Macro Exam 2 Review

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2018, then the value of your grandfather's salary in 2018 is approximately

$84,774

The United States has ________ social insurance programs, and generally has _________ unemployment rate, as compared to Canada and Western Europe

Less Generous, Lower

The demand for loanable funds is downward sloping because the _______ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ____________ the quantity demanded of loanable funds

Lower; Greater; Greater

What is the name of the organization that defines business cycle peaks and troughs in the United States?

National Bureau of Economic Research

The purchase by a household in China of a CD produced in the United States is included in U.S.

Net Exports

The value added by a dealer

New Cost - Original Cost

How to find GDP Deflator

Nominal GDP / Real GDP

The stated interest rate on a load is the

Nominal Interest Rate

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ___________ quality increases. This causes the CPI to _________ the cost of the market basket.

Not; Overstate

If the CPI changes from 125 to 120 between 2017 and 2018, how did prices change between 2017 and 2018?

Prices decreased by 4%

If the GDP deflator is 142, by how much have prices changed since the base year.

Prices have increased by 42%

During the expansion phase of the business cycle, which of the following eventually increases?

Production, Employment, and Income

If your nominal wage rises faster than the price level, we can say your real wage has ________ and the purchasing power of your income has _________.

Risen; Risen

Household Survey

Self-reporting on people's employment status and used to compile monthly unemployment rate

Paying efficiency wages are a way for a company to cut costs and become more efficient, and are therefore lower than market wages

False

The inflation rate measures the average prices of goods and services in the economy

False

The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment

False (Frictional plus structural)

Most economists believe that labor unions significantly increase the overall unemployment rate in the United States

False (Just Slightly)

Transfer payments are subtracted from national income to get to personal income.

False (Personal Income includes transfer payments but excludes firms' retained earnings)

Suppose Bob works for Mary as a proofreader. Mary and Bob fall deeply in love, marry, and have eight children. Bob stops working for Mary in order to care for the children. What will be the effect on GDP

GDP will Decrease

During the month of May, 10 million workers moved from being classified as "unemployed" to being classified as "employed". As a result

The unemployment rate fell

Thingy about Interest Rate

When the actual inflation rate is less thane expected inflation, borrowers lose and lenders gain. (A higher inflation rate between them taking out the loan and them paying off means they get to pay less!)

The base year used in calculating real GDP is

Where the Nominal GDP and Real GDP are the same

Structural Unemployment

unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs

To reduce the bias in consumer price index, the Bureau of Labor Statistics

updates the market basket every two years, rather than every 10 years

In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means the BEA

values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

If an economy experiences deflation, the real interest rate

will be greater than the nominal interest rate

What is the value of investment in a closed economy?

Y - C - G

In a closed economy, which of these reflects investment?

Y - C - G (GDP - Consumption - Government purchases)

Which of the following explains the changes in the U.S. adult male labor force participation rate since 1948?

Younger men are remaining in school longer as compared to the past

Labor unions cause unemployment because the union contract wage is set

above the market wage, causing a surplus of labor

The labor force equals the number of people

employed plus unemployed

The output of Mexican citizens who work in Texas would be included in the

gross national product of Mexico

Nominal GDP will increase

if either the price level or the quantity of goods and services produced rises.

A sharp increase in the number of medical errors increases the number of lawyers hired to determine medical malpractice settlements. This will

increase GDP and decrease well-being in the economy.

If real GDP in a small country in 2017 is $8 billion and real GDP in the same country in 2018 is $8.3 billion, the growth rate of real GDP between 2017 and 2018

is 3.75%

The cost to firms of changing prices

is called a menu cost

If the GDP deflator is less than 100, then for that year, nominal GDP _______ real GDP

is less than

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as

labor productivity

Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as

not in the labor force

Full employment is not considered to be zero unemployment, because

people do not find jobs instantaneously

A good measure of the standard of living is

real GDP per capita (amount of production per person)

The producer price index measures the prices that firms

receive for the goods and services they use at all stages of production

A consumer price index of 160 in 1996 with a base year of 1982-1984 would mean that the cost of the market basket

rose 60% from the cost of the market basket in the base year

Frictional Unemployment

short-term unemployment that arises from the process of matching workers with jobs

People who lost their jobs as hand-drawn animators because of the popularity of computer-generated 3D animation are examples of persons who are suffering

structural unemployment

The unemployment rate is an important economic statistic that can tell us about the health of the economy. If the unemployment rate turns out to be high or higher than anticipated, we would expect

that stock prices are more likely to fall

Human capital refers to which of the following

the accumulated knowledge and skills workers acquire form education and training or from their life experiences

Liquidity refers to

the ease with which a financial security can be traded for cash

Potential GDP refers to

the level of GDP attained when all firms are producing at capacity.

When deflation occurs,

the nominal interest rate is greater than the real interest

An example of an intermediate good would be

the rims on a new car

Calculate the rate of increase in the price level from 2017 to 2018

2018 GDP Deflator (Nominal/Real GDP) - 2017 GDP Deflator / 2017 GDP Deflator

If an economy is growing at a rate of 2.5% per year, how long will it take the economy to double in size?

28 years (70 / percent growth)

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

3%

If the number of unemployed workers is 19 million, the number in the working-age population is 500 million, and the unemployment rate is 4%, how many workers are in the labor force?

475 million (Unemployment Rate = Unemployed / Labor Force)

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is

5% (Number of Unemployed / Labor Force)

Consumer Price Index (CPI)

A measure of the average change over time in prices a typical urban family of four pays for the goods and services they purchase.

If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% between those two years

False

Minimum wage laws cause unemployment because the legal minimum wage is set

Above the market wage, causing labor demand to be less than labor supply

Which of the following would increase the unemployment rate?

An increase in unemployment insurance payments

Producer Price Index (PPI)

Average of the prices received by producers of goods and services at all stages of the production process

Nominal GDP measures the value of all final goods and services at base-year prices.

False

Which of the following describes the accuracy of the Consumer Price Index

Changes in the CPI overstate the true rate of inflation

Investment, as defined by economists, would include the purchase of a

Computer by an accounting firm

Which of the following price indices comes closest to measuring the cost of living of the typical household

Consumer Price Index

Gross domestic product for the economy equals

Consumption + Investment + Government Purchases + Net Export

Establishment Survey

Data is determined by real payrolls, not self-reporting

In the circular flow model, the value of total income for an economy __________ the value of total production.

Equals

How to calculate CPI

Expenditures in current year / Expenditures in base year

How to calculate the Consumer Price Index

Expenditures in the Current Year / Expenditures in the Base Year

A period of economic expansion ends with a business cycle trough

False

Countries without well-developed financial systems are able to sustain high levels of economic growth

False

If Gladys sells her 2003 Jeep Cherokee for $3,500 in 2018, the sale of her car contributes $3,500 to 2018 GDP.

False

If government savings are negative, then

T - TR < G (Taxes - Transfer Payments < Government Expenses)

Why might firms pay wages that are above the equilibrium wage in a market?

To increase the productivity of their workers

Financial markets and financial intermediaries comprise the financial system

True

If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy

True

If inflation expectations are increasing, we would expect that the nominal interest rate would also be increasing, holding all else constant

True

Increases in capital per hour worked cannot sustain high rates of economic growth unless accompanied by technological change

True

The household survey asks adults about their unemployment status and is used to compile the monthly unemployment rate

True

To obtain real average hourly earnings, nominal average hourly earnings are multiplied by the CPI

True

Cyclical Unemployment

Unemployment causes by a business cycle recession

When actual inflation is less than expected

borrowers gain and lenders lose

The demand for durable goods during a recession

declines by a greater percentage than does GDP

The underground economy can be described as

economic activity that is hidden from the government to avoid taxes or because the activity is illegal.