study guide for macro midterm
percentage unemployed=
# unemployed divided by the labor force
* the labor force =
#ppl employed + #ppl unemployed
The demand and supply curves for T-shirts can be given by: Q= 12,000 -2000 P and Q = 6000 + 1000 P the equilibrium price of a T-shirt and quantity are?
$2. and 8,000
if hotdogs cost $2 this year and $3 next year, then 100 hotdogs made this year and 100 hotdogs made next year will contribute
$200 to this year's nominal GDP and $300 to next year's nominal GDP
If scientists discover that steamed milk, which is used to make lattes, prevents heart attacks, what would happen to the equilibrium price and quantity of lattes?
Both the equilibrium price and quantity would increase.
What is true about leading indicators?
Data from the yield curve can be used as a leading indicator.
In an attempt to reduce poaching of elephant tusks for ivory, officials in Kenya burned illegally gathered ivory. Economists tend to point out that
the supply of ivory has fallen, leading to an increase in price and reward for poaching
* the yield curve is a graph that shows the relationship btwn
the term of government bonds and the interest earned on them
The yield curve shows the relationship on a graph between...
the term of government bonds and the interest rate earned by purchasing them
A university's football stadium is never more than half-full during football games. This indicates:
the ticket is above the equilibrium price
Most economists believe full employment is when..
the unemployment rate is 4-6% and when cyclical unemployment is 0%
Keynes thought that the classical theory of unemployment might be wrong because
the wage might not be flexible
In the lab or market, if the quantity of labor demanded was less than the quantity of labor supplied, then...
the wage would be above equilibirium creating unemployment
* the difference btwn the US gov 10 year T- note and the 1 month T-bill is
the yield curve spread
The difference between the US government 10 year T-note yield and the overnight (short-term) yield is...
the yield curve spread
what would happen to the yield curve if the US Treasury were to sell more 5 year T-notes to finance additional government expenditures?
the yield curve would shift up and yields on 5 year T-notes would rise
* during the Greek financial crisis in 2011, what happened concerning Greek government sovereign bonds?
the yield increased
*in a perfectly competitive market, each seller has no control over the price of his product becuase
there are many other sellers offering identical products
* you have been promised $250,000 in the future. in which case in the present value of this payment the highest?
you receive the payment 2 years from now and the interest rate is 6% (sooner and lower interest rate)
you have been promised a payment of $400 in the future. in what case would the present value be the lowest
you receive the payment 5 years from now and the interest rate is 5 percent
If the labor market was perfectly competitive then
at equilibrium in the market there would be full employment
* GDP reported by the burea of economic analysis is
reported for the quarter but at an annual rate
growth of GDP=
(GDPyear2 - GDPyear1) divided by GDPyear1
*what are the categories into which the bureau of labor statistics places each adult of each surveyed household?
-employed -unemployed -not in the labor force
What are characteristics of a perfectly competitive market?
-sellers must accept the price the market determines -there are many sellers -different sellers sell identical products
why measure GDP
-we want to know if the economy is expanding or contracting and by how much - to compare with other countries
Currently the Yield curve spread is approximately
1.25%
In 2011, you buy a vintage 1965 mustang convertible that was made in 1964. This purchase would be included in the GDP for
1964
T-bonds
30 year us gov bond
The current US Unemployment rate is closest to
4%
Why is the underground economy not particularly important when measuring GDP?
As long as it is consistent from year to year it doesn't effect the growth rate of real GDP
Which of the following statements about the term of a bond is correct?
Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
What event could shift the demand curve for gasoline to the left?
PSAs on tv encourage people to walk or ride bikes instead of driving cars
* if the federal reserve decides to buy less T-bills, it decreases demand for T-bills. how will this affect the price of T-bills and the yield on T-bills (ceteris peribus)?
T-bill prices fall and the yield rises
If the Federal Reserve decides to buy T-bills, it increases the demand for T-bills. How will this affect the price of T-bills and the interest rate?
T-bill prices rise and interest rates fall
The principal on a bond is
The amount the bond holder will receive on the date of maturity
The 10 year US Treasury Note with a face value of $10,000 that you bought last week yielding 2.8% just dropped in price yesterday. You paid $9,500 for it but now they are selling for $9,200. This means that
The yield on the note has increased.
There are very few exceptions to the "law of demand". t/f
True
*which of the following is true?
VERY FEW EXCEPTIONS TO LAW OF DEMAND
If a surplus exists in a market, then we know that the actual price is
above the equilibrium price, and the quantity supplied in greater than the quantity demanded
term
amount of time until maturity date
What would cause the PPF to move outward in the following year?
an increase in immigration and an increase in the amount of physical capital
* what would make a point outside the ppf attainable?
an increase in the land available for agriculture
law of supply
quantity supplied rises when price rises
Other things the same, which bond would you expect to have the highest yield?
a bond issued by a new chain of Brazilian-style restaurants
* a decrease in the demand for a bond of a US company because of an increase in the risk of default will (ceteris paribus) result in
a higher yield on the bond
* assume the demand schedule for cookies is downward sloping. if the price of cookies falls from $1.50 to $1.25 per dozen,
a larger quantity of cookies will be demanded
Decrease in demand =
a leftward shift in the demand curve from a decrease in wealth
A fall in the price of a good results in..
a movement downward and to the right along the demand curve
* unemployment data are collected through
a regular survey of sample households
* what would cause price to increase in a perfectly competitive market?
a shortage of the good
If American cheese and cheddar cheese are substitutes, what would increase the demand for cheddar cheese?
an increase in the price of American cheese
US Government T-Bills ...
are usually purchased at a discount to their principal
* some studies have found positive correlation between the number of police officers per 1,000 people and the number of crimes per 1,000 people. why?
because more policemen are hired to work in high crime areas
An issuer of a bond is
borrowing money
Changes in nominal GDP reflect
both changes in prices AND changes in the amounts being produced
*the natural unemployment rate includes:
both frictional and structural unemployment
if prices of all goods and services produced in the economy rose and the quantity of all goods rose, then
both real GDP and nominal GDP would rise
Which of the following is always measured in prices from a base-year?
real but not nominal GDP
* what is included in the US GDP
cars made in the US by honda and sold in japan
Real GDP is another term for
constant dollar GDP
A change in price of a product causes a movement along the demand curve for that product from one point to another point. What factors that would cause a shift are held constant when this happens?
consumer incomes and the prices of other related goods
monetary policy
control over money and interest rates
date of maturity
date the bond will be paid
* a recession is always associated with
declining real GDP
If a good is an inferior good, then an increase in income will result in a
decrease in demand for the good
An early frost (freezing temperatures) in the vineyards of Napa Valley that kills some of the grape plants would cause a
decrease in supply of wine, increasing price
What would tend to increase the value of officially measured GDP?
decriminalization of drugs such as marijuana
A movement along the supply curve may be caused by a change in
demand
* which event must cause equilibrium price to fall
demand decreases and supply increases
What would cause equilibrium price to fall?
demand decreases and supply increases
If price rises, what happens to supply of a product?
doesn't change
recession
drop in real GDP for at least 2 consecutive quarters
If total spending rises from one year to the next, then
either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.
* Jason works part-time as a babysitter. the bureau of labor statistics counts him as
employed and in the labor force
Suppose the number of buyers in a market increases and an increase in input prices (wages) occurs also. What would we expect to happen in the market?
equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous
GDP is reported by the Bureau of Labor Statistics
every quarter
ceterus paribus
everything else held constant
* at the equilibrium price, the quantity of the good that buyers are willing and able to buy
exactly equals the quantity that sellers are willing and able to sell
Stock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market. What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates...
fall in reaction to the increased demand for bonds.
full employment=
frictional + structural
An example of a perfectly competitive market would be the market for
gold
GDP stands for
gross domestic product
if the labor market was perfectly competitive, a decrease in demand for labor would
have no effect on unemployment
In January, 2,500 quarts of ice cream are sold in Boston at $2 a quart. In February, 3,000 quarts are sold at $2.50 a quart. This change in quantity sold and price may have been caused by
he release of a medical study showing that ice cream consumption improves mental health.
A shift in the supply curve of bicycles resulting from higher wages for bicycle assembler workers will lead to ...
higher prices of bicycles
Understanding how to repair cars if you are a mechanic is an example of
human capital
In perfectly competitive markets, firms produce...
identical products
When a production possibilities frontier (PPF) is bowed outward, the opportunity cost of producing an additional unit of a good...
increases as more of the good is produced
* if a country has an unemployment rate of 8% the country is most likely
inside the ppf
yield on the bond
interest rate that the lender (purchaser) will earn by buying the bond
you are expecting to receive $10,000 at some time in the future. What would unambiguously increase the present value of this future payment
interest rates fall and you get the payment sooner
The US Unemployment rate..
is a leading indicator, and is the number of unemployed divided by the labor force
The price of labor is the wage rate. What happens to the quantity of labor demanded if wages increase?
it decreases
* suppose beer and wine are substitutes. if the price of wine falls, what would happen to the demand for beer?
it would decrease (shift to the left and down)
The horizontal sum of all the firm's (seller's) supply curves for a product is called
market supply
nominal GDP
measured in "current" dollar or current prices prices x quantities
* josh is a full time college student who is not working or looking for a job. the bureau of labor statistics counts josh as
neither in the labor force nor unemployed
* an example of an inferior good is
new mopeds for sale in a 3rd world country
Edgar is working part-time. Diane was laid off due to lack of work. Jose is a "discouraged" worker. Maria is retired. Who is included in the Bureau of Labor Statistics "employed" category?
only Edgar
Changes in real GDP reflect
only changes in the amounts being produced (quantities)
if an economy has an unemployment rate of 2%, it is probably
outside the production possibilities frontier
The business cycle has 3 things:
peak trough expansion
lagging indicator
peaks after economy peaks; not that valuable ex. inflation, unemployment
coincident indicator
peaks at the same time as the economy ex. consumer purchases
frictional unemployment
people in between jobs (short-term)
cyclical unemployment
people unemployed because of a downturn in the economy
In a _______________________________ , there are so many sellers and buyers that each has an extremely small impact on the price of the product.
perfectly competitive market
price of bond
present value
as interest rates increase,
present value decreases
as the number of years (N) decreases,
present value decreases
law of supply and demand
prices adjust so that Qs=Qd
law of demand
quantity demanded goes down when the price rises
if the GDP growth number reported by the Bureau of Economic Analysis for the first quarter of 2015 was 4%, then you know that
seasonally adjusted real GDP increased by about 1% in the first quarter of 2015
* what's a reason that computers are not all sold at the same price?
sellers are price searchers
An increase in the work force or the productivity of workers would make the PPF...
shift outward
* an increase in the number of people in a country will
shift the PPF outward
When the quantity demanded increases at every possible price, the demand curve has
shifted to the right
economic model
simplified version of an aspect of the economy; representation of a theory used to gain insight into cause and effect
If the penalty for stealing Ford cars increases, we can expect criminals to
steal less Ford cars, and steal more Honda cars
technological change or the effects of automation cause ....
structural unemployment
The US Government 5 year T-notes and the 10 year T-notes are...
substitutes
market supply
sum of individual sellers
We observe that the price of food rises and the quantity purchased falls. This means the...
supply curve shifted to the left
"Moonshine" is an illegal home brew made by adding sugar to accelerate corn fermentation. Ten pounds of sugar are necessary to make a gallon of moonshine. In the mid-1970s, the price of sugar tripled and the price of moonshine skyrocketed from $6 to $15 a gallon. Which would explain this?
supply decreased
List 3 determinants of demand.
tastes and preferences, expectations, the prices of related goods
principal
the amount of money to be paid in the future
* suppose the price of coca-cola dropped. what would you expect to happen?
the demand for pepsi would decrease
Pizza is a normal good if...
the demand for pizza rises when income rises
real GDP
the important one; measured in "constant" dollars or constant prices GDP after adjusting for price changes
* the present value of a payment to be made in the future falls as
the interest rate rises and the time until the payment is made increases
If the price of Walmart tonic water is substantially less than Schweps Tonic Water, we can conclude that...
the market for tonic water is not a perfectly competitive market
When used in an economic sense rather than a scientific sense, the law of supply and demand refers to
the process of prices adjusting so that quantity demanded and quantity supplied are equal.
equilibrium is when
the quantity supplied = the quantity demanded
An inverted yield curve means
the short-term yield on US Government bonds are higher than long term Government bonds
* if the labor market was a perfectly competitive market, then
there could be unemployment if the market was not in equilibrium
If the quantity demanded of sugar is greater than the quantity supplied of sugar, then...
there is a shortage and the price will rise
* corporate bonds have a higher yield than US government bonds because
there is an associated risk premium
When an economy is operating at a point on its production possibilities frontier, then
there is no way to produce more of one good without producing less of the other
When two variables have a positive correlation,
they tend to move in the same direction
If the supply of a product increases, then we would expect equilibrium price
to decrease and equilibrium quantity to increase
Yields on 10 yearT-notes are usually higher than the yield on 5 year T-notes. t/f
true
structural unemployment
unemployed because of a change in the economy
If the demand for labor decreased and wages did not fall what would occur?
unemployment
T-bills
us gov bond less than or equal to 1 year
opportunity cost
value of the best alternative that must be given up for that decision
Keynes says
wages are not flexible
according to the classical model of the labor market, what would you expect to happen if there was unemployment?
wages would fall
A positive association has been found between red wine and health. We can conclude:
we CANNOT conclude anything
* if cyclical unemployment was positive, then the economy
would be inside the PPF
risk premium
yield on bond= risk free rate + risk premium