ECO 210 Homework Questions P.2
To find real GDP:
Divide the nominal GDP by the price index
In order for mutually beneficial trade to occur between two otherwise isolated nations
Each nation must be able to produce at least one good relatively cheaper than the other
If congress passed new laws significantly increasing the regulation of business, this action would tend to
Increase per-unit production costs and shift the aggregate supply curve to the left
A protective tariff will
Increase the price and sales of domestic producers
The smallest component of aggregate spending in the United States is:
Net exports
A country's current unemployment rate is 11 percent. Economists estimates that its natural rate of unemployment is 6 percent. About how large is this economy's negative GDP gap?
Okun's law indicates that for every 1 percentage point by which the actual unemployment rate exceeds the natural rate, a negative GDP gap of about 2 percent occurs. The actual rate if unemployment exceeds the natural rate of unemployment by 5 percent (= 11-6), which is cyclical unemployment. Using Okun's law, this translates into a 10 percent GDP gap in percentage-point terms (=2 x 5)
Transfer payments are
excluded when calculating GDP because they do not reflect current production.
The determinants of aggregate demand
explain shifts in the aggregate demand curve.
Studies show that
Costs of trade barriers exceed their benefits, creating an efficiency loss for society
Other things equal, an improvement in productivity will
Shift the aggregate supply curve to the right
A fall in the prices of inputs will shift the aggregate
Supply curve rightward
Assume the following for the town of Boone: It has a total population of 40,000 people, of which 4,000 are under 16 years of age or are institutionalized; 5,00 are full-time students who are not employed and are not seeking work; and 30,000 are employed. The rest of the people are out of work but have been actively seeking work within the past four weeks. What is Boone's unemployment rate?
Take total population (40,000) minus persons 16 years of age or younger who are not institutions (4,000) minus full-time students who are not working or seeking employment (5,000). 40,000-4,000-5,000= Labor force of 31,000 To fine the number of unemployed workers, subtract the number of employed workers (30,000) from the labor force (31,000) to obtain 1,000 unemployed workers. Unemployment rate = number of unemployed / labor force = (1,000/31,000) x 100 = 3.2 percent
If depreciation exceeds gross investment:
The economy's stock of capital is shrinking.
Nominal GDP is
The market or money value of all final goods and services produced by the economy in a given year, whereas real GDP is adjusted from inflation
The unemployment rate that is consistent with full employment is known as ______.
The natural rate of unemployment
Which of the following is NOT an effect that occurs when the general price level in our economy increases?
The purchasing power of people's savings will increase
An economy's output, in essence, is also equal to its income because
The value of everything that is produced is also the value of everything sold
The GDP price index is
a measure of the price of a specified collection of goods and services compared to the price of a highly similar collection of goods and services in a reference year.
Net exports are negative when:
a nation's imports exceed its exports.
Final goods and services refer to
goods and services purchased by ultimate users, rather than for resale or further processing.
In the Great Recession of 2007-2009, stock market values shrank, causing a reverse
Wealth effect
The real-balances, interest-rate, and foreign purchases effects all help maintain
Why the aggregate demand curve is down-slopping
Which of the following is not a component of GDP in the expenditures approach?
Workers' wages and compensation
If the dollar appreciates in value relative to foreign currencies
Aggregate demand decreases because net exports decrease
A tariff is a...
Tax
GDP can be calculated by summing:
consumption, investment, government purchases, and net exports
Real GDP refers to
GDP data that have been adjusted for changes in the price level.
If the price of crude oil decreased, then this would most likely
Increase aggregate supply in the U.S.
Suppose that an economy has 9 million people working full-time. It also has 1 million people who are actively seeking work but currently unemployed as well as 2 million discourages workers who have given up looking for work and are currently unemployed. What is this economy's unemployment rate?
Labor force = 9 million employed + 1 million unemployed but actively seeking work Unemployment rate = number or unemployed / labor force = (1 million/10 million) x 100 = 10 percent
An increase in personal income taxes would shift AD to the
Left because C will decrease
Which of the following is not included in personal consumption expenditures?
Purchases of mutual funds by consumers
The term of trade reflect the
Ratio at which nations will exchange two goods
In order to compare changes in the standard living over a series of years, we would use
Real GDP
If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:
Rightward by $50 billion at each price level
Specialization and trade based on comparative advantage allow nations to attain the following results, except
Rising total employment
Government purchases in national income accounts would include payments for
Salaries for current U.S. military officers
Consumption of fixed capital (depreciation) can be determined by
Subtracting NDP from GDP
Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. a. Tim just graduated and is looking for a job b. A recession causes a local factory to lay off 30 workers c. Thousands of bus and truck drivers permanently lose their jobs when driverless-computer-vehicles make human drivers redundant d. Hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India
a. Frictional (Tim is merely transitioning from school to work) b. Cyclical (Unemployment due to recession) c. Structural (Unemployment due to technological advances) d. Structural (Skill are lacked by employers)
Suppose that the natural rate of unemployment in a particular year is 5 percent and the actual rate of unemployment is 9 percent. a. Use Okun's law to determine the size of the GDP gap is percentage-point terms b. If the potential GDP is $500 billion in that year, how much output is being forgone because of cynical unemployment?
a. Okun's law indicates that for every 1 percentage point by which the actual unemployment rate exceeds the natural rate, a negative GDP gap of about 2 percent occurs. The actual rate if unemployment exceeds the natural rate of unemployment by 4 percent (= 9-5), which is cyclical unemployment. Using Okun's law, this translates into a 8 percent GDP gap in percentage-point terms (=2 x 4) b. Since potential GDP is $500 billions and we are 8 percent below this amount, the output forgone is $40 billion (=0.08 x $500 billion)
a. What is the size of the labor force? b. What is the official unemployment rate?
a. To find the size of the labor force subtract population under 16 years of age or institutionalized (120) and those not in the labor force (150) from the total population (500). The size of the labor force is 230 (=500-120-150) b. The official unemployment rate is the number of individuals unemployed divided by the labor force converted into percentage form. The unemployment rate is 10% (=(23/230) x 100)
The value of a price index in the base year is always
100
An increase in aggregate demand is most likely to be caused by which of the following?
A decrease in the tax rates on household incomes
Which of the following would most likely shift the aggregate demand curve to the right?
An increase in stock prices that increases consumer wealth
Tariffs and import quotas would benefit the following groups, except
Consumers of the product
The largest component of total expenditures in the United States is
Consumption
Money spent on the purchase of a new house is included in the GDP as a part of:
Gross domestic private investment
Real GDP measures
Current output at base year prices
The value of corporate stocks and bonds traded in a given year is:
Excluded from the calculation of GDP because they make no contribution to current productions of goods and services
The domestic opportunity cost of producing 100 barrels of chemicals in Germany is one ton of steel. In France, the domestic opportunity cost of producing 100 barrels of chemicals is two tons of steel. In this case
Germany has the comparative advantage in the production of chemicals
Other things equal, a reduction in personal and business taxes can be expected to
Increase both aggregate demand and aggregate supply
A decline in investments will shift the AD curve to the
Left by a multiple of the change in investments
The expenditures multiplier concept of thee aggregate expenditures model
Magnifies the shift of the aggregate demand curve
Tariffs
May be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs)
The primary gain from international trade is
More goods than would be attainable through domestic production alone
If a nation has a comparative advantage in the production of X, this means the nation...
Must give up less of other goods than other nations is producing a unit of X
If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of resources, than can country B
Mutually advantageous specialization and trade between A and B may still be possible
If real GDP falls from one period to another, we can conclude that
None of these necessarily occur
In calculating GDP, governmental transfer payments, such as social security or unemployment compensation, are:
Not counted
National income measures
the total of all sources of private income plus government revenue from taxes on production and imports
