ECON Chap 8 & 9 HW
What effect do labor unions have on the unemployment rate?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
$70,288
Using the table above, what is the approximate growth rate of real GDP from 2015 to 2016?
3%
Why does SRAS slope upward
Contracts keep wages "sticky". Prices of final goods rise more quickly than the prices of inputs. Firms and workers fail to predict changes in the price level.
Economists who believed that the Phillips curve represented a structural relationship believed that the curve represented
a permanent trade-off between unemployment and inflation
Which of the following is NOT a function of money? store of value, medium of exchange, unit of account, acceptability
acceptability
If actual inflation is higher than expected inflation, the
actual real wage is less than the expected real wage: unemployment falls.
Which of the following would you expect to increase the equilibrium interest rate?
an increase in the budget deficit
Which of the following will increase investment spending in the economy, all else being equal?
an increase in the federal government surplus
One-time tax rebates, such as those in 2001 and 2008, increase consumption spending by less than a permanent tax cut because one-time tax rebates increase
current income
During the recession phase of the business cycle, production, employment, and income
decrease
An increase in the money supply will
decrease the interest rate
If the BLS counted persons that are on active military service in the totals for employment, the labor force, or the working-age population, this would
decrease the measured unemployment rate.
In the figure to the right, the opportunity cost of holding money ________ when moving from Point A to Point B on the money demand curve.
decreases
Consider the per-worker production function LOADING... to the right. Equal increases in the quantity of capital per hour worked lead to diminishing increases in output per hour worked
diminishing, graph going up
changes in price level _______________ affect GDP in long run
do not
Why doesn't the Phillips curve represent a permanent trade-off between unemployment and inflation in the long run?
in the long run, aggregate supply is vertical
Credit cards are
included in neither the M1 definition of the money supply nor in the M2 definition.
Evaluate the following statement:"Saving money is not lending. How can it be? When I save my money, I put it in a bank. I don't loan it out to someone else."The statement is
incorrect. The supply of loanable funds is determined by household saving.
During the expansion phase of the business cycle, production, employment, and income
increase
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
number of unemployed / number in labor force * 100
The main tool the Federal Reserve uses to conduct monetary policy is
open market operations
Discouraged workers are classified by the BLS as
out of the labor force
If real GDP increases we know for sure that
output has risen
Foreign direct investment in the United States declined 42 percent in the first quarter of 2009. This means that
people or firms in other countries reduced their building of facilities or purchases of facilities in the United States by 42 percent in the first quarter of 2009.
Disposable personal income is
personal income minus personal taxes
Does government spending ever reduce private spending?
yes due to crowding out
Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals
$6400
Real GDP per capita is often used as a measure of general well-being. While increases in real GDP often do lead to increases in the well-being of the population, why is real GDP not a perfect measure of well-being?
.GDP does not include crime rates or income distribution. The costs of pollution are not included. The value of leisure is not included.
f a 3-month Treasury bill pays 5.5% and the change in the consumer price index (CPI) is 4.7%, what is the real interest rate (the true return to lending)?
0.8%
1. Coffee beans purchased by coffee shop, 2One share of google stock 3 A new pick up truck purchased by consumer 4New home purchased by family
1 intermediate 2 neither 3 final4 final
A shift form A to C would cause 1 Decrease in the price level 2 Lower interest rates 3 Increased consumer optimism 4 Decrease in the U.S. exchange rate relative to other currencies 5 Inflation 6 Lower taxes
2,3,4,6
If real GDP equals $11,567 billion in 2006 and $11,916 billion in 2007, and assuming population is constant over those two years, how many years will it take for real GDP per capita LOADING... to double? ____ years. (Enter your response as a real number rounded to one decimal place.)
23.2
A very simple economy produces three goods: movies, burgers, and bikes. The quantities produced and their corresponding prices for 2011 and 2016 are shown in the table above. What is nominal GDP in 2011?
3320
If the reserve requirement ratio (RR) is 0.20, the simple deposit multiplier is
5
Real GDP =
6680
What is the real average hourly wage in 2009?
8.21
Suppose the reserve requirement is 55%. What is the effect on total checkable deposits in the economy if bank reserves increase by $60 billion?
A $1200 billion increase
Why do economic growth rates matter?
A High levels of sustained economic growth reduce infant mortality.B.High growth rates coincide with improved living standards.C.When a country sustains high growth rates, life expectancy at birth increases. Final, intermediate, or neither good
Indicate which of the following is an explanation for the productivity slowdown of 1974-1995,
A shift from a goods-based economy to a service-based economy,BDeterioration of the U.S. educational system,C.Increased production and transportation costs
An improvement in technology is shown as a
A to B
The figure to the right illustrates the relationship between weak and strong rule-of-law LOADING... countries and economic growth. In addition to a country's failure to enforce rule-of-law, what else explains why more low-income countries do NOT experience rapid growth as the catch-up line predicts?
A.Inability to borrow money needed for investment B.Shortage of childhood vaccinations C.Lengthy civil wars
According to the dynamic AD-AS model, what is the most common cause of inflation?
AD increases by more than LRAS Total spending increases faster than total production
Contractionary Actual Real GDP, potential GDP, PL, unemployment
Act Real GDP : decreases Potential Real GDP : does not change PL decreases unemployment increases
Expansionary Actual Real GDP, potential GDP, PL, unemployment
Act Real GDP : increases Potential Real GDP : does not change PL increases unemployment decreases
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy? A .It does not account for inaccurate responses to the Current Population Survey. B. Discouraged workers are not considered unemployed. C. Underemployed people are considered employed. D. It fails to account for illegal activities.
All of the above ******
Even perfectly anticipated inflation imposes costs. Why? A. Paper money loses its purchasing power by the rate of inflation. B.Menu costs. C.Some wages will fail to keep up with anticipated inflation.
All of the above***
When the economy is at full employment, A. the natural rate of unemployment prevails. B. all remaining unemployment is either frictional or structural. C. the unemployment rate is greater than zero.
All of the above****
Which of the following causes changes in the CPI to overstate the true inflation rate? A. Increase in quality bias B.Substitution bias C.New product bias
All of the above****
Refer to the table aboev. Which two countries are consistent with the predictions of the economic growth model?
Botswana and Thailand
CH 10
CH 10
CH 11
CH 11
CH 13
CH 13
CH 14
CH 14
CH 15
CH 15
CH 16
CH 16
CH 17
CH 17
CH 8
CH 8
CH 9
CH 9
he Soviet Union's economy grew rapidly in terms of GDP per hour worked in the 1950s, but eventually this growth slowed. Why did this occur?
Capital per hour worked grew rapidly from 1950 to 1980, but technological change occurred very slowly.
How does a budget deficit LOADING... act as an automatic stabilizer and reduce the severity of a recession?
Consumers spend more than they would in the absence of social insurance programs, like unemployment. Transfer payments to households increase. During recessions, tax obligations fall due to falling wages and profits.
What are the four major categories of expenditure?
Consumption, investment, government purchases, and net exports.
Problem: Rising Inflation
Contractionary policy Gov spending decreases or taxes increase Real GDP and price level fall
Suppose two countries, Country A and Country B, have a similar real GDP per capita. Country A has an average economic growth rate of 2% and Country B has an average economic growth rate of 3.3%. In the long run, what can we predict about living standards in the two countries?
Country B's living standards will increase much more rapidly in the long run.
Increased government debt can lead to higher interest rates and, as a result, crowding out of private investment spending. In terms of borrowing (debt-spending), what will offset the effect of crowding out in the long run so that government debt poses less of a problem to the economy?
Debt-spending on highways and ports. Debt-spending on education. Debt-spending on research and development.
What is the general relationship between the business cycle and unemployment and inflation?
During an expansion, unemployment falls and inflation increases.`
Problem: Recession What happens
Expansionary policy Gov spending increases or decrease tax Real GDP and price level rise
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives.
Expansionary monetary policy refers to the ________ to increase real GDP.
Federal Reserve's increasing the money supply and decreasing interest rates
National income is
GDP - depreciation
Why is GDP an imperfect measurement of total production in the economy?
GDP does not include household production or production from the underground economy
If short run aggregate supply increases (shifts to the right) by less than long run aggregate supply, then, at the short run equilibrium,
GDP will be below potential GDP
What is the difference between federal government purchases (spending) and federal government expenditures?
Government purchases are included in government expenditures.
Gretchen expects the price level to rise from 104 this year to 108 next year, and she is able to incorporate these expectations into her wage contract. If the price level rises to 106 next year instead of 108, which of the following will occur?
Gretchen's real wage will rise.
The period of time from 1,000,000 B.C. to 1300 A.D. was a period of
no sustained economic growth
Use the graph to help determine which one of the following statements regarding flucuations in real GDP is true
In the first half of the twentieth century, real GDP had much more severe swings than in the second half of the twentieth century.
Which of the following does NOT lead to long-run economic growth LOADING... ?
Increase in average wages
Which of the following is a monetary policy tool used by the Federal Reserve Bank?
Increasing the reserve requirement from 10 percent to 12.5 percent. Decreasing the rate at which banks can borrow money from the Federal Reserve. Buying $500 million worth of government securities, such as Treasury bills.
Coffee beans purchased by a coffee shop
Intermediate good
Refer to the graph to the right. According to the economic concept of catch-up , which of the following is CORRECT?
Poorer countries should grow more quickly and will be at point A.
Which of the following is true with respect to hyperinflation?
It can be hundredslong dash—even thousandslong dash—of percentage points per year. In the presence of hyperinflation, firms and households avoid holding money. It is caused by central banks increasing the money supply at a rate much greater than the growth rate of real GDP.
The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age. What did this technological change do the short−run supply curve?
It shifted the shortminus−run aggregate supply curve to the right.
The M2 definition of the money supply includes
M1, savings accounts, small time deposits, and money markets
One share of google stock
Neither
Refer to the diagram to the right. Which of the following is consistent with the diagram?
New government regulations decrease the profitability of new investment.
Can the fed target both the money supply and the interest rate simultaneously.
No. The Fed cannot target both the money supply and the interest rate simultaneously.
After September 11, 2001, the federal government increased military spending on wars in Iraq and Afghanistan. Is this increase in spending considered fiscal policy?
No. The increase in defense spending after that date was designed to achieve homeland security objectives.
Suppose the economy is in equilibrium in the first period at point A. In the second period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD2 to AD2 policy and reach equilibrium (point C) in the second period?
Open market purchase of government securities
Strong rule-of-law countries grow more rapidly than weak rule-of-law countries. What factor will most likely improve economic growth in weak rule-of-law countries?
Political reform
In a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows :Y =$13 trillion C =$10trillion I =$4 trillionTR =$3 trillion T =$4 trillion Using the information above, what is the value of private saving and public saving?
Private saving equals $2 trillion and public saving equals $2 trillion.
Which of the following would be included in the gross national product (GNP) of the United States?
Production from a U.S. firm that operates in Mexico.
The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic growth, the economic growth model focuses on the causes of increases in long-run labor productivity. What are the key factors that determine labor productivity? (Mark all that apply.)
Quantity of capital per hour worked, technology changes
Use the graph to help determine which one of the following statements is true:
The average American in the year 2006 could buy nearly eight times as many goods and services as the average American in the year 1900.`
Panel (a) shows movements in real GDP for each quarter from the beginning of 1990 through the end of 2006. Panel (b) shows movements in the number of passenger aircraft shipped by Boeing for the same years. Use the graphs above to determine which one of the following statements is true:
The effects of the recession on Boeing are much more dramatic and long-lived than the effects on the economy as a whole.
Suppose the economy is at point B in the diagram to the right. Which of the following is true?
The expected rate of inflation is 3%.
The figure in the window on the right shows average annual growth rates in real GDP per hour worked in the United States.Based on the data from the figure on the right which one of the following statements is false
The growth rate of real GDP per hour worked has continually accelerated over time.
According to the quantity theory of money inflation results from which of the following?
The money supply grows faster than real GDP.
If, in the long run, real GDP returns to its potential level, then in the long run,
The phillips curve is vertical
Use the graph to help determine which one of the following statements regarding unemployment and business cycles is true.
The unemployment rate usually continues to rise even after the recession has ended.
If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?
This will shift the aggregate demand curve to the right.
Use the graph to help determine which one of the following statements regarding inflation and business cycles is true. Note: The points on the figure represent the annual inflation rate measured by the change in the consumer price index (CPI) for the year ending in the indicated month.
Toward the end of the 1991-2001 expansion, the inflation rate began to rise.
Indicate whether the following statement is true or false and why. "A wage rising slower than the rate of inflation is actually falling."
True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
When is it considered "good policy" for the government to run a budget deficit?
When borrowing is used for long-lived capital goods.
Private saving is defined as
Y + TR - C - T
Which of the following equations sums up the components of Gross Domestic Product (GDP)?
Y = C + I + G + NX
According to the shortminus−run Phillips curve, if unemployment is 3.2% and inflation is 1.3%, an increase in the inflation rate might result in which of the following?
a decrease in the unemployment rate to 3.0%
In economics, money is defined as
any asset people generally accept in exchange for goods and services.
Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4.25%. The real interest rate is 1.5%. Suppose now that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation? (Mark all that apply.)
borrowers gain from a lower real interest rate AND lenders lose from a lower real interest rate
FOMC decides to increase MS ______ decrease MS __________
buys US treasury bills sells us treasury bills
An initial increase in a bank's reserves will increase checkable deposits
by an amount greater than the increase in reserves.
In the figure to the right, at what point is the inflation rate stable? That is, at what point can we refer to the inflation rate as the nonaccelerating inflation rate of unemployment
c
Investment, as defined by economists, would include the purchase of a
computer by accounting firm
According to Costco's CEO, Jim Sinegal: "Paying good wages and keeping your people working for you is good business...Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you." What is Costco's CEO referring to?
efficiency wages
The use of money
eliminates the double coincidence of wants. allows for greater specialization. reduces the transaction costs of exchange
The government purchases multiplier equals the change in ________ divided by the change in ________.
equilibrium real GDP; government purchases
An increase in aggregate demand results in a(n) ________ in the ________.
expansion ; short run
Counting partminus−time workers who are looking for fullminus−time work as employed overstates the degree of joblessness in the economy.
false
What can we expect from the Federal Reserve Bank if it seeks to move the economy in the direction of long-run macroeconomic equilibrium?
fed will pursue expansionary policy
Which interest rate does the Fed target?
federal funds rate
The U.S. dollar can best be described as
fiat money
A new home purchased by a family
final good
A new pick-up truck purchased by a consumer
final good
A transfer payment is a payment by the government to an individual
for which the government does not receive a good or service in return.
Technological change is more important to long-run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through
foreign direct investment.
Suppose John Q. Worker is currently unemployed. Each day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John Q. what he does for work, he tells them that he is currently "in-between jobs." Which of the following best classifies John Q.'s unemployment status?
frictionally unemployed
Automatic stabilizers refer to
government spending and taxes that automatically increase or decrease along with the business cycle.
All of the following policies are ways for a country to promote long-run economic growth except
imposing stricter regulations to limit foreign direct investment.
When unemployment is below its natural rate, the inflation rate will eventually
increase
Deflation will
increase the quantity of real GDP demanded
Potential GDP
increases over time as technological change occurs. increases over time as the labor force grows
The multiplier effect refers to the series of
induced increases in consumption spending that result from an initial increase in autonomous expenditures.
Which of the following increases labor productivity?
inventions of new machinery, equipment, or software
The Phillips curve was developed by A.W. Phillips in 1957 and shows the relationship between unemployment and inflation. The curve, shown at the right, indicates what type of relationship between the two variables?
inverse relationship
The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off
investment and consumption spending
The purchase of a new house is included in
investment expenditures
The federal funds rate
is the rate that banks charge each other for short-term loans of excess reserves.
If the quantity of goods and services produced in the economy decreases
it may be possible for nominal GDP to increase
Because of the slope of the aggregate demand curve we can say that a decrease in the price level
leads to a higher level of real GDP demanded.
Which of the following is NOT a monetary policy goal of the Federal Reserve bank (the Fed)? low prices, low unemployment, stable financial markets, higher living standards
low prices
Rising prices erode the value of money as a ________ and as a ________.
medium of exchange; store of value
The United States is divided into 12 Federal Reserve Districts. The Federal Reserve Bank's Board of Governors consists of 7 members appointed by the president of the U.S. to 14-year, non-renewable terms. One of the board members is appointed to a 4 year, renewable term as the chairman.
memorizarrrr
A change in price level causes a _____ along the SRAS curve
movement
The money demand curve has a
negative slope because an increase in the interest rate decreases the quantity of money demanded
Which of the following can give an early warning of future increases in the price level?
producer price index
What can low-income countries do in order to increase the amount of loanable funds available to firms for investment projects such as new factories or improved technology?
provide savings incentives
Potential GDP refers to the level of
real GDP in the long run.
What should the Federal Reserve do if it wants to move from point A to point B in the shortminus−run Phillips curve depicted in the diagram to the right?
sell treasury bills
The Fed can increase the federal funds rate by
selling Treasury bills, which decreases bank reserves.
A change in any factor besides price causes a _________ in SRAS curve
shift
An increase in the labor force or capital stock is illustrated as a
shift from A to B
An increase in the expected future price level causes
shift from B to A
An increase in the expected price of an important natural resource is indicated by
shift from B to A
Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. As a result, the LRAS curve will
shift to the right
Suppose that Sally J. Society recently lost her job as an underwater welder. In looking for a new job, she discovers that the only available jobs are for economists and that there are no openings for underwater welders because the trade is now obsolete. If Sally J. Society decides to return to school to earn an Economics degree, what is the best classification of her unemployment status?
structurally unemployed
Policy that is specifically designed to affect aggregate supply and increase incentives to work, save, and start a business, by reducing the tax wedge is called
supply side economics
There is a government budget surplus if
t - Tr > G
Healthier, more educated workers tend to be more productive. Greater overall productivity per hour worked is a fundamental component of long-term economic growth. However, many very successful individuals often find few opportunities in their own developing countries, and leave them for industrial countries. By improving health and education, developing countries can generate economic growth, and increase incomes. This will help combat the prevalence of educated people leaving their home countries for opportunities elsewhere. That is, it will combat
the brain drain
globalization refers to
the process of countries becoming more open to foreign trade and investment.
Equilibrium in the loanable funds market determines
the real interest rate
When an economy faces diminishing returns,
the slope of the per-worker production function becomes flatter as capital per hour worked increases.
What is the natural rate of unemployment?
the unemployment rate that exists when the economy is at potential GDP
Suppose, in 2016, you purchased a house built in 2003. Which of the following would be included in the gross domestic product for 2016?
the value of the services of the real estate agent
If stricter immigration laws are imposed and many foreign workers in the United States are forced to go back to their home countries,
the long-run aggregate supply curve will shift to the left.
The key to understanding the short run trade off behind the Phillips curve is that an increase in inflation will decrease unemployment if the inflation is ________ by both workers and firms
unexpected
When the economy enters a recession, your employer is ___________ to reduce your wages because _______.
unlikely; lower wages reduce productivity and morale
Nominal GDP is GDP in a given yeae
valued in the prices of that year
In addition to the Federal Reserve Bank, what other economic actors influence the money supply?
Households, firms, and banks.
An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.
decrease; rise; fall
A cut in tax rates effects equilibrium real GDP through two channels: ________ disposable income and consumer spending, and ________ the size of the multiplier effect.
increasing; increasing