Economics Final Study Guide

Generally, nations with the _________ economic freedom also have the _________ per capita GDP. A) most; mean B) least; highest C) most; lowest D) least; lowest E: less economic freedom → less production → less GDP per capita.

d

A business cycle is: A) the periodic fluctuation of economic activity B) the engine of economic growth C) a period lasting about 50 years D) identical to the consumption life cycle

A) the periodic fluctuation of economic activity

Jennifer did not work during college. She just obtained a bachelor's degree in marketing, and she is now looking for a marketing job in the retail industry. Jennifer is considered: A) structurally unemployed. B) frictionally unemployed. C) cyclically unemployed. D) not in the labor force.

B) frictionally unemployed.

Janet is receiving a 5% pay raise. If the rate of inflation is 2%, then Janet's purchasing power is: A) falling. B) rising. C) unaffected by either inflation or the pay raise, because they are expressed in nominal and not in real terms. D) It is impossible to tell what is happening to Janet's purchasing power without further information.

B) rising.

The labor force is defined as: A) the total number of those with gainful employment. B) the total number of the employed and unemployed. C) the total population less the number unemployed. D) the number of workers seeking a paid job.

B) the total number of the employed and unemployed

GDP is $10 trillion in 2001. The GDP deflator is 100 in 2000 and is 110 in 2001. What is real GDP? A) $10 trillion B) $11.1 trillion C) $9.09 trillion D) $110 trillion

C) $9.09 trillion

Dave brags to his dad that his $45,000 starting salary as a computer programmer is much higher than his dad's $28,000 starting salary some years ago. If the consumer price index the year Dave begins work is 180.5 and the year his dad started work it was 110.8, Dave is: A) correct. Adjusting for price changes, his salary is more than his dad's salary. B) correct. Adjusting for quantity changes, his salary is more than his dad's salary. C) mistaken. Adjusting for price changes, his salary is less than his dad's salary. D) mistaken. Adjusting for quantity changes, his salary is less than his dad's salary

C) mistaken. Adjusting for price changes, his salary is less than his dad's salary.

All of the following types of wages can cause unemployment EXCEPT: A) minimum wages. B) union wages. C) efficiency wages. D) equilibrium wages.

D) equilibrium wages.

The two approaches used by government in estimating GDP are: A) statistical and nonstatistical. B) survey and nonsurvey. C) income and earnings. D) expenditure and income.

D) expenditure and income.

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living: A) rose by about 1%. B) rose by about 2%. C) fell by about 3%. D) fell by about 1%.

D) fell by about 1%.

What does M represent in the following formula? GDP = C + I + G + (X - M) A) exports B) government spending C) personal consumer spending D) imports

D) imports

The national income and product accounts do all of the following EXCEPT: A) let economists judge our nation's economic performance. B) compare U.S. income and output to that of other nations. C) track the economy's condition over the course of the business cycle. D) track changes in income distribution.

D) track changes in income distribution.

GNP includes outputs produced _____ but it does not include outputs produced _____. A) outside the United States by U.S. citizens; inside the United States by foreign citizens B) outside the United States by U.S. citizens; inside the United States by U.S. citizens C) inside the United States by foreign citizens; outside the United States by U.S. citizens D) The GNP only includes output (goods and services) produced by U.S. citizens within the United States.

A) outside the United States by U.S. citizens; inside the United States by foreign citizens

Since the invention of automatic teller machines, many bank tellers have lost their job. This is an example of ______ unemployment. A) structural B) frictional C) cyclical D) statistical

A) structural

The national income and product accounts provide: A) the ability to track business cycles. B) the ability to account for nonmarket activities, such as car maintenance. C) a comprehensive measure of domestic unemployment. D) a comprehensive measure of domestic inflation.

A) the ability to track business cycles.

unemployment is caused by changes in consumer demands or technology. A) Structural B) Frictional C) Seasonal D) Cyclical

A) Structural

What event was a major influence on the development of macroeconomics? A) the Great Depression B) the Employment Act of 1946 C) the establishment of the Federal Reserve System in the United States D) the U.S. entry into World War II

A) The Great Depression

An economy has historically grown at a rate of 2.25%. Currently, this economy is growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, and the monetary authorities are concerned that inflation may increase. This economy is probably in the _____________ stage of the business cycle. A) expansion B) recovery C) contraction D) trough

A) expansion

If the cost of a typical market basket is 400 in 2018, 450 in 2019, and 550 in 2020, then during this period the economy is undergoing: A) inflation. B) disinflation. C) deflation. D) hyperinflation.

A) inflation.

Increases in ___________ often lead to economic growth. A) Technology E: more and better technology helps produce more, even if a country does not have more resources. B) public goods C) money supply D) government regulations

a

. Infrastructure is: A) not important in a market-based economy. B) a country's public capital. E: highways, dams, airports, seaports and other public infrastructure can be used by any American citizen or resident. C) typically better when provided by private companies. D) unimportant for economic growth because the government provides it.

b

. Labor includes all of the following factors EXCEPT: A) the physical talents of people. B) the ability to use physical resources in creative ways to produce goods and services. E: factory workers, retail salespersons, teachers, doctors, nurses, etc. C) the mental talents of people. D) the time and effort provided by migrant workers on farms

b

Technology: A) is a physical resource. B) improves the productivity of all factors. E: a person with a machine or tool can produce more than a person without. C) is a manufactured product used to produce other goods and services. D) is another term for entrepreneurial ability.

b

The catch-up effect tends to: A) speed up over time. B) slow down over time. E: as a country copies more and more ideas from more other countries, the pool of ideas dries up. C) remain the same over time. D) remain the same over time unless new technologies are developed.

b

The primary reason the U.S. standard of living is relatively _____ is that U.S. workers produce _____ than workers throughout most of the rest of the world. A) high; less B) high; more E: American workers produce more because they have more human and physical capital to work with. C) low; more D) low; less

b

Human capital includes: A) physical capital. B) labor. C) the improvements to labor capabilities from education, from training, and apprenticeship programs (work experience.) D) pension plans that enable early retirement.

c

Human capital refers to: A) equipment, buildings, and inventories. B) funds firms raise by selling stocks and bonds. C) skills, knowledge, and quality of workers. E: formal education, on-the-job training and work experience. D) infrastructure of a nation.

c

Which of the following institutions is NOT an example of our nation's infrastructure? A) interstate highway system B) Hoover Dam C) buildings of General Electric E: General Electric GE) is a private corporation. Whatever they build is private property. D) subway system

c

8. The nation of Workovia has a population of 15 million, of whom 10 million are in the labor force and 9 million are working. Workovia's unemployment rate is: A) 27%. B) 60%. C) 33%. D) 10%.

D. 10%

One reasonably objective measure of intangible infrastructure is the: A) Index of Economic Freedom. B) Census Bureau's measure of public capital. C) Index of Sustainable Economic Welfare. D) System of Integrated Environmental and Economic Accounting.

a

The U.S. Patent Office grants Rene a patent for a new method of waterproofing outdoor gear. It is acting in its role to promote economic growth by: A) ensuring a stable legal system. E: a patent is typically granted for 20 years. During that time nobody can use the new method without paying a royalty to the owner. B) providing physical and human capital. C) ensuring a stable and secure financial system. D) promoting free and competitive markets.

a

. One way a stable financial system supports economic growth is that it: A) subsidizes borrowers of financial capital. B) facilitates the movement of capital from savings to investment. E: a well-functioning financial system receives savings from households and make loans available to firms. C) keeps tax rates low. D) increases the incidence of unanticipated price changes.

b

Government funding of Los Alamos National Labs is an example of government acting in its role to promote economic growth by: A) ensuring a stable legal system. B) enhancing physical and human capital. E: see previous question. C) ensuring a stable and secure financial system. D) promoting free and competitive markets.

b

Property rights consist of _____ goods that _____ be easily measured. A) intangible; can B) intangible; cannot E: if you write a novel and are granted a copyright, its value is difficult to determine because it depends on how many books you are able to sell for the duration of the copyright protection. C) tangible; cannot D) tangible; can

b

Refer to the production possibilities frontiers below. Panel A illustrates _______ economic growth and Panel B illustrates _______ economic growth. A) short-run; short-run. B) short-run; long-run. E: in panel A the economy is using unused resources. In panel B the economy is using more resources or better technology or both. C) long-run; long-run. D) long-run; short-ru

b

Rocky Gap Furniture employs 10 workers working eight hours each to produce 100 rocking chairs. What is the productivity of these workers? A) 2.5 chairs per hour B) 1.25 chairs per hour E: 100 chairs / (10 workers * 8 hours) = 1.25 C) 100 chairs D) 50 chairs

b

Schumpeter's term creative destruction describes the: A) Luddites' destruction of machines. B) innovative dynamism of capitalism. E: creative (new and better goods) destruction (old goods become obsolete) C) working class communist movement. D) destruction of buildings.

b

Use of tax receipts to modernize the air traffic control system promotes economic growth by: A) ensuring a stable legal system. B) enhancing physical and human capital. E: if Miami-Dade County adds more terminals and better air control equipment to Miami International Airport, there is more physical infrastructure and tower operators have more skills. C) ensuring a stable and secure financial system. D) promoting free and competitive markets.

b

. Physical capital includes: A) the physical talents of people. B) the ability to take physical resources and use them in creative ways to produce goods and services. C) manufactured products that are used to produce other goods and services. E: physical capital is the sum of machines and tools used to produce final goods and services. D) land and raw resources that come from land.

c

The single largest consumer of goods and services in the United States is: A) personal consumption. B) businesses. C) the government. D) industry

c

If a country has a low capital-to-labor ratio, then it tends to have: A) low labor productivity but high wages. B) high labor productivity but low wages. C) high labor productivity and high wages. D) low labor productivity and low wages. E: if workers have less capital to work with, they will produce less and earn lower wages

d

Labor productivity is a major determinant of: A) the size of the labor force. B) the skill level of the labor force. C) the money supply. D) living standards. E: more labor productivity → higher wages → higher living standards.

d

Land and natural resources include: A) the mental and physical talents of people. B) human capital. C) manufactured products that are used to produce other goods and services. D) water and minerals that come from the earth. E: natural resources are fruits of nature that men cannot reproduce at will.

d

The capital-to-labor ratio measures: A) the average number of hours worked. B) the financial resources of a company divided by the number of employees. C) the rate of technological improvement. D) the amount of economic capital per worker. E: capital to labor ration = K/L

d

Which of the following is a source of increases in productivity? A) research and development (new ideas) B) improvements in labor quality (human capital) C) capital investment (more physical capital) D) All of the answers are correct.

d

. (Table) According to the table, what is the unemployment rate of this economy? A) 10% B) 14.3% C) 16.67% D) 25%

B) 14.3%

The economy is probably heading into a recession when the National Activity Index equals: A) 0. B) 0.62. C) -0.94. D) 0.79.

C) -0.94

In the circular flow diagram, the clockwise direction shows the flow of _____, where households supply _____ and businesses supply _____. A) money; purchases of goods and services; income to households B) money; labor; goods and services C) goods and services; labor; goods and services D) goods and services; purchases of goods and services; income to households

C) goods and services; labor; goods and services

(Table) According to the table, what is the labor force of this economy? A) 50 B) 300 C) 350 D) 500

C. 350

Lexie works Monday to Friday from 4 P.M. to 6 P.M. in the after-school program at a local elementary school. She began looking for a full-time job last week and has already scheduled three job interviews. According to the Bureau of Labor Statistics, Lexie is: A) a discouraged worker. B) unemployed. C) employed. D) not in the labor force.

C. Employed

(Table) According to the table, the GDP deflator for 2012 is: A) 0. B) 1. C) 72.8. D) 100.

D) 100

The table shows that the country with the most productive workers is: A) A. E: capital to labor ratio = K/L = $4,000/100 = $40 B) B. (K/L = $10) C) C. (K/L = $5) D) D. (K/L = $1)

a

The higher the productivity of a nation, the: A) greater is its population growth. B) lower is its capital-to-labor ratio. C) larger is its labor force. D) higher is its standard of living. E: more productivity → higher wages → higher standard of living.

d

. (Table) According to the table, the number of people in the labor force is: Employed 85 Unemployed seeking work 25 Discouraged workers 15 Unpaid family members working 15-plus hours 5 Retired 10 A) 115. B) 110. C) 130. D) 120.

A) 115.

An economy has a population of 226,500. Of them, 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is _______. (Round the percentage to one decimal place; for example, 0.0436 is 4.4%.) A) 6.5% B) 21.0% C) 5.5% D) 21.1%

A) 6.5%

What is real GDP in 2014 if nominal GDP in 2014 is $15,000 billion, the GDP deflator in 2014 is 110, and the GDP deflator in 2010 was 100? A) $9.1 billion B) $13,636 billion C) $14,010 billion D) $16.500 billion

B) $13,636 billion

Suppose the market basket of goods costs $10,000 in 2009, the reference or base period, and that same basket of goods now costs $11,200. What has been the percentage change in the cost of goods between the base period and the current period? A) +20% B) +12% C) -10.7% D) -20%

B) +12%

If an economy's GDP will double in 25 years, then its growth rate must be about: A) 2.5%. B) 2.8%. C) 25%. D) 28%.

B) 2.8%. E: n = 70/g ; 25 = 70/g → g = 70/25 = 2.8%

2. If the growth rate in an economy is 3.5%, then its GDP will double in about: A) 3.5 years. B) 20 years C) 70 years. D) 245 years.

B) 20 years. E: n = 70/3.5% = 20

Wages set high to discourage employee turnover are called ________ wages. A) turnover minimization B) efficiency C) productivity D) labor utilization

B) efficiency

Zach has been laid off from his job as an aircraft worker and is afraid that he will not be recalled. He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is: A) employed. B) unemployed. C) a discouraged worker. D) not in the labor force.

B) unemployed.

(Table) According to the table, GDP for 2010 was: A) $15,603.1 billion. B) $16,843.8 billion. C) $14,592.3 billion. D) $13,562.1 billion

C) $14,592.3 billion

The key to being counted as unemployed by the Bureau of Labor Statistics is to be: A) out of a job. B) available for work. C) actively seeking work. D) passively seeking work

C) actively seeking work.

The mortgage crisis caused a lot of consumers to stop spending money. The decrease in spending led to a decrease in production. Which type of unemployment resulted? A) structural B) frictional C) cyclical D) statistical

C) cyclical

A change in the Leading Economic Index is supposed to reflect: A) how the economy behaved in the recent past. B) how the economy is behaving. C) how the economy will behave in the near future. D) an average of how the economy has behaved over the most recent business cycle.

C) how the economy will behave in the near future.

If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals: A) $160. B) $180. C) $150. D) $140.

D) $140.

Most economists agree that ______ unemployment is the area in which public policymakers can have their greatest impact. A) structural B) frictional C) seasonal D) cyclical

D) cyclical

Which of the following terms describes a situation in which there is a reduction in the rate of inflation from 4% to 3% per year? A) hyperinflation B) inflation C) deflation D) disinflation

D) disinflation

(Table) According to the table, nominal GDP for 2013 is approximately: A) $5,050 billion. B) $5,250 billion. C) $5,450 billion. D) $5,650 billion.

A) $5,050 billion

For which growth rate would the Rule of 70 be most accurate? A) 1% B) 15% C) 20% D) 30%

A) 1% E: The Rule of 70 is an approximation. It works best for small growth rates

Suppose the market basket of goods costs $10,000 in 2009, the reference or base period, and that same basket of goods now costs $11,200. What is the consumer price index for today? A) 112.0 B) 120.0 C) 89.3 D) 132.0

A) 112.0

If a country's population increases at a slower rate than the growth in its real GDP: A) GDP per capita has increased B) the standard of living in the country has declined. C) average output per person has decreased. D) the country's rate of inflation has decreased.

A) GDP per capita has increased. E: GDP per capita = GDP/N. If the numerator (GDP) increases faster than the denominator (N), GDP p/c will increase

Which statement about long-run economic growth is TRUE? A) It occurs when an economy makes use of underutilized resources. B) It is easier to achieve than short-run economic growth. C) It is likely to occur when the capacity to produce goods and services increases. D) It is likely to occur when obstacles preventing resources from being used are reduced.

C) It is likely to occur when the capacity to produce goods and services increases. E: in order to grow in the LR an economy needs more resources, better technology or both.

Jordan Meadows lost his job as an airline pilot and has not been able to find another job as a pilot. Since he is old enough to be eligible for his pension, he decides to retire and devote himself to caring for his elderly parents, According to the Bureau of Labor Statistics, Jordan is: A) employed. B) unemployed. C) a discouraged worker. D) not in the labor force.

D) not in the labor force.

Economic growth is most commonly measured by: A) GDP. B) GDP per capita. C) Genuine Progress Indicator per capita. D) real GDP per capita.

D) real GDP per capita. E: GDP per capita = GDP/Population

In the United States, real GDP is measured by: A) the Federal Reserve. B) the Congressional Budget Office. C) the National Bureau of Economic Research. D) the Bureau of Economic Analysis.

D) the Bureau of Economic Analysis. E: GDP was originally developed at the NBER, but it's now calculated by the Bureau of Economic Analysis (an office of the Department of Commerce, www.bea.gov)

A production function: A) shows the output that is produced using different combinations of inputs combined with existing technology. E: Q = A*f[N,L,H,K] B) shows the output that is produced using different combinations of technology combined with existing inputs. C) shows the output that is most highly valued by consumers. D) shows the most desired production method for a given level of output.

a

If output equals A*(5K + 2L), what is output if A equals 2,000, capital equals 10, and labor equals 100? A) 500,000 E: Q = A*(5K + 2L) = 2,000*(5*10 + 2*100) = 500,000 B) 120,000 C) 50,000 D) 12,000

a

As a rule, the more capital employed with workers, the ________ their productivity and the ________ their earnings. A) lower; higher B) lower; lower C) higher; higher D) higher; lower

c

Nominal GDP in 2006 was $13,458.2 billion. The GDP deflator uses 2000 as the base year. In 2006, the GDP deflator was 116.9. What was the real GDP for 2006? A) $15,732.6 billion B) $15,746.1 billion C) $11,512.6 billion D) $11,522.5 billion

C) $11,512.6 billion

John earns $2,000. His taxes are $250 and he spends $1,500. Therefore, his savings must be: A) $1,500. B) $500. C) $250. D) His savings cannot be calculated from the data given.

C) $250

What is your new salary if you earned $40,000 last year, the consumer price index went from 120 to 125, and your salary is adjusted by the rate of inflation annually? A) $38,400 B) $41,600 C) $41,666.67 D) $40,125

C) $41,666.67

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is: A) 80. B) 110. C) 125. D) 150.

C) 125.

7. If the growth rate in an economy is 2%, its GDP will double in about: A) 70 years. B) 140 years. C) 35 years.D) 28 years

C) 35 years. E: n = 70/g; n = 70/2% = 35 years

Which of the following persons is considered to be unemployed? A) Ahmed, who is on vacation B) Sarah, who is on strike duty C) Tiffany, who is going on interviews, hoping to get her first job D) Carmen, who works three days a week at her father's business but is not paid

C) Tiffany, who is going on interviews, hoping to get her first job

Which of the following is TRUE in the case of the simple circular flow model with no saving? A) Total spending is greater than total income. B) Total spending equals total income only at full employment. C) Total spending equals total income. D) Total spending is less than total income.

C) Total spending equals total income

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing: A) inflation. B) disinflation. C) deflation. D) hyperinflation.

C) deflation

Which of the following institutions is the best example of public capital? A) accounting network of a public utility B) shopping mall C) Department of Motor Vehicles D) highway system

d