Unit 3 - Macroeconomics

Look at the following data: The frictional unemployment rate is 3 percent, the natural unemployment rate is 6.5 percent, and the cyclical unemployment rate is 2.4 percent. The structural unemployment rate is __________ percent and the actual unemployment rate (in this economy) is __________ percent.

3.5; 8.9

Which of these factors will cause the aggregate demand curve to shift? A change in the price level A change in the expectations of households and firms An increase in productivity

A change in the expectations of households and firms

Which of the following goods and services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis (BEA) statistics?

A new house

To calculate personal income from national income, which of the following must be done by the BEA?

Add government transfer payments

Which of these is true about the history of U.S. inflation rates? a. The price level has increased at a relatively constant rate since 1875. b. The price level has changed very little in the past 50 years. c. After remaining relatively flat for 60 years, the price level began to increase steadily after World War II.

After remaining relatively flat for 60 years, the price level began to increase steadily after World War II.

How can government policies shift the aggregate demand curve to the right? by decreasing government purchases By increasing personal income taxes By increasing government purchases

By increasing government purchases

Which is the largest component of GDP?

Consumption

Which of the following transactions would be included in this year's GDP for the United States? a. Deion sends $100 to a hotel in Costa Rica as a deposit for his vacation. b. Deion buys a travel guide written by a Costa Rican woman living in the United States. c. Deion buys a shirt while on vacation in Costa Rica. d. Deion spends money in an American-owned restaurant in Costa Rica.

Deion buys a travel guide written by a Costa Rican woman living in the United States.

Which of the following will generate an increase in aggregate​ demand? A. A tax increase. B. An increase in the foreign exchange value of the dollar. C. Government spending for the onset of a war. D. A decrease in the price level.

Government spending for the onset of a war.

Which of the following are not counted as final goods and used in the GDP calculation?

Intermediate goods

Which of the following is true of inflation? a. It is an increase in the general price level of goods and services. b. The purchasing power of money increases as the result of inflation. c. Inflation is similar to interest payments on future money income, such as pensions and receipts from outstanding loans. d. Inflation has no effect on real resources.

It is an increase in the general price level of goods and services.

Which of these is not a shortcoming of GDP as a measure of welfare?

It only counts final goods and services and not intermediate goods.

Which of these shifts the aggregate demand curve to the right? A fall in the price level Falling exports Lower interest rates

Lower interest rates

Which of the following transactions would be included in this year's GDP for the United States? a. Jennifer buys a rug imported from Mexico. b. Melissa buys stock in an American textile company. c. Jennifer purchases a table over the Internet from a North Carolina furniture manufacturer. d. Melissa purchases a table over the Internet from a Mexican manufacturer.

Melissa buys stock in an American textile company.

Which one of the following is not a component of total​ expenditures? A. Consumption spending. B. Investment expenditures. C. Government purchases. D. Merchandise inventories.

Merchandise inventories.

Which of these terms are the "flip" sides of macroeconomic activity?

Production and income

Which of these terms are the "flip" sides of macroeconomic activity? a. Production and income b. Growth and trade c. Unemployment and inflation

Production and income are the "flip" sides of macroeconomic activity. The production of goods and services generates income for households that is then used to buy those goods and services. Without any leakages from the system these two amounts will be equal. Production and income can therefore be viewed as the two different sides of a coin. Growth, trade, unemployment and inflation are all topics of macroeconomic study.

Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant?

Real GDP

"Economic growth" has occurred if the a. inflation rate between this year and last year is zero or less. b. GDP this year exceeds the Real GDP this year. c. unemployment rate this year is above the natural rate of unemployment. d. Real GDP this year exceeds the Real GDP of last year.

Real GDP this year exceeds the Real GDP of last year.

Which of these factors will cause the long-run aggregate supply curve to shift to the right? Technological stagnation The accumulation of more machinery and equipment A decline in the number of workers

The accumulation of more machinery and equipment

If firms reduce investment spending and the economy enters a recession, which of these contributes to the adjustment that causes the economy to return to its long-run equilibrium? The eventual agreement by workers to accept lower wages The decision by firms to charge higher prices The decision by workers to strike for higher wages

The eventual agreement by workers to accept lower wages

Which letter best represents the demand for factors of production in this circular flow model?

The letter C best represents the demand for factors of production in this circular flow model. Firms demand factors of production from the factor market and in return pay income.

Which market basket specifically targets intermediate goods?

The market basket used by the producer price index specifically targets intermediate goods.

The aggregate demand curve shows the relationship between: The price level and interest rates The price level and the quantity of real GDP demanded The interest rate and the quantity of real GDP supplied

The price level and the quantity of real GDP demanded

Which of the following is included in the economist's definition of investment?

The purchase of new machines, factories, or houses

What determines the total value of annual U.S.​ GDP? A. The Federal Reserve Board. B. Wall Street. C. The Congressional Budget Office. D. The spending and production decisions of​ consumers, firms,​ governments, and foreigners.

The spending and production decisions of​ consumers, firms,​ governments, and foreigners.

Which of the following illustrates double counting? a. The total market value of the steel used to produce a car and the total market value of the car itself are summed. b. The total market value of tennis rackets and the total market value of tennis balls are summed. c. The total market value of picture frames and the total market value of camera film are summed. d. The total market value of eyeglasses and the total market value of carpet are summed. e. b and c

The total market value of the steel used to produce a car and the total market value of the car itself are summed.

Which of these groups is included in the labor force?

The unemployed

If U.S. net exports are negative, a. U.S. consumers are spending less on foreign goods than foreign consumers are spending on U.S. goods b. U.S. consumers are spending more on foreign goods than foreign consumers are spending on U.S. goods c. the government must promote imports to balance international trade d. U.S. consumers are spending more on foreign goods than they are spending on U.S. goods e. U.S. disposable income is low

U.S. consumers are spending more on foreign goods than foreign consumers are spending on U.S. goods

Which one of these groups in most hurt by unanticipated inflation?

Wealthy people who hold cash in their wall safes

The answer is "a person employed in the civilian labor force who quits his or her job." The question is: a. Who is a job loser? b. Who is an entrant? c. Who is a reentrant? d. Who is a job leaver? e. Who is a discouraged worker?

Who is a job leaver?

Is it possible for the economy to be at full employment and still have some people who are unemployed?

Yes, since full employment exists if the economy is operating at the natural unemployment rate and there is always some natural unemployment.

Suppose you are available for work but have not looked for a job for at least the last four weeks because you believe that no jobs are available. You would then be counted as __________.

a discouraged worker

At what point does the economy begin a period of recession?

after the peak

The total of all planned real expenditures in the economy is A. aggregate GDP. B. aggregate demand. C. aggregate consumption. D. aggregate spending.

aggregate demand.

According to the interest rate​ effect, an increase in the price level A. increases nominal interest rates. B. reduces borrowing and spending. C. reduces the aggregate quantity of goods and services demanded. D. All of the above.

all of the above

The producer price index tracks the prices firms receive for goods and services at:

all stages of production

The producer price index tracks the prices firms receive for goods and services at:

all stages of production. The PPI is concerned will all producer inputs, not just those used in the final stage of production. And, the retail level is computed by the CPI.

If a person did at least one hour of work as a paid employee during the survey week, how is she classified?

as an employed person

If a person worked at least 15 hours per week as an "unpaid" worker on a family farm, how is she classified?

as an employed person

Year to year rightward shifts in​ long-run aggregate supply leads to a. shifts in aggregate demand. b. a​ long-run trend path for real GDP. c. inflation. d. decreases in the production possibilities curve.

a​ long-run trend path for real GDP.

In the classical model, when households save: it causes unemployment. business investment will offset that savings. it is an injection into the income stream.

business investment will offset that savings.

To macroeconomists, investment is mainly the purchases of goods and services a. by businesses. b. to hold as wealth, such as gold coins or art. c. to hold as wealth, such as stocks and bonds. d. in the period previous to the period being studied.

by businesses.

A sustained decrease in the average level of prices and wages in the economy is __________.

called deflation

Total expenditures for domestically produced goods and services consist of A.consumer​ spending, business​ spending, and net foreign spending. B.government spending only. c. consumer​ spending, business​ spending, government​ spending, and net foreign spending. d. consumer spending only.

consumer​ spending, business​ spending, government​ spending, and net foreign spending.

When the expenditure approach is used to measure GDP, the major components of GDP are a. consumption, investment, indirect business taxes, and depreciation. b. employee compensation, rents, interest, self-employment income, and corporate profits. c. employee compensation, corporate profits, depreciation, and indirect business taxes. d. consumption, investment, government consumption and gross investment, and net exports.

consumption, investment, government consumption and gross investment, and net exports.

At full employment, __________.

cyclical unemployment is zero

The type of unemployment caused by changes in the business cycle is a. cyclical unemployment. b. natural unemployment. c. frictional unemployment. d. structural unemployment.

cyclical unemployment.

In measuring changes in the standard of living of a country, economists rely heavily on comparisons over time of real GDP per capita because:

despite its well-known flaws, it is the best means we have of comparing the performance of an economy over time In measuring changes in the standard of living of a country, economists rely heavily on comparisons over time of real GDP per capita because despite its well-known flaws, it is the best means we have of comparing the performance of an economy over time. The quantity of goods and services a person can buy, as measured by real per capita GDP, is not a measure of how happy or contented a person may be. The level of pollution, crime, spiritual health, and numerous other factors cannot be measured with real GDP. However, it is the most useful proxy we have available and there does appear to be a high correlation between per capita happiness and per capita real GDP.

As the value of a country's real GDP increases, the country is likely to:

devote more resources to pollution reduction

The cyclical unemployment rate is defined as the __________ unemployment rates

difference between the existing (actual) and the natural

The best measure of the income households actually have available to spend is:

disposable personal income

Net exports equals a. exports divided by imports. b. the sum of exports and imports. c. exports minus imports. d. exports during the year. e. none of the above

exports minus imports.

True or false "Full employment" is said to exist when the actual unemployment rate is zero.

false

Business firms make which of the following two types of investment? a. foreign investment and domestic investment b. fixed investment and capital investment c. investment in stocks and investment in bonds d. investment in new capital goods and investment in used capital goods to replace "worn-out" capital goods e. fixed investment and inventory investment

fixed investment and inventory investment

The short-term unemployment that arises from workers, in the process of changing jobs, is called __________.

frictional unemployment

The unemployment that occurs with the normal workings of the economy, such as workers taking time to search for suitable jobs and firms taking time to search for qualified employees, is called:

frictional unemployment

Unemployment caused by people voluntarily quitting work in order to seek more attractive employment is called a. the natural rate of unemployment. b. full employment. c. cyclical unemployment. d. frictional unemployment. e. structural unemployment.

frictional unemployment.

A plumber who quits his job in San Diego and moves to Orlando where additional plumbers are needed is said to be __________ unemployed a. frictionally b. cyclically c. structurally d. underemployed

frictionally

Jones lost his job in industry A, but he has skills that can be transferred to industry B (which is currently hiring). Smith lost a job in industry C, but his skills cannot be transferred to industry B or to any other industry. Jones is __________ unemployed and Smith is __________ unemployed.

frictionally; structurally

The "normal or natural" underlying level of unemployment in the economy is the __________.

full employment rate of unemployment.

In the long run, the rate of inflation is determined by the __________. growth of real GDP level of unemployment growth of the money supply

growth of the money supply

In the circular flow model, who supplies factors of production in exchange for income?

households

The flow of funds from __________ into the financial system makes it possible for government and firms to borrow.

households

According to Keynesian theory, fiscal policymakers can combat the impact of recessions by: increasing government spending. increasing the money supply. decreasing government spending.

increasing the money supply.

The percentage rate of change in the price level is the definition of the:

inflation rate

The​ long-run aggregate supply curve a. is vertical because changes in the price level have no effect on real output. b. is vertical because a change in real GDP has no effect on the price level. c. shows the various amounts of real output businesses are willing to consume at each price level. d. is downward sloping because a higher price level causes businesses and consumers to reduce spending.

is vertical because changes in the price level have no effect on real output.

The ratio of the labor force to the adult population is known as the:

labor force participation rate

Say's law: maintains that demand creates its own supply. maintains that supply creates its own demand. was developed by John Maynard Keynes.

maintains that supply creates its own demand.

In calculating the CPI, the __________.

market basket does not include large equipment purchased by firms

Gross domestic product is best defined as the:

market value of all final goods and services produced in a country during a period of time

The consumer price index

measures the cost of an unchanging basket of goods and services.

The theory of purchasing power parity states that, in the long run exchange rates __________.

move to equalize the amount of goods that different currencies can buy

The ___________ rate of unemployment occurs at the​ long-run level of real GDP per year given by the position of the LRAS.

natural

If the cyclical unemployment rate is negative, then the

natural unemployment rate is greater than the actual unemployment rate in the economy.

A __________ is a person who was employed in the civilian labor force and was either fired or laid off. (A) new entrant (B) reentrant (C) job leaver (D) job fixer (E) none of the above

none of the above

U.S. imports are: a. not added to U.S. GDP because they are produced abroad b. added to U.S. GDP because they are consumed domestically c. added to U.S. GDP because they represent an increase in inventories d. added to U.S. GDP as government purchases because the government decides what goods may be imported e. not added to U.S. GDP because they are intermediate goods

not added to U.S. GDP because they are produced abroad

Disposable personal income is equal to personal income minus:

personal tax payments

Macroeconomists define consumption as: a. purchases by the business sector. b. wearing away and breakdown of capital goods. c. the difference between imports and exports. d. purchases by the household sector.

purchases by the household sector.

The classical model assumes: prices and wages are constant. pure competition. altruism is the main motivating force.

pure competition.

In the Keynesian range of SRAS, if AD shifts to the left, then: real GDP is unchanged. the price level falls. real GDP falls.

real GDP falls.

Because the focus of long-run economic growth is on the standard of living of the average person, we measure the standard of living in terms of:

real GDP per capita Because the focus of long-run economic growth is on the standard of living of the average person, we measure the standard of living in terms of real GDP per capita. While this measure is not a perfect measure of quality of life, it is useful to provide some indication of economic well-being per person. We use real GDP instead of nominal GDP to eliminate the impact of inflation.

According to the​ real-balance effect, an increase in the price level A. does not affect the real value of cash balances in the​ long-run. B. does not affect the real value of cash balances in the​ short-run. C. increases an​ individual's expenditures due to an increase in the real value of cash balances. D. reduces an​ individual's expenditures due to a decrease in the real value of cash balances.

reduces an​ individual's expenditures due to a decrease in the real value of cash balances.

A(n) __________ is a person who was previously employed, hasn't worked for some time, and is currently reentering the labor force. a. discouraged worker b. entrant c. reentrant d. job loser e. job leaver

reentrant

labor or capital increases from year to year or if the productivity of either of these resources rises from one year to the​ next, the LRAS shifts ______________. In a growing​ economy, therefore, real GDP per year gradually ________________ over time

rightwards, increases

The long-run aggregate supply curve: is negatively sloped is positively sloped shifts to the right as technological change occurs

shifts to the right as technological change occurs

When economic growth occurs, a nation's: long-run AS curve becomes horizontal. short-run AS curve shifts leftward. short-run and long-run AS curves shift rightward.

short-run and long-run AS curves shift rightward.

The aggregate demand and aggregate supply model explains: the effect of long-run economic growth on the standard of living the effect of changes in interest rate on investment spending short-run fluctuations in real GDP and the price level

short-run fluctuations in real GDP and the price level

The aggregate demand curve A. shows planned purchase rates of goods and services at various price levels. B. is equivalent to the horizontal summation of all​ consumers' demand curves for all goods and services. C. is the total of all planned production for the economy. D. is equivalent to GDP.

shows planned purchase rates of goods and services at various price levels.

The total national income actually received by a country's residents is:

smaller than the value of GDP

Keynes maintained that the economy could remain long-term at levels of output below the full-employment level of output due to: sticky wages and prices. decreases in the money supply. irrational expectations.

sticky wages and prices.

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and job requirements is called __________.

structural unemployment

When individuals are unemployed because they lack the qualifications to fill available jobs, this is called a. frictional unemployment. b. natural unemployment. c. cyclical unemployment. d. structural unemployment.

structural unemployment

In many large retail stores, price markdowns are now determined by computer. The "middle managers" who used to make these decisions personally became __________ unemployed.

structurally

The 1974-1975 recession was a result of a: supply shock that caused a leftward shift of the long-run aggregate supply curve supply shock that caused a leftward shift of the short-run aggregate supply curve housing bubble collapse that caused a leftward shift of the aggregate demand curve

supply shock that caused a leftward shift of the short-run aggregate supply curve

The 2007-2009 recession was a clear example of the impact: of a positive supply shock on the economy that a decrease in aggregate demand can have on the economy of a shift to the left in the long-run aggregate supply on the economy

that a decrease in aggregate demand can have on the economy

The base year is the year

that serves as a reference point or benchmark.

If Americans still worked sixty hour weeks, as they did in 1890, __________.

the GDP would be much higher than it is but the well-being of the typical person would not necessarily be higher

Classical economists, according to John Maynard Keynes, are the ones that developed economic theory prior to: World War I. the Industrial Revolution. the Great Depression.

the Great Depression.

The cycle of short-term ups and downs in the economy is called:

the business cycle

In the Keynesian model, in a depression: prices and wages are flexible. the economy operates in the horizontal range of the SRAS curve. the interest rate adjusts until desired savings equals desired investment.

the economy operates in the horizontal range of the SRAS curve.

In the long-run, the level of output is: the full-employment level of output independent of the supply factors dependent on the price level

the full-employment level of output

Gross domestic product is: a. the market value of all goods and services exchanged within a country during a time period. b. the market value of all domestic assets, regardless of whether they are owned by citizens or foreigners. c. the compensation received during a period for labor services plus interest, rents, and corporate profits. d. the market value of final goods and services produced within a country during a time period.

the market value of final goods and services produced within a country during a time period.

"Full employment" is said to exist when the unemployment rate equals

the natural unemployment rate.

Which of the following is counted in GDP? a. the purchase of 100 shares of Microsoft stock b. the services of a real estate broker c. government transfer payments d. the sale of a used car e. none of the above

the services of a real estate broker

Which of the following would be included in this year's GDP? a. the value of a used car, at its sale price b. the value of a new domestic automobile, at its sale price c. a sale of Microsoft stock from one individual to another d. the face value of a life insurance policy paid to a woman at the death of her husband

the value of a new domestic automobile, at its sale price

Real GDP is:

the value of goods and services evaluated at base year prices

Underground activities are not counted in GDP because: a. some underground activities are illegal and the government doesn't want to place, for instance, drug dealers on an equal footing with small businesses. b. there are no written records of underground activities. c. of a decision made in the 1930s and no one has gotten around to changing it yet. d. although it is possible to accurately measure underground activities, it is harder than measuring above-ground activities because with the latter, one doesn't have to dig as deep.

there are no written records of underground activities.

The GDP is a measure of the:

total dollar value of all goods and services produced within the borders of a country

In an open​ economy, the total value of GDP is based on the spending decisions of​ individuals, firms,​ governments, and foreign residents. true false

true

The​ long-run aggregate supply curve ​(LRAS​) is equivalent to the​ full-employment level of real GDP. True or False

true

True or False When news reports state that the cost of living has changed they are usually referring to a change in the CPI.

true

True or false The CPI is based on a representative group of goods called the market basket.

true

Economists usually use the term "recession" to refer to a. any slowdown in the growth of real GDP. b. zero real GDP growth. c. two or more consecutive quarters of declining real GDP. d. a reduction in nominal GDP lasting more than six months.

two or more consecutive quarters of declining real GDP

How would the Bureau of Labor Statistics classify a person who is not working and refuses an offer of employment in order to keep looking for a better job?

unemployed

The civilian labor force includes those individuals who are a. unemployed and looking for work. b. staying home to care for other family members. c. attending school and not working at a job. d. retired.

unemployed and looking for work.

A person in the civilian labor force falls into one of two categories:

unemployed or employed.

The ​long-run aggregate supply​ curve, ​LRAS, is a ________ line determined by amounts of available resources such as labor and capital and by technology and resource productivity. The position of the LRAS gives the​ full-information and​ full-adjustment level of real GDP per year.

vertical

The wealth effect refers to the fact that when the price level falls, the nominal value of assets rises, while the real value of assets remains the same when the price level falls, the real value of household wealth rises, and so will consumption when income rises, consumption rises

when the price level falls, the real value of household wealth rises, and so will consumption

The aggregate demand curve slopes downward because of the A. real-balance and transfer effects only. B. ​real-balance effect only. C. ​real-balance and interest rate effects only. D. ​real-balance, interest rate and open economy effects.

​real-balance, interest rate and open economy effects.