MacroEcon Chapters 8-11

What effect do labor unions have on unemployment rate?

Since few non-govt workers are unionized, there is no significant effect on unemployment rate.

Suppose Sally J. Society recently lost her job as underwater welder. While looking for new job, discovers that only available jobs are for economists and that there are no openings for underwater welders because trade is now obsolete If Sally decides to return to school to earn an Economics degree, what is the best classification of her unemployment status?

Structurally unemployed.

Which of the following makes changes in CPI overstate true inflation rate?

Substitution bias. Increase in quality bias New product bias

There is a govt budget surplus if

T-Tr>G.

Which of the following formulas does the BLS use to calc unemployment rate?

# unemployed/#labor force X 100.

A very simple economy produces three goods: movies, burgers, and bikes. Quantities produced and corresponding prices for 2006 and 2013 are shown in table above. What is nominal GDP in 2013?

$7,035.

your father earned $34,000/yr in 1984. To nearest dollar, what is equivalent to in 2008 if CPI is 215 and CPI in 1984 is 104?

$70,288

What is the real ave hrly wage in 2009? What can be said about real ave hrly earnings and nominal ave hrly earnings between 2008 and 2010?

$8.21 Both real and nominal ave hrly earning increased.

What are the four categories of income?

Wages, Interest, Rent, and Profit.

Largest component of Gross Domestic Income is

Wages.

Figure above shows levels of GDP per capita around the world 2012. GDP is measure din US dollars, corrected for differences across countries in cost of living. Use figure to help ID which is true:

Western Europe, Australia, Canada, Japan, New Zealand, and the US are high-income countries.

If a country passes a labor law limiting the number of hours of work per week, GDP would _____ and leisure would _____.

decrease; increase.

When additions of input to a fixed quantity of anothe rinput lead to progressively smaller increases in output, we say we are facing

diminishing returns

Consider the per-worker production function to right. Equal increases in quantity of capital per hr worked lead to _____ increases in output per hr worked.

diminishing.

Evaluate the following statement: "Saving money is not lending. How can it be? When I save money, I put it in a bank. I don't loan it out to someone else." This statement is

incorrect. The supply of loanable funds is determined by household saving.

Compared to period between 1950 and 1972, productivity of US workers between 1973 and 1994

slowed by more than one percentage pt per yr.

Consider data for closed economy: Y=$12tril C=$8 I=$2 G=$2 TR=$2 T=$3 Refer to scenario above. Based on info, what is level of private saving in economy?

$3trillion

Looking at table above, real ave hrly earnings in 2010 were

$5.63

If nominal interest rate is 6% and inflation is 9%, real interest rate is

-3%

If a 3mon Treasury bill pays 5.5% and change in CPI is 4.7%, what is real interest rate?

.8%

CPI in 2009 equals CPI in 2011 equals Total

145 133.75 400, 580, 535

Using table above, what is the approx ave annual growth rate from 2010 to 2013.

2%

Consider the following simple economy that produces only three goods.

2009 Denim pants: $50. Wine: $10. Textbooks: $100. Real GDP in 2009 equals $6680.

Nominal GDP $13,195 billion (2011) $13,841 billion(2012) Real GDP $11,319 billion(2011) $11,567 billion (2012)

2011, value of GDP deflator is 117. 2012, value of GDP deflator is 120.

In real GDP equals $11,567bil in 2006 and $11,916bil in 2007, assuming population is constant over those two yrs, how many yrs will it take for real GDP per capita to double?

23.3yrs

When the economy is in full employment

All remaining unemployment is either frictional or structural. Unemployment rate is > 0. Natural rate of unemployment prevails.

Use the graph to help determine which one of following is true:

Ave American in 2006 could buy nearly eight times as many goods/services as ave American in yr 1900.

If the Commerce Department adjusts the growth rate of GDP downward for the first quarter of 2014, and BLS adjusts # of hrs worked upward for first quarter of 2014, what will BLS do in terms of revising figures on growth rate of labor productivity for first quarter?

BLS will adjust growth rate downwards.

Suppose the fixed interest rate on a loan is 5.75% and rate of inflation is expected to be 4.25%. The real interest rate is 1.5%. Suppose now that instead of 4.25% the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation?

Borrowers gain from a lower real interest rate. Lenders lose from a lower real interest rate.

Refer to the graph to the right. According to the economic concept of catch-up, which of the following is CORRECT?

Poorer countries should grow more quickly and will be at pt A.

Indicate whether each of the following is a final good, an intermediate good, or neither.

Coffee beans purchased by shop: Intermediate. One share of Google: Neither. New pick-up purchased by consumer: Final good. New home purchased by family: Final good.

The figure above shows the values of the components of GDP for 2006. Based on data shown, which of following regarding the components of GDP are false?

Consumer spending on services is less than the sum of spending on durable and nondurable goods.

What are the four major categories of expenditure?

Consumption, investment, govt purchases, and net exports.

Real GDP per capita is often used as a measure of general well-being. While increases in real GDP often do lead to increases in well-being of population, why is real GDP not a perfect measure of well-being?

Costs of pollution not included. GDP not include crime rates or income distribution. Value of leisure is not included.

The following table illustrates the value added approach to calc GDP.

Cotton: 3. Textile: 2. Shirt: 12. L.L.Bean: 20. Total: 37.

Suppose two countries, Country A and Country B, have similar real GDP per capital. A has an average economic growth rate of 2% and B has ave rate of 3.3%. In long run, what can we predict about living standards in two countries?

Country B's living standards will increase much more rapidly in long run.

How do unemployment insurance payments in US and social insurance programs in other countries increase unemployment rate?

Decrease opportunity of cost of job search.

What is general relationship between business cycle and unemployment and inflation?

During expansion, unemployment falls and inflation increases.

Based on teh above table and graph, which of the following statements regarding total production and total income is true?

Each measure of production and income gives a diff value for total production and income.

According to Costco's CEO, Jim Sinegal: "Paying... advantage for you." What is Costco's CEO referring to?

Efficiency Wages.

Refer to table tot he right. Why has productivity growth in US been faster than most other industrial countries?

Efficient financial markets. Flexible labor markets.

Which of following contribute to shorter recessions, longer expansions, and less severe fluctuations in real GDP?

Fiscal Policy Unemployment insurance Service-based economy

Suppose John Q. Worker is currently unemployed. Each day, Worker spends entire day searching available job openings for appropriate position given his set of skills, abilities, and interests. If someone asks him what he does for work, he tells them that he is currently "in-between jobs." Which best classifies John Q's unemployment status?

Frictionally unemployed.

Why is GDP an imperfect measurement of total production in the economy?

GDP doesn't include household production of prod from underground economy.

National income is

GDP minus depreciation.

The table and figure above show GDP measured in terms of the total income received by households. Use table and figure to help determine which of following statements about division of income is false.

Gross domestic income is measured precisely.

According to figure at right, productivity increased after 1995 almost as quickly as it slowed after 1972, leading many economists to discuss a "new economy." The "new economy" emerged as result of what?

Improvements in data processing. Innovations in info technology Increased use of Internet

Use graph to help determine which one of following statements regarding fluctuations in real GDP is true:

In first half of twentieth century, real GDP had much more severe swings than in second half.

How does US economy create and destroy millions of jobs each yr?

In market syst, new firms are constantly enter and exiting. Some businesses are expanding, others contracting.

The figure to the right illustrates the relationship between weak and strong rule-of-law countries and economic growth. In addition to country's failure to enforce rule-of-law, what else explains why more low-income countries do NOT experience rapid growth as the catch-up line predicts?

Inability to borrow money needed for investment. Shortage of childhood vaccinations. Lengthy civil wars.

When economy reaches a trough in business cycle, which of following will occur?

Income, production, and employment rise

Panel a above shows idealized business cycle. Panel b shows actual business cycle by plotting fluctuations in real GDP during 1999-2002. Use graphs to help determine which is NOT true:

Inconsistent movements in real GDP around the business cycle peak can mean that the beginning and ending of recession are clear-cut.

During expansion phase of business cycle, production, employment, and income _____. During recession phase of business cycle, production, employment, and income _____.

Increase Decrease.

Which of the following does not lead to long-run economic growth?

Increase in average wages.

Which of the following is true about the impact of WWII on US economy.

Increased production of tanks, ships, planes, and munitions accounted for most of the increase in GDP.

Potential GDP

Increases over time as tech change occurs. Increases over time as labor force grows.

China's economy has grown tremendously from 1979 to present. Reason for growth is

Intro of market-oriented reforms in 1978.

BLS uses establishment survey to collect info on employment in economy. Indicate one drawback of it compared to current population survey and incicate one advantage.

It does not include info about self-employed people. It is based on company payroll and not unverifiable answers.

Why is unemployment rate, as measured by BLS, an imperfect measure of extent of joblessness ineconomy?

It fails to acct of illegal activities. Underemployed people are considered employed. Discouraged workers are not considered unemployed. It does not acct for inaccurate responses to Current Population Survey.

Philippines and Vietnam have roughly same size population. Suppose GDP of Philippines is 1,000 billion and GDP of Vietnam is $10,000 bilion. You should conclude

It is not possible to make a good comparison of the economic well being of a typical individual in the 2 countries w/o additional info.

If firms pay what are called "efficiency wages", they pay wages that

Motivate workers to increase productivity.

Personal income is

Nat income minus retained corporate earnings plus govt transfer payments and interest on govt bonds.

Some economists argue that the productivity slowdown from mid-1970s to mid-1990s actually didn't happen, but just "appeared" to happen because

New environmental laws had passed and forced firms to spend to reduce pollution, and this spending did not raise output. Services were becoming a more important part of the economy, and it was hard to measure increases of output from services.

Even perfectly anticipated inflation imposes costs. Why?

Paper money loses its purchasing power by the rate of inflation. Menu costs. Some wages will fail to keep up with anticipated inflation.

New growth theory suggests that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal govt intervene in market to increase amt of knowledge capital?

Patents Public edu Subsidies

You agree to lend $1,000 for one yr at nominal interest rate of 10%. You anticipate inflation will be 4% over that yr. If inflation is instead 3% over that yr, which of the following is true?

Person who borrowed will be worse off as result of unanticipated decrease in inflation.

Disposable personal income is

Personal income minus personal taxes.

Strong rule-of-law countries grow more rapidly than weak rule-of-law countries. What factor will most likely improve economic growth in weak rule-of-law countries?

Political reform

Use the graph to help determine which of the following statements regarding real and potential GDP is true.

Potential real GDP increases every year.

In a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows: Y=$13tril C=$10 I=$4 TR=$3 T=$4 Using info above, what is value of private saving and public saving?

Private equals $2trillion and public saving equals $2trillion.

Which of the following can give an early warning of future increases in price level?

Producer price index

Which of the following would be included in GNP of US?

Production from US firm that operates in Mexico.

What can low-income countries do in order to increase the amt of loanable funds available to firms for investment projects such as new factories or improved technology?

Provide savings incentives.

Firms that act as financial intermediaries match households that have excess funds with firms that want to borrow funds. What other key services does the financial system provide to savers and lenders?

Provides easy method of exchanging financial security for money. Collects and communicates info about borrowers and savers Allows savers to spread money among financial investments.

If govt purchases are $400mil, taxes $700mil, and transfers are $200mil, which is true?

Public saving is $100mil.

Suppose base yr is 2001. Looking at GDP data from US from 2001 to present, what would be true of the relationship between nominal GDP and real GDP?

RGDP<NGDP prices rising.

Economic growth model explains growth in real GDP per capita in long run. Because of importance of labor productivity in explaining economic growth, economic growth model focuses on causes of increases in long run labor productivity. What are key factors that determine labor productivity?

Technological change Quantity of capital per hr worked.

Consider the figure to right. Which of the following is responsible for upward shifts in per-worker production function?

Technological change.

Use the graph above showing the % of GDP comprised of goods/services to help id which of following is true.

The % of US GDP composed of goods has fallen consistently since 1980.

Panel a shows movements in real GDP for each quarter from beginning of 1990-2006. Panel b shows movements in # of passenger aircraft shipped by Boeing for same yrs. Which is true:

The effects of recession on Boeing are much more dramatic and long-lived than effects on economy as whole.

Which of the following is true regarding the economic growth model's predictions and how it actually affects the real world?

The growth model predicts that poor countries should catch up with rich countries, but developing countries are not catching up to lower-income industrialized countries as a group.

The figur ein the window on the right shows ave annual growth rates in real GDP per hr worked in US. Based on data from figure on right which one is false?

The growth rate of real GDP per hr worked has continually accelerated over time.

Why do some economists pt to a decline in quality of labor as an explanation for the productivity slowdown in mid-1970s?

The skill level required to perform many jobs increased during this period, although skills of labor forced didn't increase as quickly.

Use graph to help determine which one of following statements regarding inflation and business cycles is true. Pts on figure represent annual inflation rate measured by change in CPI for yr ending in indicated month.

Toward end of 1991-2001 expansion inflation rate began to rise.

indicate whether following is true of false and why. "A wage rising slower than the rate of inflation is actually failing."

True. If wages are increasing slower than the ave price of goods and services, purchasing power falls.

What is typical of length of unemployment in modern post-Great Depression-era US economy?

Unemployment lasts less than six months.

In August 2013, working-age population of US was 245.9 mil. Working age population is divided into those in labor force (155.5 mil) and those non (90.4mil). Labor force is divided into employed (144.2mil) and unemploy(11.3mil). Those not in labor force are divided into those not available for work (84.1mil) and available (6.3mil). Finally, those available for work but not in labor force are divided into discouraged workers (.9mil) and other reasons (5.4mil). Use this data to hel pdetermine which of following is true:

Unemployment rate is 11.3mil/155.5mil X 100 = 7.3%. Labor force participation rate is 155.5mil/245.9mil X 100 = 63.2%

Use graph to help determine which one of following statements regarding unemployment and business cycles is true.

Unemployment rate usually continues to rise even after recession has ended.

Why do economic growth rates matter?

When country sustains high growth rates, life expectancy at birth increases. High growth rates coincide with improved living standards. High levels of sustained economic growth reduce infant mortality.

For this data, the base year for calculating GDP is 2000. Use the graph to help determine which of following regarding nominal and real GDP is FALSE.

When nominal GDP increases, real GDP falls.

Which of the following equations sums up components of GDP?

Y=C+I+G+NX

Countries with high rates of economic growth tend to have

a labor force that is more productive.

When recession ends,

firms increase amt of borrowing.

Technological change is more important to long-run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through

foreign direct investment

If real GDP in small country in 2012 is $8bil and real GDP in same country in 2013 is $8.3bil, the growth rate of real GDP between 2012 and 2013

is 3.75%

Key factors in raising standards of living in low-income countries have been increases in

technology and knowledge.

All of the following are reasons why China is unlikely to maintain high enough rates of productivity growth to catch-up with the standard of living in the US except

the Chinese migration of rural workers to more productive urban jobs.

Healthier, more educated workers tend to be more productive. Greater overall productivity per hr worked is a fundamental component of long-term economic growth. However, many very successful individuals often find few opportunities in their own developing countries, and leave them for industrial countries. By improving health and education, developing countries can generate economic growth, and increase incomes. This will help combat the prevalence of educated people leaving their home countries for opportunities elsewhere. That is, it will combat

the brain drain.