Macro Midterm 1

What 2 Things Cause Structural Unemployment?

1. Technological Advances 2. Rapid Relocation of Available Jobs

You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton?

$10

Price Index Formula Given CPI

( (T2-T1) / T1 ) * 100

How does unemployment rate understate the true level of unemployment

1. Discouraged Workers 2. Marginal Attached Workers 3. Underemployed Workers (Ducks Make Underwear)

What are the 3 Kinds of Natural Unemployment?

1. Frictional 2. Structural 3. Surplus

What are the different types of unemployment?

1. Frictional - Time Between Jobs 2. Structural - Lack of Jobs 3. Cyclist - Seasonal 4. Natural - Long Run Equilibrium

What are the 3 main causes of inflation?

1. Rise in Demand 2. Supply Shocks 3. Government Actions "Rush Shitty Geeds"

What are the 3 factors that affect interest rates?

1. Supply/Demand of money in the economy 2. International Forces 3. Actions of the Federal Government (Sucks Indian Ass)

Price Index Equation

2ND year / 1ST year * 100

Suppose that in Southlandia, frictional unemployment is 2%, structural unemployment is 3%, and overall unemployment is 9%. What is the natural rate of unemployment in Southlandia?

5%

19. The consumer price index is computed by comparing the cost of the typical market basket of goods purchased during a base year (evaluated at base year prices) with: a. The cost of the same market basket evaluated at current prices. b. The cost of the current market basket evaluated at base-year prices. c. The cost of the current market basket evaluated at current prices. d. The cost of the same market basket evaluated at base year prices

A

A decrease in the supply of loanable funds should A.) increase interest rates B.) decrease interest rates C.) have no effect on interest rates D.) decrease the amount borrowers are willing to pay

A

An economist attempts to estimate the percent change in per capita real GDP (productivity) using the percent change in capital, percent change in labor, and the respective shares of labor and capital. The actual percent change in per capita real GDP was -2.5% (decreased by 2.5%). If both capital and labor increased, and the shares are positive, what would the economist say about technological change? A.) Technology decreased B.) Technology increased more slowly than labor or capital C.) Technology was not a factor in the percent change in real GDP per capita D.) The price of Technology increased more quickly than capital and labor's

A

In the Circular Flow Model, Investment spending is spending on: A.) productive physical capital. B.) stocks. C.) mutual funds. D.) corporate bonds.

A

What is the most important way in which government affects economic growth? A.) Political stability and good governance B.) Providing government spending to prop up the private sector C.) Having the least amount of government intervention in the economy D.) The main policy platforms of the political party I agree with

A

Which is an example of a positive statement? A.) Uncertainty about government policy has reduced investment B.) A high rate of inflation is good for the country. C.) A 14% poverty rate is larger than it should be D.) The economy is lookin' real good right now

A

When deciding to make a loan or borrow, which interest rate do borrowers and lenders base their decision on?

A nominal interest rate adjusted for expected inflation

Who counts as a discouraged worker?

A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment in the last four weeks.

What amount of average price level change is considered the best for an economy?

A small amount of inflation

4.) What is typically the largest component of U.S. GDP? A.) government spending B.) consumer spending C.) investment spending D.) net export spending

B

8.) If the minimum wage creates structural unemployment, in which labor market will the effect least likely be? A.) The market for teenage labor B.) The market for Wall Street banker labor C.) All of the above D.) None of the above

B

For the purposes of calculating GDP, goods that are produced in a particular period but NOT sold in that period A.) go into inventory and are called consumption. B.) end up in inventory and are included in investment C.) are finally included when they are sold D.) are classified as intermediate goods

B

Frictional unemployment often occurs when: a. The economy enters a recession. b. People first enter the labor force. c. People are discriminated against. d. People lose a job because their skills are no longer needed.

B

In the Circular Flow model, what type of agent would venture capitalists, private equity companies, and real estate property groups be? A.) Firms B.) Households C.) These types of agents are not in the model D.) I have no idea what any of those things are

B

Productivity must decline when: A.) workers produce less per labor hour B.) population growth exceeds real GDP growth. C.) the ratio of adult civilians employed outside the home rises. D.) real GDP growth exceeds the population growth

B

Shoe-leather costs refer to the costs of A.) changing the listing of prices if inflation is very high B.) the increased number of transactions if inflation is very high C.) living adjustments if inflation is very high D.) All the above

B

Unemployment caused by a recession is called: a. Frictional unemployment. b. Cyclical unemployment. c. Natural unemployment d. Structural unemployment.

B

Which of the following can best be considered a resources used in the production of computers? A.) wages of the engineers B.) computer engineers C.) money from investors D.) taxes paid on the profits from the sale of the computers

B

In 2012, the US Federal Government spent around $1.6 Trillion dollars on purchases, took in about $3.2 Trillion dollars in taxes, and borrowed around $0.5 Trillion. What percent of government expenditures counted towards GDP that year? A.) 53% B.) 43% C.) 56% D.) 0% E.) 100%

B Spending = Income Spending = Taxes + Borrowing Spending = 3.7 T 1.6/3.7 = 43%

What is implied about PPF

Bowed out PPF: Increasing OP cost associated with the production of either good

How is human capital different than labor? a.) Human capital is the amount of physical capital that workers own b.) Labor accumulates, capital does not c.) Human capital is only purchased once, and used many times, and labor is not d.) Human capital and labor are the same

C

Which of the following types of unemployment is considered to be the most controllable through macroeconomic policy? a. Frictional unemployment. b. Natural unemployment. c. Cyclical unemployment. d. Structural unemployment.

C

GDP Equation

C + I + G + Exports - Imports

Example of Frictional UE?

College Graduates Searching for Jobs

GDP equation:

Consumption spending + Investment Spending + Govmt Ependitures + Net Exports ( Exports - Imports ) CIG+NX

What flows into Factor Market?

Costs

5.) Which transaction would not be counted in the GDP for the United States? A.) A state government uses tax money to repair a damaged bridge B.) Nike builds a retail store C.) Your mother buys a pair of tennis shoes at the Nike Store D.) The government pays your mother Social Security

D

All of these could create structural unemployment EXCEPT A.) minimum wage B.) collective bargaining efforts that secure higher wages for unionized workers than for nonunionized workers. C.) offering higher wages in order to ensure performance where it is difficult to monitor workers D.) an increase in the amount of time it takes to find a job

D

Historical evidence shows that over: A.) an extended period, long-run growth is just as important as the business cycle in determining a country's living standards. B.) long periods, it is difficult to determine whether the business cycle or long-run growth in determining a country's living standards. C.) short periods, long-run growth is less important than the business cycle in determining a country's living standards. D.) an extended period, long-run growth is much more important than the business cycle in determining a country's living standards.

D

Suppose that nominal GDP is $1000 in 2009 and nominal GDP is $1500 in 2010. If the overall price level ____ between 2009 and 2010, we could say that real GDP _____. A.) increased by less than 50 percent; stayed constant. B.) increased by less than 50 percent; decreased. C.) increased by more than 50 percent; increased. D.) increased by more than 50 percent; decreased.

D

Which of the following are consequences of unemployment? a. A rising price level, which reduces the purchasing power of consumers. b. A rising aggregate output and income. c. An increase in the money supply which increases inflation. d. A decline in output and income.

D

Market for loanable funds supply curve; what is represented by the supply and demand curve?

Demand: Borrowers Supply: Savers

Two Types of Econ Models

Descriptive; tries to explain Predictive; How does it behave "predicts"

What is included in GDP?

Domestically produced final goods and services, including capital goods, new construction of structures, and changed to inventory

Based on the evidence presented in class, what is true of timescale of global economic GDP growth?

Economic growth is a very recent phenomenon (only since the 1700's)

Productivity is primarily a measure of what?

Efficiency

Jonathan is currently enrolled in college full-time; however, he works part-time at a restaurant on weekends to earn some spending cash. Jonathan would be considered:

Employed

Positive Statements

Fact Based

4 squares in CFD

Factor Market, Households, Market for Goods and Services, Firms

What economic agent is a seller in the market for goods and services

Firms

What are intermediate goods?

Goods or services bought from one firm by another firm that are inputs of production of final goods and services

In the simplified circular flow model, what economic agent owns capital?

Households

What economic agent is a seller in the market for resources?

Households

Which two quantities should be the same in the National Income Account

Income and Expenditure

Point outside PPF

Infeasible

Labor Force Participation Rate Equation

Labor Force / Population

3 Scarce resources econ studies

Land Labor Capital

Define GDP:

Market value for all final goods produced in a country in a YEAR

Positive result that comes from CFD

Money = Income

What flows into households?

Money Income

What is Real Interest Rate?

Nominal Rate - Inflation Rate

Normative Statements

Opinion Based (Norman has strong opinions)

Criteria to be considered Unemployed?

People who are willing and able to work but are not currently working

If nominal GDP decreases from one year to the next what does that mean in terms of prices?

Prices Levels Fell

GDP per Capita Equation

Real GDP / Population

What is the difference between Nominal and Real GDP?

Real GDP is inflation adjusted while Nominal GDP is not

What is Business Cycle

Short run fluctuations between expansion and recessions

What is Nominal Rate?

Stated Interest Rate on a Loan

When deciding to make a loan or borrow, which interest rate is the most important?

The Expected Real Interest Rate

Problems with CFD?

Trade realisticness for simplicity

Labor Force Equation

Unemployed + Employed

Unemployment Rate Equation

Unemployed / Labor Force

Unemployment Rate % Equation:

Unemployed / Labor Force * 100

Value Added equation:

Value of its Sales - Value of purchases of intermediate goods and services

What is Opportunity Cost

What you give up when making a choice

UE can go down when

When more workers are leaving the work force

Structural UE?

Workers Failing to Find Jobs and Employers Failing to Find Workers

Demand for loanable funds _____________ as the interest rate increases. Supply of loanable funds ________________ as the interest rate increases.

decreases;increases