ECON Exam 2
Cyclical Unemployment
the deviation of unemployment from its natural rate
1. Economists use the term inflation to describe a situation in which
the economy's overall price level is rising. ¥ Considered about rising NOT level!! ¥ Deflation
If the CPI was 127 in 1972 and is 324 today, then $10 in 1972 purchased the same amount of goods and services as
$25.51 purchases today.
Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about
$40,950
1. If the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount of goods and services as
$40.00 purchased in 1975.
A U.S.-owned automobile factory uses $100,000 worth of parts purchased from foreign countries along with U.S. inputs to produce 30 cars worth $20,000 each. Twenty of these cars are sold and 10 are left in inventory. How much did these actions add to GDP?
$500,000
1. Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000 worth of leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for $2,600. Neither firm had any inventory at the beginning of 2015. During that year, Cowhide produced enough leather for 25 couches. Couches, Inc. bought 80% of that leather for $20,000 and promised to buy the remaining 20% for $5,000 in 2016. Couches, Inc. produced 20 couches during 2015 and sold each one during that year for $2,600. What was the economy's GDP for 2015?
$57,000
David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is
$63,195.34
Inflation Rate
% change in the price index from the preceding period
Labor-Force Participation Rate
% of the adult population that is in the labor force
Unemployment Rate
% of the labor force that is unemployed
1. If in some year real GDP was $5 trillion and the GDP deflator was 200, what was nominal GDP?
$10 trillion
A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of these goods for the last several years are shown below. The base year is 2015. What was this country's real GDP in 2016?
$10,950
In the economy of Talikastan in 2015, consumption was $3000, GDP was $5500, government purchases were $1000, imports were $1000, and investment was $1000. What were Talikastan's exports in 2015?
$1500
1. James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?
$22,000
James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?
$22,000
If the local government imposed a minimum wage of $5 in Productionville, how many people would be unemployed?
0
The number of adults not in the labor force of Aridia in 2012 was
1,400 (Adult population - # of employed + # of unemployed)
Which of the following causes of unemployment is associated with a wage rate above the market equilibrium level?
1. Minimum Wage Laws 2. Unions 3. Efficiency Wages ALL THE ABOVE!
1. Which of the following is not correct? a. Across countries there are large differences in the average income per person. These differences are reflected in large differences in the quality of life. b. With a growth rate of about 2 percent per year, average income per person doubles about every 60 years. c. The ranking of countries by average income changes substantially over time. d. In some countries, real income per person has changed very little over many years.
1. Which of the following is not correct? a. Across countries there are large differences in the average income per person. These differences are reflected in large differences in the quality of life. - TRUE b. With a growth rate of about 2 percent per year, average income per person doubles about every 60 years. CORRECT ANSWER!! ¥ Rule of 70! 70/growth rate 2=35 years c. The ranking of countries by average income changes substantially over time. - TRUE d. In some countries, real income per person has changed very little over many years. - TRUE
If the base year is 2004, then the CPI in 2004 was
100 (its always 100!!!)
How many people were employed in Baltivia in 2009?
11,000 (paid employees + who own their own business + unpaid family business + waiting to be recalled to a job from which they had been laid off )
Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $55. The value of the CPI in 2016 was
110
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. If the base year is 2006, then the inflation rate in 2005 was
12.5%
A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that covers his time and expenses to the homeowner. How much do these transactions add to GDP?
1200
A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of these goods for the last several years are shown below. The base year is 2015. What was this country's GDP deflator in 2017?
123.4
For an imaginary economy, the value of the consumer price index was 138.75 in 2016, and the inflation rate was 10 percent between 2015 and 2016. The consumer price index in 2015 was
126.1
The unemployment rate of Aridia in 2011 was
31.6% (U-rate=UE/E+EU x100)
If the local government imposed a minimum wage of $7 in Productionville, how many people would be unemployed?
5,000
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. What belongs in space C?
8.7
If in some year nominal GDP was $28 trillion and real GDP was $32 trillion, what was the GDP deflator?
87.5
Alexis and Tara both mine salt. Alexis mines 300 pounds in 20 hours. Tara mines 400 pounds in 40 hours. Which of the following is correct?
Alexis's productivity is greater than Tara's. This difference could be explained by Alexis having more physical capital than Tara
Which of the following is consistent with the catch-up effect? a. The United States had a higher growth rate before 1900 than after. b. After World War II the United States had lower growth rates than war-ravaged European countries. c. Although the United States has a relatively high level of output per person, its growth rate is rather modest compared to some countries. d. All of the above are correct
All of the above are correct
Which of the following is included in the investment component of GDP? a. spending to build new houses b. spending to build new factories c. spending on business equipment such as welding equipment d. All of the above are included in the investment component of GDP.
All of the above are included in the investment component of GDP.
1. If 2010 is the base year, then the inflation rate in 2015 equals
CPI 2015-CPI 2014/CPI 2014 X100
Lady Gaga
Concert Tickets- GDP Writing and Recording the Album - NOT GDP
Which of the following activities would increase the current US GDP? a. Debbie spends $300 to buy her husband dinner at the finest restaurant in Boston. b. Sarah spends $1200 on a new laptop to use in her publishing business. The laptop was built in China. c. Jane spends $800 on a computer to use in her editing business. She got last year's model on sale for a great price from a local manufacturer. d. All the above transactions would increase the current GDP
Debbie spends $300 to buy her husband dinner at the finest restaurant in Boston.
Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP?
Ellen's but not Sam's.
GDP is not a perfect measure of well-being; for example,
GDP fails to account for the quality of the environment. (it also doesnt take into account leisure time and G&S made at home)
Janet bought flour and used it to bake bread she ate. ABC Bakery bought flour which it used to bake bread that customers purchased. In which case will the flour be counted as a final good?
Janet's purchase but not ABC Bakery's purchase. I GOT THIS WRONG ON THE QUIZ!!! (Remember - In economics, any commodity which is produced and subsequently consumed by the consumer, to satisfy his current wants or needs, is a consumer good or final good. Consumer goods are goods that are ultimately consumed rather than used in the production of another good.)
Jenna is searching for a job that suits her tastes about where to live. Mary is looking for a job that makes best use of her skills.
Jenna and Mary are both frictionally unemployed.
1. Which of the following is not an explanation for the existence of structural unemployment? a. efficiency wages b. job search c. minimum-wage laws d. unions
Job search - creates frictional unemployment
GDP Deflator
Nominal GDP/Real GDP x 100
1. Discouraged workers are included in a. the number of unemployed. c. frictional unemployment. b. the labor force. d. None of the above is correct.
None of the above is correct
When ranking movies by nominal box office receipts, what important fact is overlooked?
Prices, including those for movie tickets, have been rising over time.
Recall how to find GDP Deflator, real GDP, and nominal GDP. && the differences!!
Real - Nominal - Deflator -
On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L). The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?
Returns to capital become increasingly smaller as the amount of capital per worker increases.
Transfer Payments
Social Security Benefits to an elderly person unemployment insurance benefit to a worker who has been laid off
The U.S. government pays an economist at the U.S. Department of Commerce $100,000 in salary in 2013. The economist then retires. In 2014, the government pays him $60,000 in Social Security benefits. Which of the following is correct?
The 2013 payment is included in 2013 GDP as government purchases, but the 2014 payment is not included in 2014 GDP.
The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?
The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.
1. Which of the following is not correct.? a. The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power. b. The consumer price index is used to monitor changes in the cost of living over time. c. The consumer price index is used by economists to measure the inflation rate. d. The consumer price index is used to measure the quantity of goods and services that the economy is producing.
The consumer price index is used to measure the quantity of goods and services that the economy is producing.
When an American household purchases a bottle of Italian wine for $100,
U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change.
Unemployment Insurance
a government program that partially protects workers' incomes when they become unemployed
Producer Price Index
a measure of the cost of a basket of goods and services bought by firms
Customer Price Index
a measure of the overall cot of the goods and services bought by a typical consumer
Union
a worker assoication that bargains with empolyers over wages, benefits, and working conditions
Outward-oriented policies
a. allow countries to take advantage of gains from trade. b. have generally led to high growth for the countries that pursued them. c. receive widespread support from economists.
Unemployment insurance
a. may improve the ability of the economy to match workers with appropriate jobs. b. reduces the job search efforts of the unemployed. c. increases the amount of frictional unemployment in the economy. d. All of the above are correct.
1. If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was
a. 5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.
1. Suppose the government eliminates all environmental regulations and, as a result, the production of goods and services increases, but there is considerably more pollution. Based on this scenario, which of the following statements is correct?
a. GDP would definitely increase because GDP excludes environmental quality.
1. John is a stockbroker. He has had several job offers, but he has turned them down because he thinks he can find a firm that better matches his tastes and skills. Curtis has looked for work as an accountant for some time. While the demand for accountants does not appear to be falling, there seems to be more people applying than jobs available.
a. John is frictionally unemployed, and Curtis is structurally unemployed.
1. Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor county to catch up?
a. The poor country has poorly developed property rights.
1. The Bureau of Labor Statistics (BLS) announced that in January 2014, of all adult Americans, 145,092,000 were employed, 10,192,000 were unemployed, and 91,630,000 were not in the labor force. Find total adult population, labor force, labor force participation rate, unemployment rate.
a. Total adult population - b. Labor force - c. Labor force participation rate - 62.9% d. Unemployment rate - 6.56%
When an American household purchases a bottle of Italian wine for $100,
a. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change. b. Y=c+I=g+(x-m)
Other things the same, which of the following could explain an increase in productivity?
a. either an increase in human capital or an increase in physical capital (if limited to long run then neither)
1. When the consumer price index rises, the typical family
a. has to spend more dollars to maintain the same standard of living.
1. If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise?
a. nominal GDP but not real GDP.
1. Apple founder Steve Jobs received patents on many of his ideas. While the patents existed, his ideas were
a. private goods and proprietary knowledge. - cant use it without permission of Steve Jobs! But once patent expires anyone can use idea and replicate!
1. Over the last ten years productivity grew faster in Mapoli than in Romeria while the population and total hours worked remained the same in both countries. It follows that a. real GDP per person grew faster in Mapoli than in Romeria. b. real GDP per person must be higher in Mapoli than in Romeria. c. the standard of living must be higher in Mapoli than in Romeria. - d. All of the above are correct.
a. real GDP per person grew faster in Mapoli than in Romeria. -growth
1. Ralph is a plumber. Which of the following are included in his human capital?
a. the knowledge he learned on the job, but not the tools he uses - tools are technology not human capital!
1. The population of Ectenia is 1000 people: 500 work full-time, 150 work half-time but would prefer to work full-time, 150 are looking for a job, 100 would like to work but are so discouraged they have given up looking, 50 are not interested in working because they are full-time students, and 50 are retired. Find: # of employed, # of unemployed, labor force, and unemployment rate.
a. the number of employed - 650 b. the number of unemployed - 150 c. the labor force - 800 d. the unemployment rate - 18.7%
GDP does not reflect
a. the value of leisure. b. the value of goods and services produced at home. c. the quality of the environment. d. All of the above are correct.(GDP criticized for not being a good measure of happiness or)
1. To encourage formation of small businesses, the government could provide subsidies; these subsidies
a. would not be included in GDP because they are transfer payments. ¥ Vault of government to vault of small businesses, purpose of goods and services
Efficiency Wages
above-equilibrium wages paid by firms to increase worker productivity
Indexation
automatic correction by law or contract of a dollar amount for the effects of inflation
Which of the following statements is correct? Select one: a. Productivity is a determinant of human capital per worker. b. Technological knowledge is a determinant of productivity. c. Human capital and technological knowledge are the same thing. d. All of the above are correct.
b. Technological knowledge is a determinant of productivity.
The Bureau of Labor Statistics reported in 2005 that there were 28.19 million people over age 25 who had no high school degree or its equivalent, 11.73 million of whom were employed and 1.04 million of whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group?
b. 45.3% and 8.1%
1. In the 1990's Ireland made unemployment benefits less generous. This change would likely have reduced
both frictional unemployment and the natural rate of unemployment.
An increase in the price of dairy products produced domestically will be reflected in
both the GDP deflator and the consumer price index.
An increase in a country's population may contribute to the rate of technological progress because a larger population
brings with it more scientists, inventors, and engineers.
1. Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. Ruth's 1931 salary was equivalent to a 2012 salary of about
c. $1,208,421
Which of the following transactions adds to U.S. GDP for 2015?
c. When Ken and Kim were both single, they lived in separate apartments and each paid $800 in rent. Ken and Kim got married in 2015 and they bought a previously unoccupied house that, according to reliable estimates, could be rented for $1,700 per month.
In early 2010 Molly paid $200,000 for a house built in 2000. She spent $30,000 on new materials to remodel the house. Although Molly lived in the house after she remodeled it, its rental value rose. Which of the following contributed to real GDP in 2010?
c. the costs of the remodeling materials and the increase in rent, but not the price of the house
1. Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has
caused measured GDP to rise Go out to dinner instead of eat at home - rises! Child day care instead of your own day care - rises!
1. Which of the following is consistent with the catch-up effect? a. The United States had a higher growth rate before 1900 than after. b. After World War II the United States had lower growth rates than war-ravaged European countries. c. Although the United States has a relatively high level of output per person, its growth rate is rather modest compared to some countries. d. All of the above are correct.
d. All of the above are correct.
If a Japanese company opens a new factory in South Korea, it makes
foreign direct investment. The factory will make a bigger impact on South Korea's GDP than on its GNP.
Which of the following items is included in U.S. GDP? a. goods produced by foreign citizens working in the United States b. the difference in the price of the sale of an existing home and its original purchase price c. known illegal activities d. None of the above is included in U.S. GDP.
goods produced by foreign citizens working in the United States
Suppose that the U.S. undertakes a policy to increase its saving rate. This policy will likely
gradually raise the level of real GDP per person
GDP has...
grown at an average rate of 3% per year! This increase in real GDP enables most Americans to enjoy greater economic prosperity than their parents and grandparents ALSO not steady, it has some recession periods
According to research by Robert Fogel, people in Britain grew taller because of
higher caloric intake. This increase in height is associated with higher productivity
By far the largest category of goods and services in the CPI basket is
housing
The return to schooling for society is higher than the return to schooling for the individual if
human capital conveys positive externalities.
An increase in the price of imported coffee shows up
in the consumer price index, but not in the GDP deflator.
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. 2004 - $3 per pound & $2 a toy 2005 - $1 per pound & $7 a toy 2006 - $4 per pound & $5 a toy The cost of the basket
increased by $10 from 2004 to 2005.
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. 2004 - $3 per pound & $2 a toy 2005 - $1 per pound & $7 a toy 2006 - $4 per pound & $5 a toy If the base year is 2004, then the CPI
increased from 2004 to 2005 and increased from 2005 to 2006
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. If the base year is 2004, then the CPI
increased from 2004 to 2005 and increased from 2005 to 2006.
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. If the base year is 2006, then the CPI.
increased from 2004 to 2005 and increased from 2005 to 2006.
Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has
increased measured GDP by the value added by the restaurant's preparation and serving of the meals.
Discouraged Workers
individuals who would like to work but have given up looking for a job
Japan's status as a rich nation is attributable to
international trade, but not to Japan's domestic quantities of natural resources.
1. Frictional unemployment results from
job searching. It is often thought to explain relatively short spells of unemployment.
Human Capital is
knowledge and skills that workers have acquired.
1. Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP makes use of
market prices
Cyclical unemployment is caused by
neither frictional nor structural unemployment
Jai Li just lost her job, and she has not yet started looking for a new one. The Bureau of Labor Statistics counts Jai Li as
neither in the labor force nor unemployed
If a country increases its saving rate, which of the following permanently grow at a higher rate?
neither real GDP per person nor productivity
Natural Rate of Unemployment
normal rate of unemployment around which the unemployment rate fluctuates
Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then
output in country A increases by less than in country B.
Real GDP
production of goods and services valued at constant prices (base year)
Nominal GDP
production of goods and services valued at current prices (changing)
Suppose Turkey increases its saving rate. In the long run
productivity and real GDP per person increase.
Frictional unemployment is inevitable because
sectoral shifts are always happening. A new international trade agreement causes greater demand for workers in the export sectors and less demand for workers in import-competing sectors. It takes time for workers to change sectors, so sectoral shifts cause frictional unemployment.)
Technological Knowledge
society's understanding of the best way to produce goods and services
Consumption
spending by households on goods and services, with the exception of purchases of new housing (haircuts, medical care, education)
Investment
spending on capital equipment, inventories, and structures, including household purchases of new housing
Net Exports
spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports) Exports-Imports
Government Purchases
spending on goods and services by local, state, and federal governemnts (salary of army general, school teacher,)
Which of the following is included in the investment component of GDP?
spending on new business equipment such as power tools but not spending on stocks and bonds
1. Which of the following is not an explanation for the existence of unemployment in the long run? a. it takes time for workers to search for the jobs that are best suited for them b. minimum-wage laws c. the business cycle d. unions
the Business Cycle - creates cyclical unemployment
A U.S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the nail guns to a U.S. construction company. In which quarter(s) is (are) GDP higher?
the first but not the second
Assuming diminishing returns,
the increase in output growth from an increase in the saving rate falls over time, and that, other things the same, poor countries should grow faster than rich ones.
All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,
the increase in output was greater last year than this year.
Natural Resources
the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits
Nominal Interest Rate
the interest rate as usually reported without a correction for the effects of inflation
Real Interest Rate
the interest rate corrected for the effects of inflation
Human Capital
the knowledge and skills that works acquire through education, training, and experience
Gross Domestic Product (GDP)
the market value of all final goods and services produced within a country in a given period of time
Strike
the organized withdrawal of labor from a firm by a union
Collective Bargaining
the process by which unions and firms agree on the terms of employment
Job Search
the process by which workers find appropriate jobs given their tastes and skills
Catch-Up Effect
the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich
Diminishing Returns
the property whereby the benefit from an extra unit of input declines as the quantity of the input increases
Productivity
the quantity of goods and services produced from each unit of labor input
Choose a point anywhere on the curve and call it point A. If the economy is at point A in 2011, then it will definitely remain at point A in 2012 if, between 2011 and 2012,
the quantity of physical capital doubles; the number of workers doubles; and human capital, natural resources, and technology remain constant
Physical Capital
the stock of equiptment and structures that are used to produce goods and services
Labor Force
the total number of workers, including both the employed and the unemployed
Marginally Attached Workers
those not working or looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past
Persons employed part-time for economic reasons
those wanting and available for full time work but have settled for part-time schedule
The labor-force participation rate measures the percentage of the
total adult population that is in the labor force.
Frictional Unemployment
unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
Structural Unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
