Unit 2 AP MACRO
Suppose the consumer price index (CPI) was 100 on January 1st, 2017 and 110 on January 1st, 2018 with no changes in nominal wages. Which of the following is definitely true about the economy between January of 2017 and January of 2018?
The inflation rate was 10%
Which statement is true about the circular flow diagram of an economy?
The market for factors of production connects spending by firms to household income.
The Business cycle
The national economy goes up and down like a roller coaster over time
The normal rae around which the actual unemployment rate fluctuates
The natural rate of unemployment
Inflation
The real wage is the wage rate divided by the price level
When an economy is at the trough of the business cycle, which of the following is then true about the state of the economy?
There is a recessionary gap.
Which of the following will happen when the actual inflation rate exceeds the expected inflation rate?
This will harm lenders with fixed-interest rate loans
Structural unemployment
Unemployment that results when there are more people seeking jobs in a labor force than there are jobs available at the current wage
1. Add up all the raw added of all producers 2. Add up all the aggregate spending on domestically produced final goods and services 3. Add up all the income paid to factors of productions economists keep track of the flow of many between sectors with the national income and product account or national accounts.
Ways to calculate GDP
Inflation rate
price index in year 2-price index in a year 1/ price index in year 1 x 100
Labor force participation
rate=labor/ population age 16 and older x 100
Suppose Miguel wants to know the value of real gross domestic product (GDP) for 2011 in terms of the base year 1984 dollars. In 1984 nominal GDP was $10 billion. In 2011 nominal GDP was $15 billion and the price deflator was 200. Real GDP in 1984 dollars would be equal to which of the following?
$7.5 million
Factors affect the natural rate of unemployment
1. Changes in labor force characteristics 2. Changes in labor market institutions 3. Changes in government policy
Full employment
1. macro goal
Price stability
2. Macro goal
Economic growth
3. Macro goal
Natural employment
=frictional unemployment structural unemployment
Cyclical unemployment
A deviation in the actual rate of unemployment from the natural rate
Recession
Bad
Which of the following terms describes a slowdown in the rate of increase in the consumer price index?
Disinflation
Private savings = to disposable income minus consumer spending
Disposable income that is not spent on consumption
GDP
Does not include the raw of intermediate goods
Frictional unemployment
Due to the time spend in job search
Goods and services bought from one firm to another firm that are inputs for production of final goods and services.
Final goods and services
The banking, stock, and loan markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing.
Financial Market
Organizations that products goods and services
Firm
Investments
Firms
Will always be the unemployments that are part of the economy
Frictional and structural
Measures the total value of a final goods and services produced in the economy during a given year
GDP
A given year is 100 times the ration of nominal GDP to real GDP in that year
GDP deflator for a given year
Inflation is higher than expected
Borrower gain the expense of lender
Price index in a given year
Cost of market basket in a year 1/ cost of market in year x 100
Consists of other/either individual or group of people who share their income
Households
Consumption
Households
Earn income fro the factor markets from wages
Households
Are stocks or goods and raw materials held to facilitate business operations
Inventories
Spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories.
Investment Spending
Price index
Is the ratio of the current cost of that market based to the cost in a base year x 100
Which of the following describes a limitation of gross domestic product (GDP)?
It does not account for the distribution of income in a nation or income inequality.
Jan works a 30-hour week for a minimum wage of $10 an hour. Suppose that last year is the base year for the Consumer Price Index (CPI). Which of the following is true about Jan's real wage if at the end of this year the CPI is 125 ?
Jan's real wage is $8 per hour at the end of the year.
The percentage of the population aged
Labor force
Employment
Number of people currently employed in the economy, either full time or part time
Unemployment
Number of people who are actively looking for work but aren't currently employed
Government purchases of goods and service (G)
Paid for by tax receipts as well as government borrowing
The unemployment rate
Percentage of the total number of people in the labor force who are unemployed
Better for measuring actual growth
Real GDP is better than nominal GDP
Which of the following is the correct calculation of Real Gross Domestic Product (GDP)?
Real GDP= Nominal GDP/ GDP deflator
Which of the following is classified as a discouraged worker?
Sara has been unable to find a job and abandoned her job search.
Which statement is true about the approaches used to measure the value of a nation's gross domestic product (GDP) ?
The expenditure approach to calculating GDP sums consumption spending, investment spending, government spending, and net exports.
Labor force
Equal to the sum of employment and unemployment (put together)
C+I+G+X=Im
Equation GDP
Exporos
Lea to an inflow of funds into the country from the rest of the world
Import
Lead to an outflow of funds to the rest of the world
Inflation is lower than expected
Lender gain at the expense of borrowers
CPI
Measure of the cost of the market of a typical urban American family
GDP deflator
Measures the price level by calculating the ration of nominal to real GDP
Last year, Myron purchased a $10,000 certificate of deposit with a 3% rate of interest from his bank. The government reported that prices, on average, have fallen by 5% during the current year. Which of the following can be concluded as a result of this transaction?
Myron gains, while the bank loses
Almost all countries calculate a set of numbers known as the national income and product accounts
National Accounts
Which of the following describes a difference between nominal gross domestic product (GDP) and real GDP?
Nominal GDP uses current prices to measure the value of final output, while real GDP uses constant prices.
Real GDP equation
Nominal GDP/ Real GDP x 100
GDP deflator equation
Nominal GDP/Real GDP x 100
Government
Spending
What type of unemployment describes the situation of factory workers displaced by automation?
Structural
As a measure of economic performance, the United States gross domestic product (GDP) accounts for which of the following?
The cleanup of an oil spill
The output gap is measured by which of the following?
The difference between actual and potential GDP
Labor unions negotiated a 3-year contract with employers in the automobile industry. They agreed to a 3 percent per year increase in pay over the 3 years. How would each group be affected by an actual inflation rate of 4% next year?
Workers would be worse off, and the employers would be better off
Aggregate price level
a measure of the overall level of prices in the economy
Nominal GDP
deflator x real GDP/100