Macrotest 3

Five rules to track the economy

1. track many indicators 2. broad indicators beat narrow indicators 3. seek just-in-time date 4. find the signal amid the noise 5. Adjust your output when data differ from expectations

GDP deflator formula

Nominal GDP/Real GDP x 100

hyperinflation

extremely high rates of inflation

hyperinflation is:

extremely high rates of inflation

You are collecting data on GDP, the stock market, nonfarm payrolls, and initial unemployment claims to track the state of the economy. Which of these indicators will you receive data from least regularly and at the end of each quarter?

GDP

Hysteresis

occurs when a period of high unemployment leads to a higher equilibrium unemployment rate

If you see that the consumer price index this year is lower than the consumer price index last year, this means that:

on average, prices went down across the economy

suppose that an economy is overheating. you would expect to see the unemployment rate:

fall below the equilibrium rate

the GDP deflator is an index that tracks

price of all goods and services produced domestically. (nothing imported)

annualized growth rate Ga =

(1+Gq)^4 -1

the functions of money include

medium of exchange, store of value, unit of account

Suppose that your biggest concern is spotting economic downturns before they occur and that you are not very worried about accidentally predicting an economic downturn when there will actually not be one. Which of these economic indicators would you likely watch most closely?

the stock market

nonfarm payrolls

tracks how many jobs are created each month, provides an early and reliable look at how quickly the economy is creating jobs

An underemployed person is one who is:

working but whose skills are not fully utilized.

actual unemployment

(frictional UE + structural UE)+ cyclical

What is Fiji's GDP deflator if its nominal GDP is $5.48 billion (in current US$) and the real GDP is $5.21 billion?

105.2

In May 2019, there were approximately 68,980,000 people in Japan's labor force. About 1,650,000 people were unemployed. What was the unemployment rate?

2.4%

In May 2019, Texas reported a civilian labor force of 14,012,711. The number of employed people was 13,516,387. What was the unemployment rate?

3.5%

Okun's rule of thumb

For every percentage point that actual output falls below potential output, the unemployment rate is around half a percentage point higher.

You have four friends. Which of your friends can be described as "cyclically unemployed"?

Keele, who lost her job after her company lost a lot of customers during an economic downturn

cyclical unemployment

Unemployment that is due to a temporary downturn in the economy

frictional unemployment

Unemployment that is due to the time it takes for employers to search for workers and for workers to search for jobs

structural unemployment

Unemployment that occurs because wages don't fall to bring labor demand and supply into equilibrium

lagging indicators

Variables that follow the business cycle (GDP) with a delay are called

leading indicators

Variables that tend to predict the future path of the economy (GDP) are called

real GDP formula

Y = C + I + G + NX

Aggregate production function

Y = f(L, H, K) Output(Y) function(f) Labor(L) Human capital(H) Physical capital(K)

Efficiency wages

a higher wage paid to encourage greater worker productivity

Henry Ford's $5 per day wage is an example of:

an efficiency wage.

Annualized growth rate

data converted to the ratethat would occur if the same growth rate hadoccurred throughout the year

the higher the minimum wage, as compared to the equilibrium wage, the:

higher the structural unemployment

Clynical Unemployment =

-(1/2) times the output gap

Top 10 Economic Indicators

1.Real GDP 2.Real GDI 3.Nonfarm payrolls 4.Unemployment rate 5.Initial unemployment claims 6.Business confidence 7.Consumer confidence 8.Inflation 9.Employment cost index 10.The stock market

Automatically adjusting wages, benefits, tax brackets, and the like to compensate for inflation is called

indexation

which of these is true regarding expansions?

it will keep going until they experience a shock that halts future growth

When inflation is higher than expected, there is redistribution from:

lenders to borrowers

menu costs are the:

marginal costs of adjusting prices.

During periods of high inflation, stores that publish catalogs find it necessary to revise prices and publish new catalogs _____ frequently than they did before. This is an example of _____ costs

more; menu

The Producer Price Index is an index that tracks the:

price that businesses pay over time for the inputs used in the production process.

when tracking the economy, you are usually better off choosing __ data and __ data

real gdp, seasonally updated

If the frictional rate of unemployment is 1.45%, the structural rate of unemployment is 2.3%, and the total unemployment rate is 6%, then we can conclude that:

the equilibrium rate of unemployment is 3.75%.

the natural unemployment rate is also known as the___ unemployment rate

long-run

Initial Unemployment Claims

tell you how many people lost their jobs and applied for unemployment the previous week, offers a timely insight into what is happening

Business confidence

tells you what managers are planning, when it starts to fall, a recession might be on the horizon

An involuntarily part-time worker is one who:

works part-time but wants to find a full-time job