unit 3
what is G when C=500, S=200, T=200, I=300, Y=900
100
what is I when S=200, T=600, G=700
100
what is the CPI for the base year?
100
what is a family automobile an example of?
a durable good
what is a cube of butter sold at a grocery store an example of?
a final good
deflation
a general decrease in price level
bond
a loan
What is GDP equal to?
both total income and total expenditure
a financial intermediary
brings lenders and borrowers together
which of these is a component of the relatively low interest rate on a three-month U.S. government bond?
expected inflation rate
net exports are equal to:
exports (-) imports
what is exchanged in a factor market?
factors of production
which sector of the economy brings together lenders and borrowers
financial intermediaries
which activity takes place in the product market
finished goods and services are traded
which sector of the economy rents factors of production
firms
In the short-run, GDP:
fluctuates
what does a market basket include?
food, housing, clothing, transportation
which activity takes place in the financial market
money is loaned and borrowed
Who earns income?
owners of the factors of production
found on a graph of GDP over time
peaks, troughs, expansions, contractions
unemployment rate measures the percentage of:
people in the labor force who are without jobs and actively seeking jobs
What does per-capita GDP account for?
population changes
what is a component of the interest rate on a 10-year inflation-indexed U.S. government bond?
positive rate of time preference
price index
prices between years
one problem with the unemployment rate
the data includes part-time workers as fully employed
what happens when households expect the inflation rate to increase in the future?
the demand curve shifts to the right
what happens when the rate of time preference for consumers rises?
the demand curve shifts to the right
what is the government's chief tool for predicting future changes in the business cycle?
the index of leading indicators
what does the term "rate" mean in "interest rate"?
the interest depends on the size of the loan
if top government officials claim that more people are working now than ever before which of the following must be true?
the number of people employed is higher now than ever before
what happens when there's decreasing uncertainty among firms about the future?
the quantity of borrowing increases
the economy is considered to be at full employment when:
the rate of cyclical unemployment is zero
a recession
the total output of the economy not rising for six or more months
Gross domestic product
the value of all final goods and services produced in a n economy in one year
GDP is a good way to determine
the value of goods and services produced by a country in a year
When the economy is operating at the full-employment level of output:
there is a rough balance between the number of jobs available and the number of qualified job applicants
why do bonds with a B or C rating have a higher interest rate than bonds with a AAA rating?
they carry a greater risk of default
what happens to CPI when prices have increased since the base year?
they increased
how are the unemployment rate and real GDP related?
they move in opposite directions
How is growth illustrated on the PPF?
through an outward shift
how do most interest rates move
together, in the same direction
what Is not a component of the interest rate on a 30-year U.S. government bond?
transaction costs of screening and monitoring borrowers?
what is the difference between government expenditures and transfers?
transfers do not involve the purchase of goods and services
structural unemployment
unemployment caused by a mismatch in the demand for workers with certain skills and the skills of unemployed workers
capital goods
used again and again in the production of other goods
If the United States sells $100 worth of grain to the rest of the world and buys $80 worth of watches from the rest of the world, what are net exports for the USA?
$20
components of the interest rate
1. the positive rate of time preference 2. inflation 3. costs of monitoring and investigation 4. default risk
Over the last 60 years, the United States has grown at an average yearly rate of
3%
The United States economy has long-run average growth rate of:
3%
what is C when Y=1000, G=400, S=300, I=200, and T=300
400
according to most economists, the United States is at full employment when the unemployment rate is about:
5%
financial instruments are tools:
that use savings to earn interest
equation for calculating GDP
I+G+X= S+T+M
when did deflation last occur in the USA?
In the early 1930s during the Great Depression
What are the savings of all the sectors of the economy always equal to?
Investment
What is depreciation?
The approximation of a value for wear and tear that capital goods sustains of the course of a year
How is GDP calculated
all final goods and services produced in one year
why is the interest rate on a credit card generally much higher than government bond interest rates?
all five of the interest rate components apply to credit card debt
the household sector is made up of:
all the people in a nation
How is growth represented in the economy through factors of production?
an increase in quantity available
what is a cube of butter sold to a movie theater to put on the popcorn an example of?
an intermediate good
what is a taxi an example of?
an investment good
example of frictional unemployment
construction workers who are on temporary layoff
what does CPI stand for
consumer price index
total expenditure in an economy is composed of the sum of:
consumption spending, investment expenditure, government expenditures on goods and services, and net exports
the five categories of expenditure
consumption, investment, government expenditures on goods and services, imports, and exports
sally lost her job when her company went out of business because of a recession. what is this an example of?
cyclical unemployment
Why is the number of people officially unemployed not the same as the number of people who can't find a job?
discouraged workers aren't counted
prime rate
given only to the banks best customers and is lower than the normal rate
what sector of the economy is consumption an expenditure for?
household
part of the circular glow and considered leakages
household savings, tax payments, and purchases of imports
which sector of the economy lends money
households
which sector of the economy owns the factors of production
households
the four sectors of the economy
households, businesses, government, rest of the world
one social benefit of unemployment is:
improved allocation of labor when workers who experience unemployment change to different jobs
Where is frictional unemployment present?
in any dynamic economy
What issues need to be addressed when measuring economic growth?
income distribution, standard of living, environmental externalities, per capita levels of GDP
the unemployment rate will increase whenever there is a:
increase in the number of unemployed persons relative to the size of the labor force
What is the difference between nominal and real values?
inflation
a general increase in the price level
inflation
the payment made for the use of money
interest
What happens when there's a decrease in the risk of default?
interest rates decrease
what happens when firms are more optimistic about future prospects?
interest rates increase
What is considered injections in the circular flow?
investment, government expenditure, and net exports
example of an injection
investments
In the USA, what does the maximum production possible in the economy do in the long run?
it increases
a country's firms import $20 million worth of raw materials and export $25 million worth of goods. What impact does this have on GDP?
it increases
which activity takes place in the factor market
land rented
federal funds rate
rate banks charge each other on overnight loans
What is the difference between real GDP and nominal GDP?
real GDP is calculated in constant prices, nominal GDP is calculated with changing prices
if a sizable number of workers were switched from full-time to half-time employment, the official unemployment rate would:
remain unchanged
What is the investment in new ideas called?
research and development
example of a leakage
savings
a school teacher out of work over the summer is an example of which type of unemployment?
seasonal unemployment
a ski instructor out of work during the summer months is an example of which type of unemployment?
seasonal unemployment
full employment is the situation in which the economy operates at an unemployment rate equal to the sum of:
seasonal, structural, and frictional unemployment
four types of unemployment
seasonal, structural, cyclical, frictional
What does investment illustrate the trade-off between?
short-run and long-run growth
What are two sources of economic growth that are related to investment?
technological advancement and increased capital