Economics 151 Intro Chapters 11, 12, 15 etc
The table below contains data for country A for the year 2010. Household purchases of durable goods $1293 Household purchases of nondurable goods $1717 Household purchases of services $301 Household purchases of new housing $704 Purchases of capital equipment $310 Inventory changes $374 Purchases of new structures $611 Depreciation $117 Salaries of government workers $1422 Government expenditures on public works $553 Transfer payments $777 Foreign purchases of domestically produced goods $88 Domestic purchases of foreign goods $120 Refer to Table 23-2. What were country A's imports in 2010?
$120
In the economy of Talikastan in 2015, consumption was $3000, exports were $1200, GDP was $6300, government purchases were $1300, and investment was $1500. What were Talikastan's imports in 2015?
$700
All else equal, which would increase the unemployment rate? (i) an increase in the number of women who return to work after being stay-at-home mothers (ii) a preference among older men to retire early (iii) an increase in the maximum number of weeks for which someone can receive government unemployment benefits (iv) an increase in the number of previously unemployed women who stop looking for work and become discouraged workers
(ii) a preference among older men to retire early and (iii) an increase in the maximum number of weeks for which someone can receive government unemployment benefits.
Megan's salary for three consecutive years, along with other values, are presented in the table below. 2011 2012 2013 Salary $65,000 $72,000 $76,000 Consumer Price Index 226 230 235 Real Interest Rate 2.5 % 2.7 % 1.8% Refer to Table above- Suppose the consumer price index for 2013 is not necessarily 235. If the nominal interest rate for 2013 is 7.3 percent , then the consumer price index for 2013 is, in fact,
... 242.7
The bond market
... is a financial Market as is the stock market
Compared to stocks, bonds offer the holder
... lower risk and lower potential return
Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. 2009 2010 2011 Expenditures on Food $5,000 $5,800 $6600 Consumer Price index 160.0 168.0 x To the nearest dollar, Will's 2010 food expenditures in 2009 dollars amount to
...$5,524.
If the cost of food & beverages increases by 10 percent, then, other things the same, the CPI is likely to increase by about
...1.5 percent.
The table below shows the prices of baseballs and baseball bats for three years. Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats. Year Price of Baseballs Price of baseball bats 2008 $3.25 $75.00 2009 $3.75 $82.00 2010 $4.50 $96 Refer to the table above. The inflation rate was
...10.03 percent in 2009 and 17.43 percent in 2010
If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced
...11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.
For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in 2014 was
...147.0
If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as
...20.00 purchased in 1955
Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was 4 percent. It follows that
...6.5 percent
Which of the following is the most accurate statement? a. In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed high rates of inflation. b. In the 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation. c. In the 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed high rates of inflation. d. In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed low rates of inflation.
...In the 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation.
Which of the following statements is correct? a.The CPI can be used to compare dollar figures from different points in time. b.The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate. c.Compared to the consumer price index (CPI), the GDP deflator is the more common gauge of inflation. d.The GDP deflator better reflects the goods and services bought by consumers than does the CPI.
...The CPI can be used to compare dollar figures from different points in time
Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?
...There is still debate among economists on the severity of the CPI bias and what to do about it
In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?
...a. food and beverage B. Recreation C. Housing D. Apparel D
The primary purpose of measuring the overall level of prices in the economy is to
...allow for the comparison of dollar figures from different points in time
Changes in the quality of a good
...can lead to either an increase or a decrease in the value of a dollar.
Which advantages do mutual funds claim to provide
...diversification and access to the skills of professional money managers
The amount of Revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firms
...earnings
You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?
...five cents (today's CPI / 1962 CPI)
The bond market, the stock market Banks, Pension funds, and insurance companies are all Financial
...institutions
The primary economic function of the financial system is to
...match one person's saving with another person's investment
Which of the following is the correct formula for calculating the consumer price index?
...price of basket of goods&services in a current year Divided by price of basket in base year Times by 100
Given that Monika's incone exceeds her expenditures, Monika is best described as a
...saver or as a supplier of funds
Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. 2009 2010 2011 Expenditures $5,000 $5,800 $6,600 on Food Consumer Price Index 160.0 168.0 x Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,670. Then
...the inflation rate in 2011 was 8 percent.
The term inflation is used to describe a situation in which
...the overall level of prices in the economy is increasing.
At the equilibrium wage, how many workers are unemployed?
0, the wage is $7 and at that wage everyone who wants a job will find one.
The average income in a rich country, such as the United States or Japan, is more than
10 times, but less than 20 times, the average income in a poor country, such as Indonesia or Nigeria.
Economists have found that union workers earn what percent more than similar nonunion workers
10 to 20
U-4 calculation
100 X unemployed +discouraged/labor force +discouraged
In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, a labor force of 154 million and employment of 141.6 million. Based on these numbers the unemployment rate was
12.4/154.
Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year?
2 percent
Countries that grew the fastest over the last 100 or so years had average growth rates of real income per person of about
2.5 percent per year.
If the nominal interest rate is 7% and the rate of inflation is 3 percent, then the real interest rate is
4 %
The Bureau of Labor statistics produces data on unemployment and other aspects of the labor market from a regular survey of about
60,000 households
The Bureau of Labor Statistics reported in 2005 that there were 59.98 million people over age 25 whose highest level of education was a high school degree or equivalent, 36.40 million of whom were employed and 1.93 million of whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group?
63.9% and 5.0%
In 2009, based on concepts similar to those used to estimate U.S. employment figures, the Swedish adult non-institutionalized population was 7.568 million, the labor force was 4.888 million, and the number of people employed was 4.486 million. According to these numbers, the Swedish labor-force participation rate and unemployment rate were about
64.6% and 8.2%.
If in some year nominal GDP was $28 trillion and real GDP was $32 trillion, what was the GDP deflator?
87.5
Perpetuity
A bond that never matures
Stock
A claim to partial ownership in a firm
Examples of renewable resources are
A forest, (when a tree is cut down, a seedling can be planted in its place to be harvested in the future)
Knowledge
A public good
Which of the following are residents of rich countries likely to have in greater quantities, or better quality, than residents of poor countries?
A. housing b. healthcare c. life expectancy d. all of the above--
Efficiency wages
Above-equilibrium wages paid by firms to increase work productivity
Bonds
An IOU , that specifies the obligations of the borrower to the holder of the bond it identifies the time at which the loan will be repaid called the date of maturity the buyer of a bond give his money to a company in exchange for his promise of interest and eventually repayment of the amount borrowed called the principal the buyer can hold the bond until maturity or he can sell the bond and an earlier date to someone else.
An economy's income is
An economy's output
The BLS. Computes unemployed rates for the entire adult population
And for more narrowly defined groups such as blacks, whites, women, men and so on.
Larry is a 20-year-old professional tennis player. When he's not competing, he works as a coach at a local tennis club.
Anyone in the adult population who worked for pay in the last week, even if unsatisfied with his or her job, is considered employed. By this definition, the BLS classifies Larry as employed
The BLS. Defines the unemployment rate
As the percentage of the labor force that is unemployed.
Inflation is a closely watched
Aspect of macroeconomic performance
Inward-oriented policies
Attempt to increase productivity and living standards within the country by avoiding interaction with the rest of the world
Financial intermediaries are financial institutions through which savers can indirectly provide funds to borrowers through
Banks and Mutual Funds
...
Because Raphael and Alex are not actively seeking employment, they are not considered part of the labor force. Note that not being in the labor force is different from being unemployed. Once people leave the labor force, they are not counted when calculating the unemployment rate.
Why are long-term bonds riskier than short term bonds?
Because holders of long-term bonds have to wait longer for repayment of principal
BLS
Bereau of labor statistics
Blake is not looking for work because there have been many job cuts where he lives, and he doesn't think it is likely that he will find work. Sierra hasn't looked for work for six weeks, but she would like a job, and she has looked for work in the past. Who does the Bureau of Labor Statistics count as marginally attached workers?
Blake and Sierra
The two most important financial markets in our economy are the
Bond market in the stock market
Bond
Certificate of indebtedness
sectoral shifts
Changes in the composition of demand among industries or regions
Current popular survey
Data that surveys 60,000 households for information about employment , length of average work week and duration of unemployment
Economists use the term inflation to
Describe a situation in which the economy's overall price level is rising.
What are the steps in calculating the CPI?
Determine fixed basket of goods Find the price of each good in each year Compute the cost of the basket of goods in each year Choose 1 year as the base year and compute the consumer price index in each year Use the consumer price index to compute the inflation rate from previous year
Externality is the
Effect of one person's actions on the well-being of a bystander
Based on the answers to survey questions , the BLS places each adult (ages 16 and older) in each surveyed household into 3 categories
Employed, unemployed and not in the labor force
Physical capital
Equipment used to produce goods and services
Suppose the government wants to reduce this type of unemployment. Which of the following policies would help achieve this goal? Check all that apply.
Establishing government-run employment agencies to connect unemployed workers to job vacancies Increasing the benefits offered to unemployed workers through the government's unemployment insurance program
Suppose Gilberto decides to buy 100 shares of NanoSpeck stock.
Expectations of a recession that will reduce economy-wide corporate profits will likely cause the value of Gilberto's shares to decline. and An increase in the perceived profitability of NanoSpeck will likely cause the value of Gilberto's shares to rise
Default
Failure to repay
About 25% of U.S. workers belong to unions.
False
Data on the unemployment rate in the U.S. since 1960 show that the unemployment rate is sometimes very close to zero.
False
Efficiency wages create frictional unemployment
False
People who report not being in the labor force but who, in fact, want to work but have given up trying to find a job after an unsuccessful search cause the reported unemployment rate to be higher than otherwise.
False
Financial markets
Financial institutions through which Savers can directly provide funds to Borrowers
Higher wages can enhance worker productivity in several ways.
For example, healthier workers tend to be more productive than less healthy workers. Also, more highly paid workers typically eat more nutritiously then less well paid workers, particularly in less developed countries, where a nutritious diet may be hard to obtain at a market wage. Firms thus have an incentive to pay high wages to maintain a healthy and productive work force. Paying higher wages can also reduce worker turnover. Higher wages also attract a more qualified pool of job applicants. Finally, higher wages may induce greater worker effort Higher wages also attract a more qualified pool of job applicants
Which of the following statements about GDP is correct?
GDP is to a nation's economy as household income is to a household.
GNP
Gross National Product
Financial system
Group of institutions in the economy that help to match one person's savings with another person's investment
Inflation is a key variable
Guiding macroeconomic policy
When the consumer price arises, the typical family
Has to spend more money to maintain the same standard of living
Budget deficit
If G( government spending) is more than T ( taxes )the government runs a budget deficit and public savings t- G is a negative number
balanced budget
If government spending exactly equals tax revenue, the government is said to have a
Budget surplus
If taxes exceed government spending the government runs a budget surplus because it receives more money than it spends
Below is data about the labor market in the state of Northwoods. wage qty supplied qty demanded $10 80,000 120,000
If the state government imposed a minimum wage of $10, how many people would be unemployed? 40,000 ( 120,000-80,000)
What is a significant factor in long-run economic growth that Robert Fogel, an economic historian, is best known for suggesting?
Improved health and better nutrition
Adult population
Includes employed, unemployed, and those not in the labor force
__________________is spending on new capital, such as machines, equipment, tools, or buildings. Also note that spending on new residences is the one component of household expenditures that counts toward investment spending, rather than consumption, in national income accounting.
Inestment
Factors of production
Inputs used to produce goids and services-labor and capital
Outward-oriented policies
Integrate countries into the world economy
Open economies
Interact with other economies around the world
Classify the following based on the macroeconomic definitions of saving and investment Simone borrows money to build a new lab for her engineering firm.
Investment
Classify the following based on the macroeconomic definitions of saving and investment. Yakov takes out a loan and uses it to build a new cabin in Montana.
Investment
Owner of a bond
Is a creditor of the company
Owner of shares of stock
Is a part owner in the company
Mutual funds
Is an institution that sell shares to the public and uses the proceeds to buy a selection or portfolio of various types of stocks bonds. Some bonds the shareholder of the mutual fund sepsol risk and return associated with the portfolio
Medium of Exchange
Is an item that people can easily use to engage in transactions
A stock index
Is computed as an average of a group of stock prices
A closed economy
Is one that does not interact with other economies
What are 4 explanations for the economy's natural rate of unemployment?
Job search, minimum-wage laws , unions, and efficiency wages
Labor force participation rates equation
Labor force /adult population *100
The goal of consumer price analysis is to
Measure changes in the cost of living
PPI
Measures the cost of a basket of goods and services bought by firms rather than consumers
Meredith is looking for work as a computer programmer. Although her prospects are good, she has not yet taken a job. Julie is looking for work in a steel mill. Every time she shows up for an interview, there are more people looking for work than there are openings. Someone waiting in line with her tells her it has been that way for a long time.
Meredith is frictionally unemployed, and Julie is structurally unemployed.
Consumer price index is used to
Monitor changes in the cost of living over time
Tom becomes unemployed but is unemployed for only a few weeks. Arnold becomes unemployed and remains so for fifteen weeks. During a typical year there are _____ unemployed persons whose experience is similar to Tom's than to Arnold's. Persons with unemployment experiences similar to _____ count for most of the unemployment at any point in time.
More, Arnold's
Labor force
Number of employed + number of unemployed
Unemployment rate equation
Number of unemployed /labor force *100
Which of the following policies would lead to greater productivity in the fishing industry?
Offering free public education to every worker in the country and Subsidizing research and development into new fishing technologies
Non-renewable resources
Oil- because it is produced by nature over millions of years, there is only a limited supply.
Producer price index
PPI
Why might some firms voluntarily pay workers a wage above the market equilibrium, even in the presence of surplus labor?
Paying higher wages can reduce a firm's training costs. Paying higher wages encourages workers to be more productive
The supply of loanable funds comes from
People who have some extra income they want to save and lend out
Savers
People who spend less than they earn
Borrowers
People who spend more than they earn
The labor force participation rate measures the
Percentage of the total adult population of the United States that is in the labor force
What are four determinates of productivity?
Physical Capital Human capital Natural resources technological knowledge
Property rights
Refer to the ability of people to excercise authority over the resources they own.
Human capital
Refers to education, but can also be used to describe another type of investment in.people
Technological knowledge
Society's understanding of the best ways to produce goods and services
Government-run employment agencies and public training programs are operated by the government to try to facilitate job search and reduce unemployment
Some economists claim that the government can do these things no better than firms and individuals could do them for themselves.
Savings
Someone who puts their extra money in the bank to save it
This lending can occur directly
Such as when a household buys a bond from a firm
Indirectly
Such as when household makes a deposit in the bank, which in turn is used for loans
The economies market for loanable funds like other markets in the economy is governed by
Supply and demand
What are the three characteristics in a Bond?
Term - the length of time until a bond matures Credit risk - the probability that the borrower will fail to pay some of the interest or principal. Tax treatment - the way the tax law treat the interest earned on the bond
Megan is a 31-year-old professional basketball player. She finished her last season as a player 3 weeks ago and is currently interviewing for a coaching position.
The BLS considers a person to be unemployed if he or she is in the adult population, did not work for pay in the previous week, and has actively looked for work during the preceding 4 weeks. By this definition, the BLS classifies Megan as unemployed.
Productivity
The amount of goods and services produced for each hour of a worker's time
The economy's natural rate of unemployment refers to
The amount of unemployment that the economy normally experiences
Indexation
The automatic correction by law or contract of a dollar amount for the effects of inflation
Which of the following items is counted as part of government purchases?
The city of Athens, Ohio pays $10,000 to a tree-trimming firm to trim trees along city boulevards
Suppose that Congress were to reapeal an investment tax credit. What would happen in the market for loanable funds?
The demand for loanable funds would shift left
Brain drain
The emigration of many of the most highly educated workers to rich countries. Where these workers xan enjoy a higher standard of living
Clyde is the president of a firm that bottles beer in St. Louis, Missouri. There are many other such firms in the area. Clyde decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision?
The higher the wage the less turnover in the workforce
Private savings
The income that households have left after paying for taxes and consumption
Natural resources
The inputs into the production of goods and services that are provided by nature, such as land , rivers and mineral deposits
The principal
The interest and eventual repayment of the amount borrowed
Human capital
The knowledge and skills that workers acquire through education, training and experience
Market for loanable funds
The market in which those who want to save Supply funds and those who want to borrow to invest demand funds
Municipal bonds
The owners are not required to pay federal income tax on the interest income
The inflation rate is the percent change in
The price level from the previous period.
Productivity
The quantity of goods and services produced ftom each unit of labor input.
Debt Finance
The sale of bonds is called
Equity Finance
The sale of stock to raise money
Physical capital
The stock of equipment and structures tgat are used to produce goods and services
Public savings
The tax revenue that the government has left after paying for it spending
Date of maturity
The time in which the loan will be repaid
National savings
The total income in the economy The Remains after paying for consumption and government purchases
Cyclical unemployment refers to
The year-to-year fluctuations in employment around the natural rate
Not in the labor force
This category is for those who do not fit in the first two categories such as full time students,homemakers, and retirees.
Unemployed
Those who were not employed, we're not able to work, and had tried to find employment during the previous 4 weeks. Also those waiting to be recalled to a job in which they have been laid off.
GDP Measures two things at once
Total income earned by everyone in economy and total expenditure on the economy's output of goods and services
A minimum wage above equilibrium results in unemployment by creating a surplus in some labor markets.
True
Compare to bonds, stocks offer the holder both higher risk and potential Higher returns
True
If the minimum wage is set at $8.50, the market will not reach equilibrium.
True
In the absence of price controls, a shortage puts upward pressure on wages until they rise to the equilibrium.
True
The interest on most bonds is taxable income - the owner of the bond has to pay a portion of the interest in income
True
The only group that benefits from the union-negotiated wage of $10.00 is the union workers in the northern state who retain their jobs after the wage increase. Because the quantity of workers willing to supply labor is greater than the quantity of labor firms are willing to hire at the union wage, some workers in the northern state will lose their jobs. As some of these workers move to the southern state to find jobs, this puts downward pressure on southern wages, making both the original southern workers and the workers who came from the North worse off.
True
The primary advantage of mutual funds is that they allow people with small amounts of money to diversify their
True
The unemployment that results from the process of matching workers and jobs is called frictional unemployment.
True
Union workers earn about 10-20 percent more than similar worker who do not belong to unions
True
When a country keeps its workers as fully employed as possible, it achieves a higher level of GDP than it would if it left many of its workers idle.
True
When a country saves a large portion of its gross domestic product GDP comma more resources are available for investment in capital, and higher Capital raises a country's productivity and living standard.
True
The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,
U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and U.S. GDP is unaffected
Which of the following correctly ranks the three countries, from highest to lowest, for percentage of high-school age children in school?
United Kingdom, Mexico, Mali.
Which of the following is not a question addressed by macroeconomists?
What is the impact of foreign competition on the U.S. auto industry?
Scenario 28-1 Suppose that the Bureau of Labor Statistics reports that the entire adult population of Mankiwland can be categorized as follows: 25 million people employed, 3 million people unemployed, 1 million discouraged workers, and 1 million people who are either students, homemakers, retirees, or other people not seeking employment.
What is the labor-force participation rate? 93.3%
Mutual funds called index funds
Which bio all the stocks in a given stock index perform somewhat better on average than mutual funds to take advantage of active trading by professional money managers
Most famous stock index is the Dow Jones Industrial Average
Which has been computed regularly since 1896 period is now based on the prices of the stocks of 30 major US companies such as General Electric, Microsoft, Coca-Cola, Boeing, AT&T, and Walmart
Employed
Workers who have worked as paid employees ,worked in their own businesses , or unpaid in a family member's business. Full time and part time workers and those who are not working but who had jobs from which they were temporarily absent due to vacation, illness or bad weather
Workland has a population of 10,000, of whom 7,000 work 8 hours a day to produce a total of 224,000 final goods. Laborland has a population of 5,000, of whom 3,000 work 7 hours a day to produce a total of 105,000 final goods
Workland has lower productivity but higher real GDP per person than Laborland
Private savings equation
Y-C-T
National savings equation
Y-c-G=I
The Production Function equation
Y=AF(L,K,H,N)
Savings, decreases
__________________ is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied__________________
Foreign direct Investment
a capital investment that is owned and operated by a foreign entity
crowding out
a decrease in investment that results from government borrowing
unemployment insurance
a government program that partially protects workers incomes when they become unemployed
unemployment insurances
a government program that partially protects workers incomes when they become unemployed
union
a worker association that bargains with employers over wages, benefits, and working conditions
Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. 18. Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause
a. the quantity of loanable funds traded to increase to $125 and the interest rate fall to 5% (point D).
During the past century the average growth rate of U.S. real GDP per person implies that it doubled, on average, about every
a. 100 years b. 70 years c 35 years- d. 25 years
which of the following statements about mutual funds is correct?
a. A mutual fund is a financial intermediaries b. A mutual fund acquires its funds primarily by selling shares to the public. c. people who buy shares from a mutual fund accept all of the risks and return associated with the mutual fund's portfolio d. all of the above
Paying efficiency wages means that wages are
above equilibrium, and profits are higher than otherwise.
efficiency wages
above- equilibrium wages paid by firms to increase worker productivity
market for loanable funds
all income that people have chosen to save and lend out, rather than use for their own consumption, and to the amount that investors have chosen to borrow to fund new investment projects.
Which of the following would increase productivity?
an increase in the physical capital stock per worker an increase in human capital per worker an increase in natural resources per worker All of the above are correct. --
foreign portfolio investment
an investment that is financed with foreign money but operated by domestic residents
Unions
and firms paying wages above equilibrium to improve worker effort both create structural unemployment.
Most goods and services produced at home
and most goods and services produced illegally are excluded from GDP
Other things the same, If a country raises its savings rate, when is growth of Real GDP per person higher?
as the economy moves toward the long run, but not in the long run.
Inward-oriented policies
attempt to increase productivity and living standards within the country by avoiding interaction with the rest of the world
If a minimum wage is set above the market equilibrium wage, however, the market cannot reach equilibrium; thus the minimum wage is considered
binding
Suppose there are a large number of men who used to work or seek work who now no longer do either. Other things the same, this makes
both the number of people unemployed and the labor force fall.
When a union raises the wage above the equilibrium level,
both the quantity of labor supplied and unemployment rise.
According to Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP=$100,000; taxes=$22,000; government purchases=$25,000; national savings=$15,000 This economy's government is running a
budget deficit of $3000
closed economy equation
c+I+G=y or I=y-g-c
Which of the following is an example of depreciation?
computers becoming obsolete
Sectoral changes in demand
create frictional unemployment, while firms paying wages above equilibrium to attract a better pool of candidates creates structural unemployment.
If the natural rate of unemployment is 5 percent and the actual rate of unemployment is 5.5 percent, then by definition there is
cyclical unemployment amounting to 0.5 percent of the labor force.
One issue with using changes in U-3 as evidence of the health of the labor market is that an increase in the number of unemployed persons who become disabled will ____
decrease U-3, all else being equal, because they are not counted in the labor force.
To be counted as "employed" in the U.S. labor force statistics, a person
does not have to be working for pay if they are working for a family business and does not have to be working full time
Gwen is an unpaid worker in her family's restaurant. The Bureau of Labor Statistics counts Gwen as
employed and in the labor force.
Suppose NanoSpeck, a biotechnology firm, is selling stocks to raise money for a new lab—a practice known as-_______, finance. Buying a share of NanoSpeck stock would give Gilberto__________________, a claim to partial ownership in the firm. In the event that NanoSpeck runs into financial difficulty,_________________ will be paid first.
equity, a claim to partial ownership, the bondholders
If the number of workers in an economy doubled, all other inputs stayed the same, and there were constant returns to scale, productivity would
fall, but it would still be greater than one-half of its former value
Since the 1940's U.S. union membership has
fallen. Union membership is lower in the U.S. than Europe.
If the quality of a good deteriorates while its price remains the same, then the value of a dollar
falls and the cost of living increases
According the theory of efficiency wages
firms find it profitable to pay wages above the equilibrium level
The theory of efficiency wages provides a possible explanation as to why
firms may be inclined to keep their workers' wages above the equilibrium level.
Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called
frictional unemployment.
the supply of loanable funds comes from those who
have extra income they want to save and lend out.
Alternatively, Van could invest by purchasing bonds issued by the government of Japan. Assuming that everything else is equal, a bond issued by a government that is engaged in a civil war most likely pays a________ interest rate than a bond issued by the government of Japan.
higher
Countries with low GDP per person tend to have
higher rates of infant mortality
Unemployment insurance tends to
increase frictional unemployment.
Suppose the world price of cotton rises substantially. The demand for labor among cotton-producing firms in Texas will_____________.The demand for labor among textile-producing firms in South Carolina, for which cotton is an input, will_____________. The temporary unemployment resulting from such sectoral shifts in the economy is best described as___________ unemployment.
increase, decrease, frictional
An increase in the minimum wage
increases structural unemployment.
discouraged workers
individuals who would like to work but have given up looking for a job
The notion that our ability to conserve natural resources is growing more rapidly than their supplies are dwindling is supported by the fact that
inflation-adjusted prices of most natural resources have been stable or fallen over time
Outward oriented policies
international trade in goods and services can improve the economic well-being of a country's citizens
Which of the following public policies would be least likely to result in more rapid economic growth for a poor or developing country?
inward-oriented policies
Income generated by a nation's domestic production
is equal to its domestic production.
An argument against the presence of unions is that the resulting allocation of labor ____
is inequitable.
The natural rate of unemployment
is the amount of unemployment that does not go away on its own.
GDP
is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being.
When a union raises the wage above the equilibrium level
it raises the quantity of labor supplied and reduces the qty of labor demanded resulting in unemployment.
the interest rate is the price of the loan
it represents the amount that borrowers pay for loans and the amounts that lenders receive on their savings.
Which of the following would, by itself, reveal the most about a country's standard of living
its productivity
According to the definitions of national saving and public saving, if Y, C and G remain the same, an increase in taxes would
leave national saving unchanged and raise public saving
Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should
lend support to the invisible hand by maintaining property rights and political stability.
Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is_________than the qty of loans demanded, resulting in a _____________ of loanable funds. This would encourage lenders to _______ the interest rates they charge, thereby_____________ the qty of loanable funds supplied and ____________Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is_________
less, shortage, raise, increasing, decreasing, 5%
Much of macroeconomics attempts to explain
long-run growth and short-run fluctuations in real GDP.
Alternatively, Gilberto could invest by purchasing bonds issued by the U.S. government. Assuming that everything else is equal, a municipal bond issued by a state most likely pays a________________, interest rate than a corporate bond issued by an electronics manufacturer.
lower
Which of the following causes of unemployment is associated with a wage rate above the market equilibrium level?
minimum wage laws unions efficiency wages all of the above-
Compared to short-term bonds, other things the same, long-term bonds generally have
more risk and so they pay higher interest rates
For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?
national saving
Country A has twice as many workers as Country B. Country A also has twice as much physical capital, twice as much human capital, and access to twice as many natural resources as Country B. Assuming constant-returns to scale, which of the following is higher in Country A?
neither productivity nor output per worker
A closed economy does not engage in international trade, therefore
net exports (NX) are zero
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?
nominal GDP but not real GDP.
Which of the following always uses prices and quantities from the same period?
nominal GDP but not real GDP.
Mandy purchases 68.2 shares of a mutual fund for $1500. Cassie's purchase of these shares contributes $1500 to which magnitude in the identify Y=C+I+G
none of the above are correct
Marginally attached workers are people who are
not working and are not looking for work, but would work if asked.
Those working for or searching for a job are considered
part of the labor force
Rafael is the newly-appointed plant manager for a company that manufactures head phones. Rafael's senior supervisors told him that the output the firm produces, given the number of workers employed, indicates that some workers may be shirking. According to efficiency wage theory, what should he do?
pay all workers more than the equilibrium wage rate
Who in the adult population is counted as "employed" in U.S. labor statistics?
people who are temporarily absent from their job and people who work without pay in a family member's business
The official government unemployment rate (U-3) fails to fully capture labor utilization because it does not capture
people who are working part-time and would like to work full-time.
In national income accounting, we use which of the following pairs of terms interchangeably?
public savings and government tax revenue minus government spending
More generous unemployment insurance would
raise frictional unemployment.
A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move
raises GDP
Evidence shows that unemployment benefits may _________ job search efforts which by itself would ________.
reduce, raise frictional employment
Unionization in one industry causes wages to
rise in that industry causing labor supply to rise in industries that are not unionized.
Classify the following based on the macroeconomic definitions of saving and investment Ana purchases stock in Pherk, a pharmaceutical company.
savings
Classify the following based on the macroeconomic definitions of saving and investment Rajiv purchases a corporate bond issued by a car company.
savings
National saving is what's left over after you subtract household consumption and government spending from the economy's total income. At the household level, ______is what's left over after subtracting taxes paid and consumption from household income. Depositing unspent income in a bank is an act of saving, as is using unspent income to purchase stocks or bonds.
savings
Cyclical unemployment refers to
short-run fluctuations around the natural rate of unemployment.
Evidence from research studies by economists
shows that increased unemployment benefits decrease the job search efforts of the unemployed.
technological knowledge
society's understanding of the best ways to produce goods and services
Unions contribute to
structural but not frictional unemployment.
If there were no factors keeping wages from reaching equilibrium then there would be no
structural unemployment
Workers waiting for jobs to open up is most closely associated with
structural unemployment
A binding minimum wage will contribute to a persistent surplus of labor in this market, generating
structural unemployment.
Sam has no job but keeps applying to get a job with a business that is unionized. He is qualified and he finds the pay attractive, but the firm is not hiring. Sam is
structurally unemployed. Structural unemployment exists even in the long run
savings is the source of
supply of loanable funds
when other things constant, when a firm sells new shares of stock, the
supply of the stock increases and the prices decreases.
Sally purchased a log-splitter five years ago. This year, she purchases some new parts, gasoline, oil, and spends 2 hours repairing the log-splitter. Which of the following is included in this year's GDP
the amount she paid to buy new parts, gasoline, and oil.
Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has more capital per worker and so it has more real GDP per worker than the other. Finally, suppose that the saving rate in both countries increases from 4 percent to 7 percent. Over the next ten years we would expect that
the country that started with less capital per worker will grow faster
because cyclical unemployment is 0.0%,
the economy is at its natural rate of unemployment.
externality effect
the effect of one person's actions on the well-being of another
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) does(do) these transactions raise investment?
the first but not the second
natural resources
the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits
human capital
the knowledge and skills a worker gains through education and experience
brain drain
the loss of highly educated and skilled workers to other countries
GDP is equal to
the market value of all final goods and services produced within a country in a given period of time. Y C + I + G + NX.
The natural rate of unemployment
the normal rate of unemployment around which the unemployment rate fluctuates
strike
the organized withdrawal of labor from a firm by a union
labor-force participation rate
the percentage of the adult population that is in the labor force
unemployment rate
the percentage of the labor force that is unemployed
job search
the process by which workers find appropriate jobs given their tastes and skills
collective bargaining
the process in which unions and firms agree on the terms of employment
Ariana is the CEO of a corporation that hires nonunion labor. According to the theory of efficiency wages, if she decides to pay her workers more than the competitive equilibrium wage, then
the profits of her firm might increase.
Catch up effect
the property whereby poor countries tend to grow more rapidly than rich ones
Diminishing returns
the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases
The Production Function
the quality of inputs used in production and the quality of outputs from production
Productivity
the quantity of goods and services produced from each unit of labor input
Refer to Figure 26-5. Starting at point A, the enactment of an investment tax credit would likely cause
the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point C).
If a reform of the tax laws encouraged greater savings,
the result would be lower interest rates and greater investment
physical capital
the stock of equipment and structures that are used to produce goods and services
Labor force
the total number of workers, including both the employed and the unemployed
Who of the following is not included in the Bureau of Labor Statistics' "employed" category?
those waiting to be recalled to a job from which they had been laid off
Which of the following is a way to compute GDP?
total income earned. total expenditures on final goods. add up the market values of all final goods and services.
a higher interest rate discourages borrowing for investments
true
a higher interest rate would encourage savings
true
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
Human capital
usually refers to education
Over the past several decades in the United States, the labor force participation rate(s) of
women has increased while that of men has decreased.
If an inexpensive alternative to oil were found, the price of oil adjusted for inflation
would decline as the alternative would reduce the demand for oil.
cyclical unemployment
year to year fluctuations in the unemployment around its natural rate