ECON: Exam #2 Review

Real per capita GDP in the United States in 2018 was approximately

$18.6 trillion.

Answer this question based on the given information for an economy in some year. Dollar value of resource extraction activity = $20 billion Dollar value of production activity = $50 billion Dollar value of distribution activity = $80 billion Dollar value of final output = $110 billion Gross output for this economy equals

$260 billion.

Refer to the accompanying data (all figures in billions of dollars). NDP (net domestic product) is

$116.

Refer to the accompanying national income data. All figures are in billions of dollars. U.S. imports are

$14.

If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation was about

11 percent.

Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable. The size of the negative GDP gap as a percentage of potential GDP for the economy is

12 percent.

Refer to the given information about a hypothetical economy. The unemployment rate is

12.5 percent.

If the secular trend of labor productivity rises from 2 percent per year to 4 percent, the number of years that it will take for the standard of living to double will decline by about

17.5 years.

In which of the following cases would real income rise?

Nominal income rises by 2 percent, and the price level remains unchanged.

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of

Okun's law.

Modern economic growth often results in the following, except

less time for ordinary people to enjoy leisure activities because the primary focus is on production and work.

Compared to other industrial nations, inflation rates in the United States are

neither significantly higher nor significantly lower.

If real GDP rises and the GDP price index has increased,

nominal GDP must have increased.

(Consider This) Suppose that Toyota buys a factory previously owned by Chrysler Motors. Economists would

not consider this to be an economic investment, because no new capital is created through the purchase.

Price wars among firms

occur when one firm lowers its price and rival firms react by lowering their prices.

Proponents of economic growth say that pollution

occurs, not because of growth, but because common resources are treated as free goods.

Gross output (GO) and GDP both measure

output of an economy.

GDP tends to overstate economic well-being because it takes into account

total spending to deal with the adverse health effects of some products.

The average amount of time between price changes for gasoline is

two to three weeks.

In 2018, what approximate percentage of adults in the U.S. were college graduates or higher?

35 percent

If the rate of inflation is 12 percent per year, the price level will double in about

5.8 years.

Which would be considered an investment according to economists?

A fishing company buys new fishing gear.

Refer to the figures. Which figure(s) represent(s) a situation where prices are flexible?

A only

If an economy wants to increase its current level of investment, it must

sacrifice current consumption.

Refer to the graph. Growth of production capacity is shown by the

shift from AB to CD.

Refer to the table. Between years 2 and 3,

Alta's real GDP grew more rapidly than Zorn's real GDP.

Refer to the figures. Which figure(s) represent(s) a situation where prices are sticky?

B only

Which of the following statements is accurate about most economies?

Economies experience a positive growth trend over the long run but experience significant variability in the short run.

Human capital refers to the

Education, training, and skills of workers

(Consider This) What is the difference between financial investment and economic investment?

Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.

GDP excludes

the market value of unpaid work in the home.

The percentage change in one's real income can be approximated by

the percentage change in nominal income minus the percentage change in the price level.

The unemployment rate is the

the percentage of the labor force that is unemployed

Human capital refers to

the skills and knowledge that enable a worker to be productive.

The expenditures or output approach to GDP measures it by summing up

the total spending for consumption, investment, net exports, and government purchases.

Assume that a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is

$30.

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is

$320 billion.

One year nominal GDP was $286 billion and the price index was 88. Real GDP that year was

$325 billion.

Refer to the accompanying national income data (in billions of dollars). Which items need to be accounted for in going from national income to GDP?

1, 12, and 13

1. Improvements in technology. 2. Increases in the supply (stock) of capital goods. 3. Purchases of expanding output. 4. Obtaining the optimal combination of goods, each at least-cost production. 5. Increases in the quantity and quality of natural resources. 6. Increases in the quantity and quality of human resources. Which set of items in the accompanying list would move an economy from a point inside its production possibilities curve to a point on its production possibilities curve?

3 and 4 only

At what average annual rate have real GDP and real GDP per capita grown from 1950 to 2018?

3.1 percent and about 2 percent, respectively

Between 1950 and 2018, U.S. real GDP grew at an average annual rate of about

3.1 percent.

A nation's real GDP was $250 billion last year and $265 billion this year. Its population was 122 million last year and 125 million this year. What is the growth rate of real GDP per capita in this year?

3.4 percent

The accompanying list describes the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Which individual is structurally unemployed?

Jeanette

Why are high rates of unemployment of concern to economists?

There is lost output that could have been produced if the unemployed had been working.

Which of the following is not an effect of inflation that is troublesome to consumers?

Workers' wages may be rising faster than the overall price level.

Unemployment describes the condition where

a person cannot get a job but is willing to work and is actively seeking work. Correct

Refer to the figures. Which of the following events would most likely result in inflation?

a shift from D2 to D3 in Figure A

(Last Word) The entry of women into the workforce since the 1960s resulted in

a shift outward in the production possibilities curve of the United States.

The GDP gap measures the difference between:

actual GDP and potential GDP.

All of the following are economic implications of the 1995-2010 rise in the average rate of productivity growth except

an end to the business cycle.

(Last Word) Factors that have contributed to the increase in women's labor-force participation rate in the U.S. include the following, except

an increase in the number of children, requiring mothers to find work along with fathers.

Other things equal, which of the following would increase the rate of economic growth, as measured by changes in real GDP?

an increase in the size of the working-age population

A nation's real GDP will increase by increasing the following, except

average price level.

Who are the main economic investors in a market economy?

businesses

Real GDP per capita

can grow either more slowly or more rapidly than real GDP.

Increased present saving

comes at the expense of reduced current consumption.

GDP does not include which of the following activities?

couples remodeling their own homes

Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because

cycles implies regularity, while fluctuations does not.

That portion of corporate profits which is included in personal income is

dividends.

The gross domestic product is not a good measure of the standard of living in a nation because it

does not account for the composition and distribution of output.

Economic growth is best defined as an increase in

either real GDP or real GDP per capita.

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

expansion

Prices tend to be sticky because

firms are worried that frequent price changes would annoy consumers.

Which of the following activities is excluded from GDP, causing GDP to understate a nation's production?

goods and services produced in the underground economy

(Last Word) The statisticians at the BEA have decided that quality improvements matter and should be accounted for in GDP and inflation to the extent possible. The procedure for doing so is called the

hedonic adjustment.

Which of the following groups is the principal source of savings in an economy?

households

Gross domestic product (GDP) measures and reports output

in dollar amounts.

Refer to the figure. Assuming this market is representative of the economy as a whole, a positive demand shock will

increase output but leave prices unchanged.

Suppose nominal GDP was $360 billion in year 1 and $450 billion in year 2. The price index was 120 in year 1 and 125 in year 2. Between year 1 and year 2, real GDP

increased by $60 billion.

(Last Word) Over the past several decades, the percentage of women in the paid U.S. workforce has

increased due to higher wages, expanded job accessibility, changing preferences and attitudes, and other factors.

The historical reallocation of labor from agriculture to manufacturing in the United States has

increased the average productivity of labor.

Which of the following is the single most important source of U.S. economic growth?

increases in labor productivity

An increase in the overall level of prices in an economy is called

inflation.

Gordon sells narcotics "on the street." This type of illegal activity

is excluded from GDP figures.

Full-employment output is also called

potential output.

One major economic benefit of global competition is

pressure to innovate.

Suppose that an economy's labor productivity and total worker-hours each grew by 4 percent between year 1 and year 2. We could conclude that this economy's

production possibilities curve shifted outward.

"Show me a pastoral society with an untouched environment, an abundance of leisure, and non-secular values, and I will show you an underdeveloped, poverty-ridden country." This statement is most likely to be made by a(n)

proponent of economic growth.

The economy described in the table has experienced a

rising real GDP.

Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Susie is faced with

structural unemployment.

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called

structural unemployment.

The fact that nominal GDP has risen faster than real GDP

suggests that the general price level has risen.

The factor accounting for the largest increase in the productivity of labor in the United States has been

technological advance.

Which of the following measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?

the Consumer Price Index

Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being?

the child-care services provided by stay-at-home parents

Disinvestment occurs when

the consumption of private fixed capital exceeds gross private domestic investment.

Value added refers to

the difference between the value of a firm's output and the value of the inputs it has purchased.

Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable. If the unemployment rate in the economy fell to 6 percent, we could conclude that

the economy had moved from a point inside its production possibilities curve to a point on or very near the curve.

If depreciation exceeds gross investment,

the economy's stock of capital is shrinking.

Shocks to the economy occur

when expectations are unmet.

An economy is enlarging its stock of capital goods

when gross investment exceeds depreciation.

Gross output (GO) for an economy in a given year

will always exceed GDP for that economy in the same year.

GDP understates the amount of economic production in the United States because it excludes

work performed by people for their own benefit.

The "rule of 70" is a formula for determining the approximate number of

years that it would take for a value (like real GDP) to double.