Econ 110: Spring; Al Hamdi (Exam 2 HWs)

Consumption expenditure - $800 Investment expenditures - $300 Government purchases - $300 Government transfer payments - $400 Exports - $300 Imports - $100 Refer to Table above. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals

$1600

Given the following economic data, what is the value of investment in a closed economy? Y = $10 trillion C = $5 trillion TR = $2 trillion G = $2 trillion

$3 trillion

Production Seller Buyer Price 1 Steel mill Auto manufacturer $10,000 2 Auto manufacturer Auto dealer $18,000 3 Auto dealer Consumer $25,000 Refer to Table above. The value added by the automobile dealer equals

$7000

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2018, then the value of your grandfather's salary in 2018 dollars is approximately

$84,775.

Labor unions cause unemployment because the union contract wage is set

above the market wage, causing a surplus of labor.

Minimum wage laws cause unemployment because the legal minimum wage is set

above the market wage, causing labor demand to be less than labor supply.

Which of the following would increase the unemployment rate?

an increase in unemployment insurance payments

When actual inflation is less than expected inflation

borrowers lose and lenders gain

Investment, as defined by economists, would include the purchase of a

computer by an accounting firm

Which of the following price indices comes closest to measuring the cost of living of the typical household?

consumer price index

The demand for durable goods

declines by a greater percentage than does GDP during a recession.

The underground economy can be described as

economic activity that is hidden from the government to avoid taxes or because the activity is illegal.

The labor force equals the number of people

employed plus unemployed

In the circular flow model, the value of total income for an economy ________ the value of total production.

equals

The output of Mexican citizens who work in Texas would be included in the

gross national product of Mexico.

Nominal GDP will increase

if either the price level or the quantity of goods and services produced rises.

A sharp increase in the number of medical errors increases the number of lawyers hired to determine medical malpractice settlements. This will

increase GDP and decrease well-being in the economy.

The cost to firms of changing prices

is called a menu cost.

If the GDP deflator is less than 100, then for that year, nominal GDP ________ real GDP.

is less than

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as

labor productivity

The United States has ________ social insurance programs, and generally has a ________ unemployment rate, as compared to Canada and Western Europe.

less generous; lower

The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds.

lower; greater; greater

The purchase by a household in China of a CD produced in the United States is included in U.S.

net exports

The stated interest rate on a loan is the

nominal interest rate

Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as

not in the labor force

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket.

not; overstate

Full employment is not considered to be zero unemployment, because

people do not find jobs instantaneously

A good measure of the standard of living is

real GDP per capita

The producer price index measures the prices that firms

receive for the goods and services they use at all stages of production.

If your nominal wage rises faster than the price level, we can say your real wage has ________ and the purchasing power of your income has ________.

risen; risen

A consumer price index of 160 in 1996 with a base year of 1982-1984 would mean that the cost of the market basket

rose 60% from the cost of the market basket in the base year.

People who lost their jobs as hand-drawn animators because of the popularity of computer-generated 3D animation are examples of persons who are suffering

structural unemployment

What is the name of the organization that defines business cycle peaks and troughs in the United States?

the National Bureau of Economic Research

Human capital refers to which of the following?

the accumulated knowledge and skills workers acquire from education and training or from their life experiences

Liquidity refers to

the ease with which a financial security can be traded for cash.

Potential GDP refers to

the level of GDP attained when all firms are producing at capacity.

When deflation occurs

the real interest rate is greater than the nominal interest rate

An example of an intermediate good would be

the rims on a new car

During the month of May, 10 million workers moved from being classified as "unemployed" to being classified as "employed." As a result

the unemployment rate fell

Why might firms pay wages that are above the equilibrium wage in a market?

to increase the productivity of their workers

To reduce the bias in the consumer price index, the Bureau of Labor Statistics

updates the market basket every two years, rather than every 10 years.

In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means that the BEA

values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

If an economy experiences deflation, the real interest rate

will be greater than the nominal interest rate.

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

3 percent

Year. Real GDP (billions of 2000 dollars) 2015 $8,700 2016 $8,875 2017 $9,000 2018 $9,280 Refer to Table 10-1. Using the table above, what is the approximate growth rate of real GDP from 2017 to 2018?

3%

If the number of unemployed workers is 19 million, the number in the working-age population is 500 million, and the unemployment rate is 4%, how many workers are in the labor force?

475 million

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is

5%

2017 2018 Nominal GDP $10,000 $12,000 Real GDP $9,500 $10,500 Refer to Tableabove. Given the information above, calculate the rate of increase in the price level from 2017 to 2018.

8.6%

During the expansion phase of the business cycle, which of the following eventually increases?

A)production B) employment C) income all of the above

Which of the following describes the accuracy of the Consumer Price Index?

Changes in the CPI overstate the true rate of inflation.

Suppose Bob works for Mary as a proofreader. Mary and Bob fall deeply in love, marry, and have eight children. Bob stops working for Mary in order to care for the children. What will be the effect on GDP?

GDP will decrease

Base Year (2013) 2018 Product Quantity Price Price Cokes 100 $0.50 $0.75 Hamburgers 200 $2.00 $2.50 CDs 10. $20.00. $21.00 Refer to Table above. Assume the market basket for the consumer price index has three products—Cokes, hamburgers, and CDs—with the following values in 2013 and 2018 for price and quantity: The Consumer Price Index for 2018 equals

121

Year Nominal GDP Real GDP 2015 $7,400 $7,537 2016 $7,813 $7,813 2017 $8,301 $8,165 2018 $8,760 $8,516 Refer to Table above. Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The base year used in calculating real GDP is

2016

If an economy is growing at a rate of 2.5% per year, how long will it take the economy to double in size?

28 years

A period of economic expansion ends with a business cycle trough.

False

Countries without well-developed financial systems are able to sustain high levels of economic growth.

False

If Gladys sells her 2003 Jeep Cherokee for $3,500 in 2018, the sale of her car contributes $3,500 to 2018 GDP.

False

If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% between those two years.

False

Most economists believe that labor unions significantly increase the overall unemployment rate in the United States.

False

Nominal GDP measures the value of all final goods and services at base-year prices.

False

Paying efficiency wages are a way for a company to cut costs and become more efficient, and are therefore lower than market wages.

False

The inflation rate measures the average prices of goods and services in the economy.

False

The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment.

False

To obtain real average hourly earnings, nominal average hourly earnings are multiplied by the CPI.

False

Transfer payments are subtracted from national income to get to personal income.

False

If real GDP in a small country in 2017 is $8 billion and real GDP in the same country in 2018 is $8.3 billion, the growth rate of real GDP between 2017 and 2018

Is 3.75%

If the CPI changes from 125 to 120 between 2017 and 2018, how did prices change between 2017 and 2018?

Prices decreased by 4%.

If the GDP deflator is 142, by how much have prices changed since the base year?

Prices have increased by 42%.

If government saving is negative, then

T-TR<G (Taxes- Transfers< Government purchases)

Financial markets and financial intermediaries comprise the financial system.

True

If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy.

True

If inflation expectations are increasing, we would expect that the nominal interest rate would also be increasing, holding all else constant.

True

Increases in capital per hour worked cannot sustain high rates of economic growth unless accompanied by technological change.

True

The household survey asks adults about their employment status and is used to compile the monthly unemployment rate.

True

In a closed economy, which of the following equations reflects investment? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)

Y - C - G

Which of the following explains the changes in the U.S. adult male labor force participation rate since 1948?

Younger men are remaining in school longer as compared to the past