Midterm 2
Suppose the unemployment rate is 10% and an economist breaks the unemployment rate into the following components: frictional (3%) and structural (3%). Based on these estimates the cyclical inflation rate is
4%
If an economy's GDP will double in 15 years, then its growth rate must be about
4.7%
Which of these would cause an increase in a country's aggregate demand
A rise in the country's stock market increases the value of stock held by people
Which statement is TRUE within the circular flow of economic activity
Business firms are sellers of products and buyers of production factors
A country with a large population and high level of poverty cannot be a world leader in economic growth
False
Discouraged workers are counted in the labor force
False
The Bureau of Economic Analysis reports year-over-year growth to remove the effects of inflation from the previous year
False
macroeconomics was developed to explain
Great Depression
If an economy is operating above full employment, what is likely to happen in the long run?
Input prices and wages rise; SRAS shifts to the left
Jennifer received news that she is getting a %5 raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, how will it impact her purchasing power
Jennifer's purchasing power will decline by 2%
The rule of 70 would be most accurate for estimating the doubling time in which situation?
The growth rate is steady at 4%
If a business increases its inventories, the change is treated as an investment
True
If an index of well-being were included in the national income and product accounts, information on life expectancy, the stock of human capital, income distributions, poverty rates and unemployment rates might be collected
True
In 2014, we could accurately say that the Leading Economic Index successfully predicted the past seven recessions
True
the largest component of gdp is
consumption expenditure
Inflation is a
general rise in prices
What is free trade?
international trade left to its natural course without tariffs, quotas, or other restrictions.
An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n)
jobless recovery
The costs of cyclical unemployment can be minimized by
keeping the economy on a steady, low-inflationary growth path
Increased taxes will shift the aggregate demand curve to the ______ and ______ output demanded
left; decrease
High family debt
reduces the tendency to consume.
How to determine savings rate
smaller share of total spending
How do you calculate unemployment rate
unemployed/labor force x 100
Company DEF produces gizmos. One particular batch cost $50,000 to produce. Because market conditions were bad at the time of sale, they were sold at a loss for $40,000. The value of the gizmos included in the GDP is:
$40,000
Last year, Megan's salary was $65,000. The CPI increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be?
$68,578
The economy is LEAST likely to be heading into a recession when the National Activity Index equals -0.33. 0.55. -0.98. 0.81.
.81
There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is the size of Marketstan's labor force?
10 million
If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the deflator in 2014 is
125
For which growth rate would the Rule of 70 be MOST accurate?
30%
if the growth rate in an economy is 2% its GDP will double in about
35 years
Most of the recessions over the past half-century have lasted between
6 and 18 months
What is the rule of 70 formula?
70/growth rate
As a country's economy grows and real GDP per capita rises, citizens often do not feel proportionally better off. Why?
As incomes rise, households may use the extra income to buy services and goods that they used to produce for themselves; thus, even though GDP is higher, how much they actually consume is not higher.
______ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises
Demand pull
Suppose the National Activity Index of the Federal Reserve Bank of Chicago increased from -0.29 in May to -0.13 in June. What is the BEST interpretation of this finding?
Economic activity improved slightly from May to June, but the rate of economic growth is below its historical trend
According to economists, agriculture is the factor responsible for most of the economic growth in recent years
False
Annualized GDP growth rate is always lower than the year-over-year growth rate
False
Disinflation is a decline in overall prices throughout the economy
False
In the national income and product accounts "disposable personal income" and "personal income" are synonymous
False
Jasmine works in her family's boutique 16 hours a week and is considered an unpaid family member. Since she is not paid for her services, she is not in the labor force
False
Net domestic product measures
GDP minus depreciation
What would cause a country's aggregate demand to decrease?
The country's CPI rises
An example of a natural resource is an untapped vein of platinum
True
Compounding means that growth builds on prior growth
True
Demand pull inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output
True
How do you tell which country will grow more rapidly
look at per capita
Rising input prices increase short-run aggregate supply
False
The aggregate demand curve has the price level on the vertical axis and real output on the horizontal axis
True
If the U.S. aggregate price level rises
U.S. Imports rise
Long-run growth is most likely to be achieved by promoting
development of new technologies
If the cost of a typical market basket is 400 in 2018, 410 in 2019, and 415 in 2020, then during this period, the economy is undergoing: A) inflation B) disinflation C) deflation D) hyperinflation
disinflation
Unemployment tends to be highest during the _____ stage of the business cycle, while there is a greater risk of high demand leading to inflation during the _____ stage of the business cycle.
trough; peak
How do trends in bond interest rates help predict changes in the business cycle?
when long term rates are lower than short-term rates, a recession is likely
Policymakers look at _____________ to compare growth rates over an entire year without seasonal ups and downs.
year-over-year GDP growth rates
The nation of Workovia has a population of 15 million, of whom 10 million are in the labor force and 9 million are working. Workovia's unemployment rate is:
10%
What are the determinants of short-run aggregate supply?
Consumption, investment, government spending, and net exports
Developing countries tend to place a higher valuer on environmental quality than developed countries do
False
New entrants into the labor force constitutes the largest segment of the unemployed
False
Suppose the economy is at full employment and companies suddenly increase their level of investment. A short-run increase in output will be followed by a reduction in output, resulting in an overall dense output
False
The brand of care you buy is a topic of interest for macroeconomics
False
The consumer price index measures the average change in prices paid by urban consumers and urban wage earners for a market basket of goods and services, covering roughly 87% of the population
False
The economy is not likely to be heading into a recession when the National Activity Index equals -0.95
False
The goal of unemployment policy is to eliminate frictional unemployment
False
The nominal value of wages explains how much the consumer can pay for goods and services.
False
Over the past 150 years, the U.S. economy has endured a recession on average about every
Four to five years
What are some of the important economic variables affected by the business cycle?
GDP, interest rates, total employment, and consumer spending
What is the Index of Economic Freedom?
It is an annual publication by the Heritage foundation, a US based think tank. Incorporates information about freedoms in 100 categories
Which statement about the rule of 70 is TRUE
It is fairly accurate for small growth rates.
The study of macroeconomics as a specific discipline can be attributed to
John Maynard Keynes
Whose analysis serves as the foundation of modern macroeconomics?
John Maynard Keynes
What do households supply?
Labor and non-labor resources
During periods of inflation which events occur
Mortgage leaders seek inflation adjustments, workers seek escalator clauses, people on a fixed income have decreased standards of living
Which statement about counterfeiting is NOT true
Most banks will replace a fake bill and report it to the nearest U.S. secret service office
Which of these is NOT a criticism of the dating of business cycles by the National Bureau of Economic Research (NBER)?
NBER is sometimes manipulated by the federal government
If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will become _____.
SRAS1; P1
If a country's currency appreciates, what impact will it have on aggregate demand or aggregate supply?
Short-run aggregate supply will rise due to lower prices on imported inputs
Which assumption is not a problem related to using the consumer price index to accurately state the rate of inflation
The CPI does not deal with producer prices
Which statement explains why the size and the direction of the gap between long- and short-term interest rates predict stages in the business cycle?
The time period with higher rates is likely to have higher economic activity that the time period with lower rates.
In which situation is a country LEAST likely to produce on its production possibilities curve The average education level is of the fourth grade The land is dry and has low productivity There are legal disputes over the ownership of 15% of the factory buildings in the country There are large legal penalties for breaking a country
There are legal disputes over the ownership of 15% of the factory buildings in the country
An example of physical capital is a communications network used to track shipments
True
An inflation rate of 400% per year would be categorized as hyperinflation
True
Breck is in a training program to become a radiology tech. When he is certified, the amount of human capital in the economy will increase
True
Compensation of employees in the income approach to calculation GDP includes many benefits, such as employers; contributions to unemployment compensation
True
Frictional unemployment refers primarily to workers between jobs
True
Gross private domestic investment is about 20% of GDP
True
Gross private domestic investment is an important factor in shaping the turning points of the business cycle, especially at the troughs
True
Physical Resources are not useful without ideas about how to turn them into goods and services people want
True
Shortcomings of the national income and product accounts include ignoring non-market transactions such as the value of your labor within your own home (e.g. the value of you cooking your own dinner)
True
Structural unemployment can be reduced by retraining workers for new industries
True
The field of macroeconomics was considered an extension of microeconomics prior to the Great Depression
True
The misery index is the sum of the unemployment rate and the inflation rate
True
The unemployment rate does not explicitly include underemployed and discouraged workers
True
which of these is not a source of productivity growth
a decrease in the capital to labor ration
Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium?
a depreciation in the value of Macroalnd's currency
What would cause the level to decrease and employment to increase
a shift to the right of the short-run aggregate supply curve
According to Keynes, what determines the level of employment and income?
aggregate expenditures
what determines employment and income?
aggregate expenditures
Which one of these would not lead to higher prices strong consumer demand higher gas prices an increase in the supply of money an increase in the supply of food
an increase in the supply of food
The diagram that illustrates how households and businesses interact through product and resource markets is called
circular flow diagram
With everything else held constant, if society increased the efficiency of matching people to jobs that need their skills, the natural rate of unemployment would likely
decrease
The Great Depression was primarily the result of
decrease aggregate demand
Suppose the government raises income taxes, so consumers have less disposable income. This policy action will cause a(n)
decrease in aggregate demand
Which event will shift the aggregate demand curve the right? catastrophic hurricane hits the northeastern US increase in household debt decrease in taxes decrease in military spending
decrease in taxes
which term describes a situation in which there is a reduction in the rate of inflation from 4% to 3% per year
disinflation
Suppose an economy has historically grown at a rate of 2.25%. The economy is currently growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.
expansion
The expenditures approach to calculating GDP sums consumer spending, gross private domestic investment, government spending, and
exports minus imports
the primary reason the U.S. standard of living is relatively _____ is that U.S. workers produce _______ than workers throughout most of the rest of the world
high; more
According to the classical model, which development does NOT contribute to economic growth
higher interest rates
When the price of a given product declines, consumers' spendable income rises because it takes less income to purchase the same quantity. This is called the ______ effect.
income
If the cost of a typical market basket is 400 in 2018, 450 in 2019, and 550 in 2020, then during this period the economy is undergoing:
inflation
A legal system that enforces property right is important to economic growth because
legal protection of ideas and technologies gives people who innovate the ability to protect their work
The sum of all income, including wages, salaries and benefits, profits, rental income, and interest, is called ______ income
national
The ______ let(s) economic judge our nation's economic performance, compare U.S. income and output to that of other nations, and track the economy's condition over the course of the business cycle
national income and product accounts
which statement does not describe an adjustment to national income to obtain GDP
net exports are added to national income
Who is considered to be in the labor force?
people employed and people unemployed
Which is a determinant of aggregate supply? interest rates productivity price of substitutes household expectations
productivity
A simple circular flow diagram shows that that factors of production are
purchased by businesses
On-the-job training can lead to an increase in the
quality of the labor force
high taxes and/or heavy regulation
raise costs of production so that the aggregate supply curve shifts to the left.
Economic growth is most commonly measured by
real GDP per capita
Which phase of the business cycle occurs immediately before a trough?
reccession
Decreased interest rates will shift the aggregate demand curve to the ______ and ______ output demanded
right; increase
Increased consumer confidence will shift the aggregate demand curve to the _____ and _______ output demanded
right; increase
A stable financial system is important for all of these reasons except keeping the purchasing power of the currency stable stabilizing the tax rate facilaitating transactions permitting credit institutions to arise
stabilizing the tax rate
What isn't included in the CPI?
stocks, bonds, and life insurance
What is the primary explanation for the rapid growth of the U.S. economy over the past century?
technological progress
Which event has significantly influenced the development of macroeconomic ideas?
the Great Depression
if both consumers and businesses are pessimistic about the future of the economy
the aggregate demand curve shifts to the left
what are aggregate expenditures?
the current value of all the finished goods and services in the economy
Suppose the National Activity Index of the Federal Reserve Bank of Chicago drops to -0.83 this month after being above +0.36 for the previous three months. This movement in the index indicates that
the economy has probably moved into a recession
What is the catch-up effect?
the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich
The biggest group missing from the reported unemployment rate is:
those working part time for economic reasons
Suppose an economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.
trough
During a typical economic recovery
unemployment decreases
Business cycles
vary in duration and magnitude
When does hyperinflation occur?
when prices have risen by more than 50% per month
