Final Review

Which of these is NOT a problem in using GDP to measure standards of living?

failure to include exports and imports

The GDP deflator for the base year is:

always equal to 100

Human capital includes

the improvements to labor capabilities from training, education, and apprenticeship programs

In the simple Keynesian model with no government and foreign sectors, assume that the economy is in equilibrium at an output level of $2 billion with a marginal propensity to consume of 0.90. If investment spending decreases by $0.05 billion, what is the new equilibrium output level?

$1.50 billion

If a consumer is willing to pay $20 for a pizza, but the price of the pizza is $10, then the consumer surplus resulting from the customer's purchase of the pizza is:

$10

If personal consumption is $110, investment is $65, government purchases total $25, imports equal $20, and exports equal $30, then GDP equals $:

$210

If you have $100,000 in a 401k growing 10% per year on average, how much will this be worth in 35 years when you retire?

$3,200,000

GDP is $4.5 trillion in 2010. If the GDP deflator is 100 in 2000 and is 118 in 2010, what is real GDP?

$3.8 trillion

A guitar is produced in California using $300 in raw materials and sells for $400 in a guitar shop. Each guitar that is produced contributes $_____ to U.S. GDP.

$400

Jonathan purchased coffee for $5 at Jennifer's coffee shop; however, he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The transaction resulted in a consumer surplus of _____ and a producer surplus of _____.

$4; $2

(Table) The associated table provides a hypothetical bundle of goods and their respective prices for three different years. If 2014 is selected as the base year, the cost of the market basket in 2017 would be

$640.50

Suppose the market basket of goods costs $25,000 in 2009, the base period, and that same basket of goods now costs $33,000. What has been the percentage change in the cost of goods between the base period and the current period?

+20%

(Table) According to the table, what is the value of this country's net exports?

-$35

Suppose the unemployment rate is 8% and an economist breaks the unemployment rate into the following components: frictional (2%) and structural (5%). Based on these estimates, the cyclical unemployment rate is:

1%

Rocky Gap Furniture hires ten employees working eight hours each to produce 100 rocking chairs. What is the productivity of these workers?

1.25 chairs per hour

If personal consumption is $20, investment is $65, government purchases total $25, imports equal $30, and exports equal $20, then GDP equals $:

100

If the nominal GDP is $13 trillion for a given year and the GDP deflator for that year is 115, then the real GDP is $

11.3 trillion

According to the table, what is the unemployment rate of this economy?

14.3%

If $7,000 of additional spending occurs and the marginal propensity to save is 0.40, the total effect on the economy is an increase of $_____ in income or output

17,500

In the figure, investment has increased from I0 to I1. The multiplier equals:

2.5.

If MPC = 0.6, what is the spending multiplier?

2.50

If a car is produced in Detroit in 2013 but not sold until 2014, it should be included in _____ GDP, and its value should be counted in _____.

2013's; inventory changes

Suppose an economy has an MPC of 0.8. If the government increases spending (G) by $50 billion that is not financed by taxes, income would increase by $_____. Alternatively, if this spending is financed by a $50 increase in taxes (T), income would increase by $_____.

250 billion; 50 billion

Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (2%), and cyclical (5%). Based on these estimates, the natural rate of unemployment is:

4%

Investment spending is $600. If there is no government spending or net exports, the equilibrium income level is $:

4,000

If output equals A × (2K + 3L), what is output if A equals 200, capital equals 11, and labor equals 80?

52,400

If an economy's GDP will double in 11 years, then its growth rate must be about _____%

6.36

Suppose a country's economy grows from $100 billion on January 1, 2023, to $102 billion on April 1, 2023.What is this country's annualized growth rate as of April 1, 2023?

8.0%

What is an example of gross private domestic investment?

A change in business inventories

An effective price ceiling results in

A shortage

In the following PPF, between which two points would long-run growth be represented?

C to D

According to the simple Keynesian model, which of these statements is NOT correct?

APC + MPS = 1

How much faster does it take for a $10,000 investment to increase to $20,000 if the average annual growth rate is 14% compared to 7%?

At 14%, the investment will double five years faster.

In the following PPF, between which two points would short-run growth be represented?

B to C

Which of these is true within the circular flow of economic activity?

Business firms are sellers of products and buyers of production factors.

Which good is typically considered a public good?

Clean air

According to the table, which country was MOST likely to experience catch-up growth?

Econia

According to the table, which country will double its real GDP per capita MOST quickly?

Econia

The two approaches used by the government in estimating GDP are:

Expenditure and income

A person is considered to be unemployed if they have been either actively or passively looking for work.

False

A trough in the business cycle usually means that the economy is operating at its capacity.

False

Child care provided by a nanny is included in the GDP if the parents pay the nanny "under the table."

False

Deadweight loss is found by subtracting producer surplus from consumer surplus

False

Expectations of large increases in income lead to lower levels of consumption.

False

If a price ceiling is set above the market price, it is ineffective

False

In the income approach to calculating GDP, net interest is the interest paid by businesses plus the interest they receive.

False

Raj is a 16-year-old high school student who has no marketable skills. He has been browsing the want-ads in the local newspaper for months but finally got so discouraged that he quit looking for a job. According to the Bureau of Labor Statistics, Raj is unemployed.

False

The Index of Economic Freedom shows that countries with the fewest economic freedoms have the highest per capita GDP

False

The consumer price index measures the average change in prices received by domestic producers for their output.

False

The economy is not likely to be heading into a recession when the National Activity Index equals −0.95.

False

The inflation rate is 4%. If Social Security payments automatically rise by 4%, this adjustment is authorized by an:

escalator clause

The U.S. gross domestic product is equal to the total market value of all:

Final goods and services produced by resources in the US

Which of these equations is true at equilibrium in the simple Keynesian model?

I = S

According to the balanced budget multiplier, an increase in government spending of $15,000, that is financed by an increase of $15,000 in taxes, will have what effect on the economy when MPC is 0.60?

Income will increase by $15,000

If a country's real GDP today based on 2016 prices is equal to $20 billion, which of these statements is MOST accurate?

The country's nominal GDP is greater than $20 billion

Jill plants flowers in her yard to supply a local florist. Her neighbor enjoys the flowers. Therefore

Jill is creating an external benefit for her neighbor

Which of these values for MPC and MPS is possible for an economy?

MPC = 0.80; MPS = 0.20

Which of these statements does NOT describe an adjustment to national income to obtain GDP?

Net exports are added to national income.

Jamestown offers a free community bus service to anyone wishing to use it. Is this service a public good?

No, because there are only a limited number of seats on each bus

What correctly lists the sequence of stages in the business cycle?

Recession, Trough, Expansion, Peak

Suppose an effective price ceiling is imposed in a market, leading to the development of an illegal black market for the product. How would the price in the black market compare to the price of the product in the legal market?

The black market price is higher

_____ is a measure of the change in average prices paid by urban consumers for a typical market basket of goods and services.

The consumer price index

When demand for a product falls, ceteris paribus, what happens to the equilibrium price and consumer surplus at that price?

The equilibrium price falls, and consumer surplus falls

If income is $70,000, consumption is $55,000, and saving is $15,000, then the marginal propensity to save is:

There is not enough information to answer this question

When the supply of a product increases, ceteris paribus, what happens to firms' willingness to produce and to the amount of producer surplus?

They both increase

Why are prices above equilibrium inefficient?

They cause deadweight loss

A price floor is effective if it is set above the market equilibrium price.

True

Frictional unemployment refers primarily to workers between jobs.

True

In a country with income concentrated in the hands of a small group of people, median household income would be a better measure of the standard of living of a typical citizen than GDP per capita.

True

Long-run economic growth occurs when an economy finds new resources or finds ways to use existing resources better

True

Marco is an undocumented worker who follows the harvest, picking vegetables. His income from this work is probably part of the informal economy.

True

People must be actively engaged in a job search to be considered unemployed.

True

Price serves as a rationing device

True

Social Security payments are included in the personal income category of national income.

True

Structural unemployment is usually associated with extended periods of unemployment.

True

The national income and product accounts ignore nonmarket transactions, investments in human capital, and the use of people's leisure time.

True

Total factor productivity is a measure of output that is not explained by the number of inputs used

True

Total surplus is the net benefit a society attains from a market transaction.

True

What is a statement about environmental quality and economic activity is true?

Wealthier countries tend to value environmental quality more than developing countries.

When an economy is going through disinflation prices

are rising at a slowing pace

Which one of these would be included in GDP calculations?

a hamburger purchased by a hungry restaurant patron

Which of these reasons does NOT contribute to a higher level of unemployment?

a reduction in union bargaining activities

If a pharmaceutical company knows that one of its products has a dangerous side effect but does not disclose that to its customers, then the market for that product is likely to fail due to

asymmetric information or mismatch information

Getting a flu shot reduces the chances of spreading the illness to one's classmates and friends. Why, then, is the market for flu shots characterized by market failure?

because the number of people who obtain flu shots is less than the socially optimal number

Deadweight loss refers to a reduction in

both consumer surplus and producer surplus

Consumption spending is spending:

by individuals and households on both durable and nondurable goods

The largest category when using the income approach to calculate GDP is:

compensation of employees

Income and output are in equilibrium at point:

d

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income

decreases by $10 billion.

Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing:

disinflation

With everything else held constant, if 5% of those considered to be frictionally unemployed found work while the number of people considered to be structurally unemployed increased by 5%, the natural rate of unemployment:

does not change

. If the marginal propensity to consume is 0.80, the marginal propensity to save is 0.20, and government spending decreases by $6 billion at the same time taxes fall by $6 billion, equilibrium income will:

fall by $6 billion

Which of these combinations would result in the MOST economic freedom?

free trade, competitive markets, and limited regulations

Market failure may provide a justification for

government intervention in the economy

Which of these actions would reduce frictional unemployment?

holding job fairs

In the formula for GDP (GDP = C + I + G + (X − M)), what does M represent?

imports

What is the single MOST important factor influencing economic growth for an economy?

increased productivity

If the marginal propensity to consume increases, the spending multiplier _____ and the balanced budget multiplier _____.

increases; remains the same

What occurs when spending is above the full employment level?

inflationary gap

In the simple Keynesian model, equilibrium exists when:

investment spending equals saving.

Physical capital includes

manufactured products that are used to produce other goods and services

In the circular flow diagram, the counterclockwise direction shows the flow of _____, where households supply _____ and businesses supply _____.

money; labor; goods and services

A production function says output per worker equals A × F(L/L, K/L, H/L, N/L) and tells us all of these EXCEPT _____ will lead to a better standard of living

more people

If aggregate expenditures equal $6,200 and aggregate income equals $5,800, businesses will produce:

more, raising both employment and income.

The sum of all income, including wages, salaries and benefits, profits, rental income, and interest, is called _____ income

national

GNP includes output produced _____, but it does not include output produced _____.

outside the United States by U.S. citizens; inside the United States by foreign citizens

Total spending in an economy is the sum of

personal consumption plus gross private investment plus government spending plus net exports.

When price falls below equilibrium price

producer surplus falls, and it is uncertain whether consumer surplus rises or falls

Suppose that the market price of a good is $6, and the equilibrium price is $8. Compared to the market equilibrium

producer surplus is smaller, and deadweight loss is larger

The difference between market price and the price at which sellers would be willing to supply a product is called:

producer surplus.

If the price of a good is above the equilibrium price

producers can gain at consumers' expense.

What is the BEST measure of economic growth and standards of living in a country?

real GDP per capita

Which of these items is NOT a category of personal consumption expenditures?

residential housing

If a price floor is set above the equilibrium price in the market, consumer surplus will be

smaller than it would be without the price floor

GDP can be found either by adding up all of the _____ or all of the _____ in the economy

spending; income

Which organization determines the beginning and end dates of a recession?

the National Bureau of Economic Research

If a price floor is set below the equilibrium price in the market, consumer surplus will be

the same as it would be without the price floor

If a country's population increases at a higher rate than the growth in its real GDP

the standard of living in the country has declined

In the market depicted in the graph, which shape represents consumer surplus?

the triangle hik

In the market depicted in the graph, which shape represents producer surplus?

the triangle jik

Flu vaccination shots provide external benefits. Thus

too few flu vaccination shots are given

Flu vaccination shots provide external benefits. Thus:

too few flu vaccination shots are given.

Joe fixes cars in his driveway to earn income. He works late at night and makes so much noise that Moe, his neighbor across the street, cannot sleep. Therefore:

too much is being produced relative to the socially optimal amount

Zeba was laid off from her job at the post office last month. Since then, she has been looking for a full-time job and has been applying to two new jobs weekly. According to the Bureau of Labor Statistics, Zeba is:

unemployed

How large is deadweight loss in equilibrium?

zero