Microeconomics exam 1
What are the three main kinds of unemployment?
structural, frictional, and cyclical
The "new product bias" in the consumer price index refers to the idea
that new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.
Value added equals the market price of the firm's product minus
the price of the intermediate goods
When deflation occurs,
the real interest rate is greater than the nominal interest rate.
Frictional unemployment is the result of
the search process of matching workers with jobs
Gross domestic product understates the total production of final goods and services because of the omission of
the underground economy
Discouraged workers are
workers who have stopped looking for work because they believe there are no jobs for them.
Rule of 70
yrs to double = (70/growth rate)
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%
The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is
5% higher in year 2 than in year 1
If the number of unemployed workers is 200 million, the number of employed workers is 300 million, and the working-age population is 800 million, what is the labor force participation rate?
62.5%
Year:2005 guns 80 price $5 butter 40 price 4 Year: 2013 guns 90 price $6 butter 60 price 10 Consider the following data for Tyrovia, a country that produces only two products: guns and butter. Real GDP for Tyrovia for 2013, using 2005 as the base year, equals
690
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%, what is the labor force participation rate?
95%
An efficiency wage
Is higher than the market wage and tends to increase productivity.
The unemployment rate equals the number of unemployed divided by the ________, all times 100.
Labor force
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
________ is the ease with which a financial security can be exchanged for money.
Liquidity
The real interest rate equals the nominal interest rate ________ the inflation rate.
Minus
In a closed economy, which of the following components of GDP is not included?
Net exports
Between 2013 and 2014, if an economyʹs exports rise by $8 billion and its imports fall by $8 billion, by how much will GDP change between the two years, all else equal?
Net exports will increase GDP by $8 billion
Real Interest Rate
Nominal Interest Rate - Inflation Rate
The stated interest rate on a loan is the
Nominal interest rate
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
Discouraged workers are classified by the BLS as part-time employees.
Out of the labor force
Long-run economic growth requires all of the following except
Political instability
Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarah experiencing?
Sarah is not experiencing unemployment of any kind, because she is not currently part of the labor force
The most widely used measure of inflation is based on which of the following price indices?
The consumer price index
The CPI is also referred to as
The cost of living index
There is a federal budget deficit when
The government spends more than it collects in taxes
e say that the economy is at full employment if the unemployment rate is equal to
The natural rate of unemployment
If the federal government implements programs so that the unemployed are more quickly matched with jobs, then
The natural rate of unemployment will decrease
The average price of goods and services in the economy is also known as
The price level
Which of the following could cause nominal GDP to decrease, but real GDP to increase?
The price level falls and the quantity of final goods and services produced rises.
An increase in public saving has what impact on the market for loanable funds?
The supply of loanable funds increases
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
With the exception of during recessions, workers in Canada are eligible for unemployment benefits for about twice as long a period of time as workers in the United States. As a result,
The unemployment rate in Canada is usually higher than in the United States
Which of the following is not a true statement about the impact of World War II on the U.S. economy?
The war time years were a period of prosperity for U.S. consumers.
Deflation occurs when
There is a decline in the price level
If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy.
True
Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness?
Unemployed persons falsely report themselves to be actively looking for a job.
In a closed economy, private saving is equal to which of the following? (Y = GDP, C =Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
Y+TR-C-T
In a closed economy, which of the following equations reflects investment? (Y = GDP, C =Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
Y-C-G
Which of the following transactions represents the purchase of a final good?
You buy a new John Deere riding lawn mower.
Which of the following financial securities is most liquid?
a $20 bill
An example of a seasonally unemployed worker would be
a ski lift operator who loses his job when the snow melts in the spring
If GDP is currently $13 trillion and is growing at a rate of 2.3% per year, how long will it take GDP to reach $26 trillion?
about 30 years
Labor unions cause unemployment because the union contract wage is set
above the market wage, causing a surplus of labor
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.
An increase in the demand for loanable funds will occur if there is
an increase in expected profits from firm investment projects
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.
Macroeconomics, as opposed to microeconomics, includes the study of what determines the
average price levels of goods and services in the economy
Investment, as defined by economists, would not include which of the following? Ford Motor Company
buys US government bonds
Which of the following price indices comes closest to measuring the cost of living of the typical household?
consumer price index
Most of the unemployment that occurred during the Great Depression was
cyclical unemployment.
If you have trouble finding a job because of a slowdown in the overall economy, we would say that you are
cyclically unemployed
After the recession of 2007-2009, the unemployment rate peaked at 10.0 percent in October 2009. Eighteen months later, it had
declined by only 1 percentage point
If the BLS counted persons that are on active military service in the totals for employment, the labor force, or the working-age population, this would
decrease the measured unemployment rate
Increasing the amount of consumption spending and reducing the amount of savings ________ investment expenditures, and ________ long-run economic growth in the economy.
decreases;decreases
Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds.
demanders;suppliers
Macroeconomics seeks to understand
economic growth, business cycles, and inflation.
The labor force is the sum of
employed workers and unemployed workers
Macroeconomics, as opposed to microeconomics, includes the study of what determines the level of
employment in the economy
The natural rate of unemployment is the amount of unemployment
equal to frictional plus structural unemployment.
In the circular flow model, the value of total income for an economy __________ the value of total production.
equals
If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.
fallen;fallen
Actual real GDP will be above potential GDP if
firms are producing above capacity
Efficiency wages cause unemployment because
firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied
The natural rate of unemployment is made up of
frictional and structural unemployment
ʺHousehold productionʺ refers to
goods and services people produce for themselves.
Which of the following would decrease the unemployment rate?
government aid to retrain unemployed workers
Gross domestic product understates the total production of final goods and services because of the omission of
household production
An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment.
increase; frictional
Legalizing all forms of illegal activities
increases GDP and reduces the size of the underground economy.
During a business cycle expansion, total production __________ and total employment __________.
increases; increases
Gross domestic product understates the total production of final goods and services because of the omission of
intermediate goods
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
The labor force participation rate equals the
(labor force/working-age population) × 100
In a closed economy, public saving is equal to which of the following?
(Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers) T - G - TR
Year 2005 guns 80 price 5 butter 40 price 4 Year 2013 guns 90 price 6 butter 60 price 10 Consider the following data for Tyrovia, a country that produces only two products: guns and butter. Real GDP for Tyrovia for 2013, using 2005 as the base year, equals
$1,140=(90 x 6)+(60 x 10)
year 2011 avg hrly earinings 10 cpi 100 year 2012 ahe 10 cpi 105 year 2013 ahe 12 cpi 110 Looking at the table above, real average hourly earnings in 2011 were
$10
year 1965 ahe 2.65 cpi 32 year 2010 ahe 22.59 cpi 219 The real average hourly earnings for 1965 in 1982-1984 dollars equal
$8.28
year 2011 ahe 10 cpi 100 year 2012 ahe 10 cpi 105 year 2013 ahe 12 cpi 110 Looking at the table above, real average hourly earnings were equal to ________ in 2012.
$9.52
year 2011 avg hrly earnings 10 cpi 100 year 2012 avg hrly earnings 10 cpi 105 year 2013 avg hrly earnings 12 cpi 110 Looking at the table above, real average hourly earnings were equal to ________ in 2012.
$9.52
Growth Rate
((New-Old)/(Old)) x 100
GDP Deflator
((Nominal GDP/Real GDP)) x 100
CPI
((Quantity base x Current Price)/(Quantity base x Base Price)) x 100
Adjusting for Inflation
((Value yr A/CPI yr B)) = ((Value yr B/CPI yr B))
GDP per Capita
(GDP/Population)
Labor Force Participation Rate
(Labor Force)/(Working age population) x 100
Real average hourly earnings
(Nominal Wage in a Year/CPI in a Year) x 100
Unemployment Rate
(Unemployed/Labor Force) x 100
year 2010 real gdp 10100 year 2011 real gdp 10950 year 2012 real gdp 11425 year 2013 real gdp 11300 Using the table above, what is the approximate growth rate of real GDP from 2012 to 2013?
-1%
If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is
-3%
Suppose that real GDP for 2012 was $10,000 billion and real GDP for 2013 was $9,500 billion. What is the rate of growth of real GDP between 2012 and 2013?
-5%
If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is
125
According to the "Rule of 70," how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%?
14 years
If GDP grew 3% in 1970, 2.2% in 1971 and 2.5% in 1972 then, what is the average annual growth rate over this period?
2.6%
If real GDP grows by 3% in 2011, 3.2% in 2012, and 2.5% in 2013, what is the average annual growth rate of real GDP?
2.9%
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%
Assume the average annual CPI values for 2012 and 2013 were 207.3 and 215.3, respectively. What was the percent increase in the CPI between these two years?
3.86
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
Which of the following is an example of human capital?
A college education
Which of the following is most liquid?
A dollar bill
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
Financial securities that represent promises to repay a fixed amount of funds are known as
Bonds
In a small economy, consumption spending in 2013 is $6,000, government spending is $1,200, gross investment is $1,500, exports are $2,000, and imports are $1,000. What is gross domestic product in 2013?
C+I+E+G=9700?
The total amount of physical capital available in a country is know as the country's
Capital stock
Which of the following is not a durable good?
Clothing
Which of the following would be the best measure of the cost of living?
Consumer Price Index
Workers laid off as a result of a recession suffer
Cyclical unemployment
To obtain real average hourly earnings, nominal average hourly earnings are multiplied by the CPI.
False
Which of the following is not one of the key services provided by the financial system?
Decreasing taxes
Which of the following causes the unemployment rate to understate the true extent of joblessness?
Discouraged workers are not counted as unemployed.
The real wage equals the nominal wage ________ the CPI, all times 100.
Divided by
Labor Force
Employed + Unemployed
Which of the following explains why many European countries have unemployment rates that are higher than in the United States?
European countries offer higher unemployment benefits than the United States
Efficiency wage is another name for the minimum wage.
False
Nominal income is equal to real income if the CPI is less than 100.
False
Paying efficiency wages are a way for a company to cut costs and become more efficient, and are therefore lower than market wages
False
Real GDP per capita is calculated by dividing the value of real GDP for a country by the countryʹs adult population.
False
The full-employment rate of unemployment is zero.
False
The short-term unemployment arising from the process of matching workers with jobs is called
Frictional unemployment.
Under which of the following circumstances would the government be running a deficit?
G = $5 trillion, T = $5 trillion, TR = $1 trillion
GDP is not a perfect measure of well-being because
GDP is not adjusted for pollution.
Average Growth Rate
Growth Rate/# of yrs
Which of the following statements is true?
Household production is counted in GDP as it amounts to real production.
The U.S. unemployment insurance program
Increases the amount of time the unemployed spend searching for a job
The percent increase in the CPI from one year to the next is a measure of the
Inflation rate
The Philippines and Vietnam have roughly the same size population. Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion. 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 without additional information
If firms pay what are called "efficiency wages," they pay wages that
motivate workers to increase their productivity.
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 only way the standard of living of the average person in a country can increase is if ________ increases faster than ________.
production;population
The federal budget deficit can be reduced by
raising taxes
The GDP deflator is the
ratio of nominal GDP to real GDP multiplied by 100
The drawback to calculating real GDP using base-year prices is that
relative prices change over time and these are not reflected in base-year prices, and this distorts GDP
A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds.
savers;borrowers
By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce
structural unemployment
The advice to "retrain" would be most appropriate for which of the following types of unemployment?
structural unemployment
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called
structural unemployment
The broadest measure of the price level that includes all final goods and services is
the GDP deflator
Human capital refers to which of the following?
the accumulated knowledge and skills workers acquire from 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
The rule of 70 states that
the number of years it takes an economy to double in size is 70 divided by the growth rate.
The unemployment rate is
the percentage of the labor force that is unemployed.
The labor force participation rate is defined as
the percentage of the working-age population in the labor force.
Suppose that nominal GDP in 2013 was less than real GDP in 2013. Given this information, we know for certain that
the price level in 2013 was less than the price level in the base year
Suppose in 2014, you purchase a house built in 2003. Which of the following would be included in the gross domestic product for 2014?
the value of the services of the real estate agent
When the labor market is at full employment
there is no cyclical unemployment in the economy
The average period of unemployment was ________ following the 2007-2009 recession as following any other recession since the end of World War II.
twice as high
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.
Nominal GDP is GDP in a given year
valued in the prices of that year
Real GDP is GDP in a given year
valued in the prices of the base year
