Macro Exam 2

A nation's standard of living is best measured by its

real GDP per person.

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

sell bonds.

Technical Knowledge

societies understanding of the best ways to produce goods and services

Investments

spending on capital equipment, inventories, and structures including household purchases of new housing

Problems of Consumer Price Index

substitution bias, new goods, unmeasured quality change

The length of time until a bond matures is called the

term.

Money multiplier

the amount of money the banking system generates with each dollar of reserves

Federal Reserve

the central bank of the united states

If the CPI was 125 this year and 120 last year, then

the cost of the CPI basket of goods and services increased by 4.2 percent this year. the price level increased by 4.2 percent this year. the inflation rate for this year was 4.2 percent.

Private Savings

the income that households have left after paying for taxes and consumptions

Natural Resources

the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits.

Nominal Interest Rate

the interest rate as usually reported without a correction for the effects of inflation

Real Interest Rate

the interest rate of corrected for the effects of inflation

GDP is equal to

the market value of all final goods and services produced within a country in a given period of time. Y. C + I + G + NX.

Job Search

the process by which workers find appropriate jobs given their taste and skills

Real GDP

the production of goods and services valued at constant prices

Nominal GDP

the production of goods and services valued at current prices

A nation's standard of living is determined by

the productivity of its workers.

Productivity

the quantity of goods and services produced from each unit of labor input

A farmer sells five pounds of pecans to a Smith's Fresh Pecans for $10. Smith's Fresh Pecans resells three pounds for $4.50 per pound. The remaining pecans are shelled and canned and sold for a total of $8.00 Taking these transactions into account, how much is added to GDP?

$21.50

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute

$250 to GDP.

Ryan lives in an apartment where he pays $7,000 a year in rent. Sarah lives in a house that could be rented for $21,000 a year. How much do these housing services contribute to GDP?

$28,000

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is

$46,666.67.

How to calculate unemployment rate

(# of employed/labor force)

The labor-force participation rate is computed

(Labor Force Adult Population) 100.

Which of the following is the correct formula for the GDP deflator?

(nominal GDP/real GDP) x 100

The Fed's 3 tools of monetary control

1) open market operations (buy/sell us bonds) 2) reserve requirements 3) the discount rate

Suppose that some country had an adult population of about 50 million, a labor-force participation rate of 60 percent, and an unemployment rate of 5 percent. How many people were unemployed?

1.5 million

Allied Business Consultants employs five researchers that each work 8 hour days. In one day the researchers prepared 10 reports for its 2 largest clients. What was Allied Business Consultants' productivity?

1/4 report per hour

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was

102.0.

The price index was 128 in 2013, and the inflation rate was 24 percent between 2012 and 2013. The price index in 2012 was

103.2.

In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, unemployment of 12.4 million, and employment of 141.6 million. Based on these numbers the labor-force participation rate was

154/234.9.

Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year?

2 percent

Hit-It produces 320 baseball bats per day using 2 workers who each work 8 hours per day. What is Hit-It's productivity?

20 baseball bats per hour

Last year real GDP per person in the imaginary nation of Olympus was 4,250. The year before it was 4,100. By about what percentage did Olympian real GDP per person grow during the period?

3.7 percent

In 2009, based on concepts similar to those used to estimate U.S. employment figures, the Swedish adult non-institutionalized population was 7.568 million, the labor force was 4.888 million, and the number of people employed was 4.486 million. According to these numbers, the Swedish labor-force participation rate and unemployment rate were about

64.6% and 8.2%.

Greg's Ice Cream produces 1120 gallons of ice cream per day. Each employed works seven hours and has productivity of 20 gallons an hour. How many employees does Greg's employ?

8

Which of the following statements about GDP is correct?

All of the above are correct. GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services. Money continuously flows from households to firms and then back to households, and GDP measures this flow of money. GDP is generally regarded as the best single measure of a society's economic well-being.

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Bond A has a term of 20 years and Bond B has a term of 2 years.

Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000 final goods. Country B has a population of 2,000, of whom 1,800 work 6 hours a day to make 270,000 final goods.

Country A has lower productivity and lower real GDP per person than country B.

Waldo works eight hours and produces 7 units of goods per hour. Emerson works six hours and produces 10 units of goods per hour.

Emerson's productivity and output are greater than Waldo's.

Octavia does not currently have a job, but she has applied for several jobs in the previous week. Eve is an unpaid stay-at-home mom who has not searched for work in recent years. Who does the Bureau of Labor Statistics count as "out of the labor force"?

Eve but not Octavia

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate.

A Mexican oil field service company works on oil rigs in the U.S. The value of the company's services produced by Mexican citizens and the equipment they own is included in

Mexican GNP and U.S. GDP.

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

Most of the bananas that are produced by a certain company in Honduras end up in U.S. grocery stores, and the price of these bananas increases.

The amount of unemployment that an economy normally experiences is called the

Natural rate of unemployment.

Which of the following is correct?

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

Which of the following is a requirement for the Bureau of Labor Statistics to place someone in the "unemployed" category?

The person must have tried to find employment during the previous four weeks.

In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year, which of the following statements is correct?

The rate of inflation is 29.17% in 2010.

Gross Domestic Product

The total value of goods and services produced within the borders of a country during a specific time period, usually one year.

Gina, a U.S. citizen, works only in Bermuda. The value of Gina's production is included in

U.S. GNP and Bermudan GDP.

Micah buys a used car for $10,000 and spends $200 on a new radio that is made in the U.S. The end result of these two transactions is

U.S. consumption purchases increase by $200 and U.S. GDP increases by $200.

In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40 in 2007. A hamburger cost $5 in 2006 and $6 in 2007. Which of the following statements is correct?

When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007.

Which of the following equations represents GDP for a closed economy?

Y = C + I + G

Fractional Reserve System

a banking system in which banks hold only a fraction of deposits as reserves

Foreign Portfolio Investment

a capital investment financed with foreign money but operated by domestic residents

Foreign Direct Investment

a capital investment that is owned and operated by a foreign entity

Bonds

a certificate of indebtedness

Stock represents

a claim to a share of the profits of a firm. ownership in a firm. equity finance.

Stocks

a claim to partial ownership in a firm

Production Function

a graph or equation showing relationship between inputs and outputs

Consumer Price Index

a measure of the overall cost of goods and services bought by a typical consumer

Which of the following would increase productivity?

an increase in the physical capital stock per worker an increase in human capital per worker an increase in natural resources per worker

Central Bank

an institution designed to oversee the banking system and regulate the quantity of money in the economy

Sirius has just finished high school and started looking for his first job, but has not yet found one. Other things the same, the unemployment rate

and the labor-force participation rate both increase.

Which of the following are financial intermediaries?

both banks and mutual funds

In the calculation of the CPI, books are given greater weight than magazines if

consumers buy more books than magazines.

Which of the following is not included in GDP?

carrots grown in your garden and eaten by your family

Who of the following are included in the Bureau of Labor Statistics' "employed" category?

certain unpaid workers part-time workers workers on vacation

You sell cupcakes. One day you double the time you spend and double all your inputs, and make twice as many cupcakes. Your cupcake production function has

constant returns to scale.

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

demand funds from the financial system by selling bonds.

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

dividends.

Jamarcus works part-time as a pizza delivery person in a college town. The Bureau of Labor Statistics counts Jamarcus as...

employed and in the labor force.

People who buy newly issued stock in a corporation such as Crate and Barrel provide

equity finance and so become part owners of Crate and Barrel.

Barter

exchange one good or service for another

If the quality of a good deteriorates while its price remains the same, then the value of a dollar

falls and the cost of living increases.

Financial Market

financial institutions through which savers can directly provide funds to borrowers

Institutions that help to match one person's saving with another person's investment are collectively called the

financial system.

Efficiency Wages

firms voluntarily pay wage above minimum wage to boost productivity

Workers searching for jobs that best suit them is most closely associated with

frictional unemployment.

Productivity is defined as the quantity of

goods and services produced from each unit of labor input.

Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

gross domestic product

The labor-force participation rate tells us the fraction of the population that

has chosen to participate in the labor market.

When the consumer price index rises, the typical family

has to spend more dollars to maintain the same standard of living.

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

in the GDP deflator, but not in the consumer price index.

Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself. Which of the following is correct? The value of changing the oil is

included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

introduction of new goods

A person who is counted as "unemployed" by the Bureau of Labor Statistics

is also in the labor force. must have recently looked for work or be on temporary layoff. must be at least 16 years old.

Income generated by a nation's domestic production

is equal to its domestic production.

The source of the supply of loanable funds

is saving and the source of demand for loanable funds is investment.

Human Capital

knowledge + skills workers acquire through edu, training, and experience

Human capital is

knowledge and skills that workers have acquired.

Labor Force Participation Rate

labor force/adult population

The primary economic function of the financial system is to

match one person's saving with another person's investment.

GDP Deflator

measures the price level calculated as the ratio of nominal GDP to real GDP times 100 (nominal gap/real gap)x100

The consumer price index is used to

monitor changes in the cost of living over time.

When a country saves a larger portion of its GDP than it did before, it will have

more capital and higher productivity.

Compared to short-term bonds, other things the same, long-term bonds generally have

more risk and so they pay higher interest rates.

The income that households and noncorporate businesses receive is called

personal income.

Which of the following items plays a role in determining productivity?

physical capital natural resources technological knowledge

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by surveying consumers.

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

raises GDP.

If a firm sells a total of 100 shares of stock, then

the supply of, and demand for, those shares determine the price per share. each share represents ownership of 1 percent of the firm. the firm is engaging in equity finance.

National income is defined as

the total income earned by a nation's permanent residents in the production of goods and services.

GDP does not reflect

the value of leisure. the value of goods and services produced at home. the quality of the environment.

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

the value of the consumer price index may depend on the choice of a base year, but the inflation rate does not depend on the choice of a base year.

If you buy a burger and fries at your favorite fast food restaurant,

then both GDP and consumption spending will be higher.

Cyclical unemployment refers to

year-to-year fluctuations of unemployment around its natural rate.