Macro Exam 1 (chapters 6-9)
rate of inflation CPI formula
(cpi2-cpi1)/cpi1
Real average hourly wage
(nominal average hourly wage / CPI) x 100
National income is defined as
net national production less indirect sales taxes
Consumption expenditures do not include household purchases of
new houses
transfer payment
payment for which the government receives neither goods nor services in return
________ is/are the payment for the factor of production ________.
profit, entrepreneurship
What are indirect business taxes?
sales tax
Rapid increases in the price level during periods of recession or high unemployment are known as
stagflation
supply-side economics
states that increasing the supply of goods translates to economic growth
Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are
sticky prices
By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce
structural unemployment
Suppose the government reduced corporate profit taxes to encourage investment. This policy is in line with
supply-side growth economics
A cut in the tax rate designed to encourage investment is an example of
supply-side policy
The economic policy that is designed to increase the productivity of workers is known as
supply-side policy
When President Reagan proposed tax rates cuts to promote investment and increase productivity, he was proposing a change in
supply-side policy
congress decreases taxes on business, it is using
supply-side policy
if government regulations imposed on businesses that reduce productivity are eliminated, the government is attempting to use
supply-side policy
Which of the following is counted in GDP? A) the value of do-it-yourself work B) the value of goods and services produced in the underground economy C) the cost of a speed boat purchased by drug smugglers D) the value of leisure
the cost of a speed boat purchased by drug smugglers
In which of the following markets are funds demanded and supplied?
the money market
We say that the economy is at full employment if the unemployment rate is equal
the natural rate of unemployment.
During a deflationary period,
the nominal interest rate is less than the real interest rate
When prices are rising, which of the following will be true? A) The real interest rate will be higher than the nominal interest rate. B) The nominal interest rate will be negative. C) The real interest rate will be negative. D) The real interest rate will be lower than the nominal interest rate.
the nominal interest rate will be negative
a dividend is
the portion of a corporation's profits that the firm pays out each period to its shareholders.
The nominal interest rate will be less than the real interest rate when
the rate of inflation is positive but decreasing.
Total income in an economy is equal to
the sum of the wages, interest, rent, and profit
When Lucent reduced its labor force in 2001,
total employment in the United States was also falling.
The major lesson of the circular flow diagram is that
total income in the economy must always equal total spending.
which of the following is an assumption used by Classical economists?
wages adjust upward but not downward
which is a durable good A) food B) clothing C) a washing machine D) medical care
washing machine
To get the economy out of a slump, Keynes believed that the government should
decrease taxes and/or increase government spending
Economists have found that there has been an increasing share of men in the working-age population with no disabilities who are choosing not to work and are not looking for work. In 2006, Jay Stewart of the Bureau of Labor Statistics found that these men were typically spending their time
engaging in leisure
if your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.
fallen, fallen
For the last few decades, the labor force participation rates of men have ________, and the labor force participation rates of women have ________.
fallen, risen
True or False: the aggregate supply curve is based on the assumption of fixed prices
false
If Congress increases government spending, it is using
fiscal policy
Keynesian economics
Says economic slumps are caused by inadequate spending, and they can be mitigated by government intervention
Which of the following equations correctly measures GDP in an economy?
GDP =C + I + G + NX
GDP is nota perfect measure of well-being because
GDP is not adjusted for pollution.
The U.S. unemployment insurance program
increases the amount of time the unemployed spend searching for a job.
An efficiency wage
is higher than the market wage and tends to increase productivity.
The PPI is the
producer price index.
If prices are rising on average, then
real GDP will be greater than nominal GDP in the years before the base year.
In periods when prices are falling, on average,
real GDP will grow faster than nominal GDP.
Workers in Canada are eligible for unemployment benefits for about twice as long a period of time as workers in the United States. As a result,
the unemployment rate in Canada is usually higher than in the United States
Stagflation occurs when the economy's inflation rate is high and
the unemployment rate is high
To calculate GDP using the value-added method, one would add up
the value added by each firm involved in the production of final goods and services.
If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is
-3%
Most economists believe that biases cause changes in the CPI to overstate the inflation rate by
0.5%
CPI formula
100 x (cost of basket in current year/cost of basket in base year)
In a small economy, gross investment in 2008 is $1,500, consumption spending is $6,000, net investment is $200, government spending is $1,500, exports are $2,000 and imports are $1,000. What is GDP for this economy in 2008?
10000
it has become conventional to classify an economic downturn as a recession when aggregate output declines for
2 consecutive quarters
Which of the following would increase gross private domestic investment in an economy? A) an increase in the number of highway construction projects the government is funding B) an increase in the level of Apple's inventory C) an increase in the shares of Apple stock households own D) an increase in the number of workers Apple hires
B, an increase in the level of apples inventory
Which of the following describes the accuracy of the Consumer Price Index? A) Changes in the CPI are unrelated to the true rate of inflation. B) Changes in the CPI accurately reflect the true rate of inflation. C) Changes in the CPI overstate the true rate of inflation. D) Changes in the CPI understate the true rate of inflation.
Changes in the CPI overstate the true rate of inflation.
Which of the following explains why many European countries have unemployment rates that are higher than in the United States?
European countries offer higher unemployment benefits than the United States.
Scott is a woodworker and charges $125 an hour for his timemanufacturing custom-made wood products. For his wife's birthday, he designs and creates an intricate birdseye maple jewelry box that takes him 15 hours to complete. By how much and in what direction does GDP change as a result of his efforts?
GDP is not affected by Scott's production of the jewelry box.
Net national product (NNP) is equal to
GNP minus depreciation
Income Policy
Government efforts to control inflation by limiting increases in wages and prices
fiscal policy
Government policy that attempts to manage the economy by controlling taxing and spending.
monetary policy
Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.
Which of the following is a true statement about real and nominal GDP?
If real GDP increases from one year to the next, we know that production of goods and services has risen.
aggregate supply and demand
The total supply and demand in economy at a particular period of time and a particular price threshold
stagflation
a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)
The broadest measure of the price level that includes all final goods and services is
gdp deflator
the aggregate demand curve shows the total quantity demanded by all sectors in the Economy at different what
general price levels
Which of the following has a tendency to raise the unemployment rate?
implementing a minimum wage in an economy
n 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1,500. Today, a $1,500 iMac computer (also made by Apple) comes with 1,048,576 kilobytes (1 gigabyte) of memory. This illustrates the potential for what kind of bias in CPI calculations?
increase in quality bias
what would reduce labor force participation
increase in working age population
According to the Classical economists, the economy
is self-correcting
if the central bank decreases the money supply, it is conducting
monetary policy
You agree to lend $1,000 for one year at a nominal interest rate of 10%. You anticipate that inflation will be 4% over that year. If inflation is instead 3% over that year, which of the following is true?
The person who borrowed the $1,000 will be worse off as a result of the unanticipated decrease in
If the GDP deflator is 142, by how much have prices changed since the base year?
42%
The equilibrium wage in a local labor market is $6 per hour. If a minimum wage of $8 per hour is imposed, which of the following will occur?
There will be an increase in unemployment.
The total supply of goods and services in an economy is known as
aggregate supply
When lumber from Brazilian forests is used by a U.S.-owned company to produce furniture in Canada, the value of the furniture produce will contribute to
canadas GDP
To make the calculation of real GDP more accurate, in 1996 the BEA switched to using
chain-weighted prices
Investment spending includes spending on
changes in business inventories
The concept of "market clearing" is adopted and defended by
classical economists
According to the Classical model, unemployment
could not persist because wages would fall to eliminate the excess supply of labor.
nominal GDP is another word for
current dollar GDP
