures category includes purchases of
automobiles for personal use but not houses.
According to the Bureau of Labor Statistics, to be officially unemployed a person must
be in the labor force.
The immediate-short-run aggregate supply curve represents circumstances where
both input and output prices are fixed.
The amount by which government expenditures exceed revenues during a particular year is the
budget deficit.
The amount by which federal tax revenues exceed federal government expenditures during a particular year is the
budget surplus.
Recurring upswings and downswings in an economy's real GDP over time are called
business cycles.
Given the annual rate of economic growth, the "rule of 70" allows one to
calculate the number of years required for real GDP to double.
A nation's gross domestic product (GDP)
can be found by summing C + Ig + G + Xn.
a. 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.
Which of the following is the best example of public investment?
construction of highways
c. Expectations of a near-term policy reversal weaken fiscal policy because
consumers may hesitate to increase their spending because they believe that tax rates will rise again.
Inflation initiated by increases in wages or other resource prices is labeled
cost-push inflation.
Real GDP measures
current output at base year prices.
d. The nominal interest rate
minus the inflation rate is the real interest rate.
Gross domestic product does not include the value of the stocks and bonds bought and sold because these transactions are considered
economic investment and should not be counted as production of final goods and services.
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 determinants of aggregate demand
explain shifts in the aggregate demand curve.
b. The losers from inflation are those with
fixed incomes in nominal terms.
Net exports are a country's export of
goods and services less its imports of goods and services.
In the diagram, a shift from AS1 to AS3 might be caused by a(n)
increase in the prices of imported resources.
Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD3 describes the current situation, appropriate fiscal policy would be to
increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility.
The crowding-out effect of expansionary fiscal policy suggests that
increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
Contractionary fiscal policy is so named because it
is aimed at reducing aggregate demand and thus achieving price stability.
Expansionary fiscal policy is so named because it
is designed to expand real GDP.
The effect of contractionary fiscal policy is shown as a
leftward shift in the economy's aggregate demand curve.
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.
In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are
not counted.
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is
not in the labor force.
b. A political business cycle is the idea that
politicians are more interested in reelection than in stabilizing the economy.
If nominal GDP rises,
real GDP may either rise or fall.
The more reliable measure for comparing changes in the standard of living over a series of years is
real GDP.
Which of the following formulas is correct? Percentage change in
real income approximates percentage change in nominal income minus percentage change in price level.
Productivity measures
real output per unit of input.
Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD1 describes the current situation, appropriate fiscal policy would be to
reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2.
c. Inflation
reduces the purchasing power of the dollar.
Government's fiscal policy options for ending severe demand-pull inflation include
reducing government spending, increasing taxes, or both
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.
A major advantage of the built-in or automatic stabilizers is that they
require no legislative action by Congress to be made effective
The effect of expansionary fiscal policy is shown as a
rightward shift in the economy's aggregate demand curve.
Graphically, demand-pull inflation is shown as a
rightward shift of the AD curve along an upsloping AS curve
Refer to the graph. Growth of production capacity is shown by the
shift from AB to CD.
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. f. A hurricane destroys manufacturing plants.
supply decreases
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. j. A revolution in Iran results in a significant reduction in the world's supply of oil.
supply decreases
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. c. Manufacturing firms expect steel prices to decrease significantly.
supply increases
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. k. A new computer chip is developed that is faster and cheaper than previous chips.
supply increases
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
To say that "the U.S. public debt is mostly held internally" is to say that
the bulk of the public debt is owned by U.S. citizens and institutions.
The public debt is the amount of money that
the federal government owes to holders of U.S. securities.
Which of the following do national income accountants consider to be investment?
the purchase of a new house
The phase of the business cycle in which real GDP is at a minimum is called
the trough.
When measuring GDP, economists don't include the value of the used furniture bought and sold because
this value was already counted in GDP in some previous year.
Per-unit production cost is
total input cost divided by units of output.
The shape of the immediate-short-run aggregate supply curve implies that
total output depends on the volume of spending.
a. An increase in your nominal income and a decrease in your real income might occur simultaneously if
your nominal income increases less than the cost of living increases.
