Econ test 1
nominal interest rate
the stated interest rate on a loan
Macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
housing, transportation, food & beverages
the three categories of the CPI market basket which make up the largest shares (almost three-fourths, combined) of total expenditures
Nominal GDP is GDP in a given year
valued in the prices of that year????
final goods
goods and services that have been purchased for final use and not for resale or further processing or manufacturing
intermediate goods
goods used in the production of final goods
The output of U.S. citizens who work in Canada would be included in the
gross domestic product of Canada.
The output of Mexican citizens who work in Texas would be included in the
gross national product of Mexico.
Gross domestic product understates the total production of final goods and services because of the omission of
household production.
Stage of Production Seller Buyer Price 1 Steel mill Auto manufacturer $10,000 2 Auto manufacturer Auto dealer 18,000 3 Auto dealer Consumer 25,000 The value added by the automobile dealer equals
$7,000
Gross Domestic Product
- the total market value of all final goods and services produced annually in an economy
Recent estimates put the size of the underground economy in the United States at ________ of measured GDP.
8 percent
value added
An alternative method to measure GDP is to measure the _________________: the market value a firm adds to a product. The _____________ at each stage of production is that firm's selling price minus the cost of all intermediate goods.
negative
During a deflationary period, when the inflation rate is __________, the real interest rate will be higher than the nominal rate
menu costs
Even if inflation is expected and anticipated, there are costs involved, including ____________, the costs to firms of having to change their prices (reprint menus, change web sites, etc.)
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.
The value of what a U.S.-owned McDonald's produces in South Korea is included in the U.S. ________ and the South Korean ________.
GNP; GDP
unemployment
Governments often attempt to directly influence unemployment Other policies try to reduce frictional unemployment, for example by subsidizing new hires. However some other government policies probably increase _________________, like Unemployment insurance, and Minimum wage laws
unemployment rate
Of these statistics, the most watched is known as the _______________: the percentage of the labor force that is unemployed.
Four major categories of expenditures included in GDP
Personal Consumption Expenditures, or Consumption (C)- is (by far) the largest component of spending in GDP Gross Private Domestic Investment, or Investment (I) Government Consumption and Gross Investment, or Government Purchases (G) Net Exports of Goods and Services, or Net Exports (NX) GDP can be expressed as the sum of these: Y = C + I + G + NX
Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?
Real GDP grows by 2.3% in the second quarter
16+ years of age (working age) who have looked for work in the previous 4 weeks
The only people counted as "unemployed" (and thus, included in the labor force) by the BLS are those:
Labor force
The sum of employed and unemployed workers in the economy.
frictional, structural, cyclical
The three types of unemployment are:
frictional and structural
There is always some degree of ___________ and __________ unemployment as part of the normal functioning of an economy
If prices rise on average in the U.S. economy, the purchasing power of a dollar declines.
True
Household production or the production of underground economy
Two important types of production are omitted from the BEA's measurement of GDP:
Cyclical unemployment
Unemployment causes by a business cycle recession
structural unemployment
Unemployment that arises from a persistent mismatch between the skills and attributes of workers and the requirements of jobs
inflation rate
We refer to the percentage increase in the price level from one year to the next as the is the CHANGE in the price level from one year to the next.
natural rate of unemployment
When there is no cyclical unemployment and all remaining unemployment is either frictional or structural, the economy is at the ______________ (also known as being at "full employment")
nominal interest rate real interest rate
When you lend money to someone, they typically agree to pay you back with interest. If the interest rate is 6 percent, for example, then a $1,000 loan paid back in a year will be paid back with $1,060. 6 percent is the _____________________: the stated interest We can adjust for inflation by calculating the ____________, equal to the nominal interest rate minus the inflation rate.
unpredicted
_________ inflation makes borrowing and lending risky. If inflation is higher than expected, borrowers gain and lenders lose. If inflation is lower than expected (or there is deflation), borrowers lose and lenders gain.
Governments
___________ try to reduce structural unemployment with job retraining programs, and frictional unemployment by subsidizing the hiring of new workers and creating online job boards, etc.
consumption
______________ is (by far) the largest component of spending in GDP
Which of the following goods is directly counted in GDP?
a 12-inch Subway sandwich purchased by a student
Price level
a measure of the average prices of goods and services in the economy.
Inflation
affects the distribution of income and wealth. People that are hurt by _____________ include those on fixed incomes (or locked wages) and those holding cash or other nominal assets
The GDP deflator is a measure of the
average level of prices of final goods and services in the economy.
Investment, as defined by economists, would not include which of the following? Ford
buys U.S. government bonds.
100
calculating CPI, and that the CPI in the base year is ALWAYS equal to __________.
Cyclical unemployment
can go to zero during economic expansions
The factors of production include
capital
Which of the following is not a durable good?
clothing
The size of the underground economy would tend to decrease if the government of a country
decreased government regulations on businesses.
The U.S. work week has declined from 60 hours in 1890 to 40 hours today. The impact of the decline in working hours
decreases U.S. GDP and increases the well-being of a typical working person in the U.S.
The best measure of the income households actually have available to spend is
disposable personal income.
In the circular flow model, the value of total production for an economy ________ the value of total expenditures on final goods and services.
equals
The sum of the value added of every firm involved in producing all final goods and services ________ gross domestic product.
equals
Nominal GDP will increase
if either the price level or the quantity of goods and services produced rises.
Legalizing all forms of illegal activities
increases GDP and reduces the size of the underground economy.
seasonal unemployment
is considered part of frictional unemployment
GDP per capita
is often used to represent differences in standards of living from country to country. However, even if it accurately measured total production, it would not reflect: The value of leisure Pollution and other negative effects of production Crime and other social problems The distribution of income In fact, improvements in many of these will result in lower GDP per capita.
investment
is spending by firms on new factories, office buildings, and additions to inventories, plus spending by households and firms on new houses. ________________ includes capital investments by firms (buildings and machinery), changes in business inventories, and residential housing It is NOT stocks, bonds, savings accounts Net Exports (NX) = Exports - Imports
National income equals gross domestic product
minus the consumption of fixed capital.
The purchase by a household in China of a CD produced in the United States is included in U.S.
net exports
real interest rate
nominal interest rate - inflation rate
Presently, GDP is ________ to compensate for the costs of environmental damage.
not adjusted
CPI
one measure of the price level, but includes every item in GDP (industrial equipment, highways, military items, etc.), including many items which are not purchased by the average household. is a much better measure of the cost of living of the average household, and is the most widely used measure of the price level. Year-to-year changes in the CPI are what you typically hear used to report the inflation rate.
Real GDP will increase
only if the quantity of final goods and services produced rises.
transfer payments
payments to households for which the government does not receive a good or service in return
Gross national product, GNP, of the United States is the market value of all final goods and services
produced by citizens of the United States anywhere in the world.
To examine how the total production of an economy has changed over time, it would be better to examine
real GDP.
Frictional unemployment
term unemployment that arises from the process of matching workers with jobs
Gross Domestic Product
the market value of all final goods and services produced in a country during a period of time, typically one year.
Suppose that nominal GDP in 2016 was less than real GDP in 2016. Given this information, we know for certain that
the price level in 2016 was less than the price level in the base year.
Gross domestic product is calculated by summing up
the total market value of final goods and services produced in the economy during a period of time
Gross domestic product understates the total production of final goods and services because of the omission of
the underground economy.
Employed, Unemployed, Not in the Labor Force
three classifications from Current Population Survey (also known as the "household survey")
GDP deflator The consumer price index (CPI) The producer price index (PPI)
to measure changes in the price level. By measuring changes in the prices of different baskets of goods, we would come up with different measures. Two commonly-used measures are:
GDP
total production = total expenditures = total income
The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that
total spending in 2015 was around $17.3 trillion. total income in 2015 was around $17.3 trillion. the value of output in 2015 was around $17.3 trillion.
If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy.
true
discouraged workers
who have given up and stopped looking for work are classified as "not in the labor force"