Macroeconomics (Homework: 5,6,7,8 | Quizzes: 3&4 | Exam 2)

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called

structural unemployment

The CPI is not a perfect measure of inflation because______:

substitution

When deflation occurs,

the real interest rate is greater than the nominal interest rate.

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

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

Real GDP is GDP in a given year

valued in the prices of the base year.

If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?

2.7%

If real GDP grows by 3% in 2014, 3.2% in 2015, and 2.5% in 2016, what is the average annual growth rate of real GDP?

2.9%

Refer to Table above. Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The base year used in calculating real GDP is

2014

Which of the following would be the best measure of the cost of living?

consumer price index

The response of investment spending to an increase in the government budget deficit is called

crowding out

The BLS produces data on unemployment from a regular survey of households called the

current population survey

The GDP deflator is a ratio of _______________ prices

current to fixed

To calculate GDP by the expenditure method, one must add

consumption spending, investment spending, government spending, and net exports.

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

firms

Actual real GDP will be above potential GDP if

firms are producing above capacity.

A student who just graduated from college but has not found a job would most likely be

frictionally unemployed

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

gross national product of Mexico.

Gross domestic product understates the total production of final goods and services because of the omission of

household products

Refer to Table above. Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals

$6,400

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2016, then the value of your grandfather's salary in 2016 dollars is approximately

$84,775

Suppose that real GDP for 2015 was $10,000 billion and real GDP for 2016 was $9,500 billion. What is the rate of growth of real GDP between 2015 and 2016?

-5%

Refer to Table above. What is the GDP deflator in 2016 if 2016 is the base year?

100

If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is

125

If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from

23.3 years to 17.5 years

What is investment in a closed economy if you have the following economic data? Y = $10 trillion C = $5 trillion TR = $2 trillion G = $2 trillion

3 trillion

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 nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?

3.5%

If real GDP per capita doubles between 2005 and 2020, what is the average annual growth rate of real GDP per capita?

4.7%

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

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%

If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?

5%

If real GDP per capita measured in 2009 dollars was $6,000 in 1950 and $48,000 in 2016, we would say that in the year 2016, the average American could buy ________ times as many goods and services as the average American in 1950.

8

If the number employed is 190 million, the number unemployed is 10 million, and the working-age population is 250 million, then the labor force participation rate is

80%

Which of the following is an example of a worker experiencing frictional unemployment?

A worker quits his job at the Post Office to find more interesting work.

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

Changes in the CPI overstate the true rate of inflation.

All modern dynamic economies are subject to ____ of job.

Creative-destruction

Deviation of unemployment from natural rate is ____ rate of unemployment:

Cyclical

Which of the following causes the unemployment rate to understate the true extent of joblessness?

Discouraged workers are not counted as unemployed

Net Export is calculated as _______________

Export-Imports

TRUE/ FALSE If nominal GDP is less than real GDP, then the GDP deflator will be greater than 100.

False

TRUE/ FALSE Residential investment includes spending by firms on office buildings.

False

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

False

GDP is not a perfect measure of well-being because

GDP is not adjusted for pollution.

_______ is the ease with which a financial security can be exchanged for money.

Liquidity

If the CPI changes from 125 to 120 between 2015 and 2016, how did prices change between 2015 and 2016?

Prices decreased by 4%.

Natural Rate of unemployment is the sum of:

Structural + Frictional

If government saving is negative, then

T - TR < G

You earned $30,000 in 2007, and your salary rose to $80,000 in 2016. If the CPI rose from 82 to 202 between 2007 and 2016, which of the following is true?

The purchasing power of your salary increased between 2007 and 2016.

The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that

The value of output in 2015 was around $17.3 trillion. Total income in 2015 was around $17.3 trillion. Total spending in 2015 was around $17.3 trillion.

TRUE/ FALSE Developing countries with large informal sectors tend to have firms that invest less in capital equipment.

True

The equation of the GDP components is:

Y=C+I+G+NX

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

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.

Which of the following would encourage economic growth through increases in the capital stock?

a change from an income tax to a consumption tax an increase in household saving a decrease in the government deficit

If consumers decide to be more thrifty and save more out of their income, then this will cause

a shift in the supply curve for loanable funds to the right

Labor unions cause unemployment because the union contract wage is set

above the market wage, causing a surplus of labor.

In the United States in 2013, the Bureau of Economic Analysis began counting spending by firms and individuals on developing entertainment products as investment. This change will

add to GDP.

Labor force participation rate measures percentage of _______in labor force.

adult population

Which of the following would increase the unemployment rate?

an increase in unemployment insurance payments

The consumer price index is the

average of the prices of the goods and services purchased by a typical urban family of four

The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket.

change; overestimates

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

computer by an accounting firm.

Which of the following is not one of the key services provided by the financial system?

decreasing taxes

Gross domestic product in the economy is measured by the

dollar value of all final goods and services produced in the economy.

Labor force is ______ workers in the economy

employed + unemployed

Counting part-time workers who are looking for full-time work as employed overstates the degree of joblessness in the economy.

false

For developed countries like the United States, GDP will always exceed GNP.

false

Inflation usually increases during a recession and decreases during an expansion.

false

Potential GDP is the maximum output a firm is capable of producing.

false

Residential investment includes spending by firms on office buildings.

false

TRUE/ FALSE Efficiency wage is another name for the minimum wage.

false

TRUE/ FALSE Eliminating frictional unemployment would be good for the economy.

false

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

false

TRUE/ FALSE The inflation rate measures the average prices of goods and services in the economy.

false

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

false

The increased generosity of unemployment insurance programs in Canada as compared to the United States should

increase the duration of unemployment in Canada as compared to the United States.

During a business cycle expansion, total production ________ and total employment ________.

increases, increases

The percent increase in the CPI from one year to the next is a measure of the Group of answer choices

inflation rate

Which of the following is not directly counted in GDP?

intermediate goods

Which of the following increases labor productivity?

inventions of new machinery, equipment, or software

New houses are included in the ______________ component of the GDP.

investment

An advantage of the establishment survey over the household survey of the labor market is that the establishment survey

is based on actual payrolls, rather than on unverified answers

The GDP is not a perfect measure of standard of living because it does not take _____________ of increasing production into account

social problems

A final good is one that

is purchased by its final user.

A firm can fund an expansion of its operations by

issuing bonds

Which of the following labor market statistics best indicates the amount of labor that is available to the economy from a given working-age population?

labor force participation rate

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

For a good to be included in the GDP, it must be produced

legally

If inflation increases unexpectedly, then

lenders receive a lower real interest rate than they expected.

Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2016. You know that average prices have risen steadily since 1961. You earn

less than 5 times as much as your grandfather in terms of real income

One cost of inflation is:

menu cost

Durable good is a good that can be used for:

more than one period

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

motivate workers to increase their productivity

The purchase by a foreign government of an airplane produced in the United States is included in U.S.

net exports

Inflation rate is measured as percentage change in prices from one period to the-----period

next

Equilibrium in the loanable funds market determines

the real interest rate

Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about

one-half to one percentage point.

The Bureau of Labor Statistics would categorize a retiree who is not working as

out of the labor force

The Bureau of Labor Statistics would categorize a retiree who is not working as

out of the labor force.

Full employment is not considered to be zero unemployment, because

people do not find jobs instantaneously.

The nominal interest rate equals the real interest rate ________ the inflation rate.

plus

The nominal interest rate is real interest rate ____inflation rate

plus

Long-run economic growth requires all of the following except

political instability

The PPI is the average of prices faced by ____ of goods and services

producers

The only way the standard of living of the average person in a country can increase is if ________ increases faster than ________.

production; population

A good measure of the standard of living is

real GDP per capita.

If prices are rising on average, then

real GDP will be greater than nominal GDP in the years before the base year.

The producer price index measures the prices that firms

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

The period between a business cycle peak and a business cycle trough is called

recession.

An increase in the real interest rate does which of the following?

reduces consumption spending

Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will

remain constant

The GDP is the market value of goods and services produced by _____________ of a country.

residents

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.

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

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

the National Bureau of Economic Research

What does the PPI measure?

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

Liquidity refers to

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

If cyclical unemployment is eliminated in the economy, then

the economy is considered to be at full employment

Potential GDP is defined as

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

The unemployment rate is

the percentage of the labor force that is unemployed

The average price of goods and services in the economy is also known as

the price level

Suppose that nominal GDP in 2016 was less than real GDP in 2016. Given this information, we know for certain that

the price level in 2016 was less than the price level in the base year.

The nominal interest rate will be less than the real interest rate when

the rate of inflation is negative

The nominal interest rate will be less than the real interest rate when

the rate of inflation is negative.

Gross domestic product is calculated by summing up

the total market value of final goods and services produced in the economy during a period of time.

Suppose that the labor movement has a revival in the United States and the majority of workers join labor unions. As a result we would expect

the unemployment rate to rise

When the labor market is at full employment

there is no cyclical unemployment in the economy

If inflation is positive and is perfectly anticipated,

those that hold paper money loose

The government purchases do not include the

transfer payments

Financial markets and financial intermediaries comprise the financial system.

true

Housing is the largest component of the U.S. CPI market basket.

true

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

true

TRUE/ FALSE The costs to firms of changing prices are called menu costs.

true

TRUE/ FALSE The household survey asks adults about their employment status and is used to compile the monthly unemployment rate.

true

The natural rate of unemployment consists of frictional unemployment plus structural unemployment.

true

The consumer price index implicitly assumes that the demand curve for each good and service in the representative market basket is

vertical

Which of the following are not considered part of government purchases?

welfare benefits