Economics Test 2 Homework Questions

Use the following information to calculate GDP using the expenditures approach: - consumption expenditures $460 - change in inventories $ 200 - govt purchases $375 - indirect taxes $150 - exports $120 - imports $180 - gross investment $250

$1025

If the country of Econland has an average nominal income at $35,000 and a price index of 127, the average real income would be approximately:

$27,559

Consider the following table of real GDP per capita in Australia from 1700 to 2000: Year Real GDP per capita 1700 400 1850 1975 1900 4013 1950 7412 2000 21,549 1. The change in dollars in real GDP per capita from 1700 to 2000 is: 2. To the nearest percent, the percentage in real GDP per capita is: 3. In the 300 years since 1700, GDP per capita grew more than:

1. 21,549-400= 21,149 2. 21,549-400=21,149 21,149/400=52.8725 52.8725x100=5287.25 3. Not sure. It's not 5000.

In the United States, imports constitute about:

1/6 of nominal GDP

Caladan has a labor force of 120 million people, 10 million of whom are currently frictionally unemployed and another 5 million of whom are currently structurally employed. Calculate the natural rate of unemployment.

10m + 5m / 120 = .125 .125 x 100 = 12.5%

Calculate the number of years it will take $10,000 to double if the interest rate is 6%.

12

Suppose that real GDP per capita equals $25,000 and that the growth rate of real GDP per capita is 6% per year. It will take ___ years for real GDP per capita to double to $50,000.

12 years 72/6=12

A nation's average annual real GDP growth rate is 5%. Based on the "rule of 72," the approximate number of years that it would take for this nation's real GDP to double is:

14.4 years

Suppose that in year 1 real GDP per capita was $30,000 billion and in year 2, real GDP per capita rose to $34,500 billion. The growth rate of real GDP per capita was ___.

15% 34,500-30,000=4500 4500/30,000=0.15 0.15x100=15

In the year 2020, Alpha has a real GDP of $80 billion and Omega has a real GDP of $10 billion. If Alpha has a growth rate of 2% and Omega has a growth rate of 4%, in what year will Omega catch up to Alpha?

2127

The following table shows values of annual real GDP per capita over time. Use it to answer the next question. 1810 $1,500 1860 $2,100 1910 $3,900 1960 $18,000 2010 $43,600 What was the rate of growth in real GDP per capita between 1810 and 2010?

2807%

Consider two scenarios for a nation's economic growth. Scenario A has real GDP growing at an average annual rate of 2%; scenario B has an average annual growth of 4%. The nation's real GDP would double in about:

36 years under scenario A, versus 18 years under scenario B.

In 2010, the country of Marketopia had a real GDP per capita of $18,000. In 2011, Marketopia had a real GDP per capita of $18,750. What is the percentage change from 2010 to 2011?

4.16%

If the Consumer Price Index was 225.64 in 2012 and 235.59 in 2013, calculate the percentage change in inflation from 2012 to 2013.

4.41%

If business fixed investment is equal to $35 billion, residential investment is equal to $15 billion, and inventories have increased by $5 billion, then gross investment is ____ billion.

55

In a country with a population of 465 million people, 95 million are 16 years of age or younger. There are 345 million people who are employed and 25 million people who are unemployed. Calculate the employment rate.

6.75%

Consider two scenarios for a nation's economic growth. Scenario A has real GDP growing at an average annual rate of 1%; scenario B has an average annual growth of 6%. The nation's real GDP would double in about:

72 years under Scenario A, vs 12 years under Scenario B

The city govt purchases new playground equipment for the park.

Included in GDP under govt expenditures.

Which of the following does NOT correctly characterize modern economic growth? -It spread slowly across the globe, with some societies not having experienced it yet. -It has occurred only in the last 200 or so years. -It drastically alters the culture and politics of society. -It has not affected the average lifespan of human beings.

It has not affected the average lifespan of human beings.

Which of the following values is used to measure economic growth?

Real GDP

Which of the following scenarios will cause a rightward shift in the product possibilities frontier (PPF)?

Resource availability improves, technological improvements happen, or the productivity of existing resources improves.

Why is an unemployment rate of 0% not considered desirable?

Some frictional unemployment is healthy as people move to new, better jobs; some structural unemployment indicates innovation and growth

Which agency determines when recessions begin and end?

The National Bureau of Economic Research

Which of the following statements is correct?

The income approach identifies who earned what income from the production of goods and services.

Which of the following is the correct formula for calculating the percentage change of growth?

[(new-old)/old]x100

Which of the following is NOT an intermediate good? - tires used in a Honda automobile plant - fabric used in a clothing manufacturing plant - a facial at a spa - milk used in a cheese

a facial at a spa

Last month Joe graduated from college. He is unemployed, but has several job interviews in the next two weeks. Joe is classified as:

a frictionally unemployed worker

Lucy goes out to a local restaurant for lunch. Her purchased lunch represents:

a service

If employment and output are at their lowest levels:

a trough in the business cycle is occuring

To truly determine whether changes in the unemployment rate translate into improvements in labor and economic conditions, you have to look at the:

actual number of individuals employed and unemployed relative to the size of the labor force

Salaries of govt employees, such as police officers, teachers, and judges, are ___ included in nominal GDP within govt purchases. Salaries in the private sector ___ included in nominal GDP as part of govt purchases.

are; are not

Which of the following will not increase a nation's real GDP? -number of workers -labor productivity -technological progress -average price level

average price level

Short-term fluctuations experienced in the economy due to changes in levels of economic activity describe the:

business cycle

Gross investment includes:

business fixed investment, inventory changes, and residential investment.

Real GDP per capita:

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

Government and business purchases are included in:

capital goods

Which of the following categories is NOT included in the CPI?

capital goods

Capital goods and consumed goods differ in that:

capital goods are used to produce other goods and consumption goods are end products.

The cause of inflation are usually related to:

changes in money supply; economy wide changes in demand or supply for goods/services

When using the expenditures approach, the largest sector of GDP is usually the:

consumer sector

Purchases made by households are called:

consumption

The cost of a higher living standard in the future is giving up:

current consumption

In an economy whose productive capacity is falling due to a decrease in capital stock,

depreciation exceeds gross investment

One could argue that GDP is not a good measure of the standard of living in a nation b/c it

does not account for the size of the population

Stefan works as a cook for McDonald's. He is 23 years old. Stefan is:

employed

When calculating net exports, ___ are added to GDP, whereas ___ are subtracted from GDP.

exports; imports

___ unemployment results from workers searching and waiting for jobs.

frictional

Both ___ and ___ unemployment occur naturally in both growing and contracting economies.

frictional; structural

When measuring GDP, we classify expenditures into 4 categories. Identify the 4 expenditure categories.

gross investment, govt purchases, consumption, net exports

The more productive a nation, the ___ the wages and standards of living.

higher

Getting a college degree is an example of investing in:

human capital

Since 1975, the United States has:

imported more than it has exported

The Smith family purchases a boat.

included in GDP under consumption expenditures

Design, Inc. purchases four of the latest-model laptops to be used in its web design business.

included in GDP under gross investment

Increasing the capital available to the workforce, holding other factors constant, tends to ______ total output while ______ labor productivity.

increase;increasing

Considering the presidential elections since 1948, the data showed that a strong economy seemed to help the _______

incumbent party

In economics, ___ does not solely refer to saving money, or buying stocks or bonds.

investment

In economics, ___ includes purchases of housing, tractors, tools, and factories.

investment

In economics, ____ occurs when firms use funds to buy goods and services that will enhance productivity and increase output.

investment

Which of the following is a limitation of using real GDP per capita to measure living standards?

it does not account for disparities of income distribution.

The services of works, referred to as ____, are counted as intermediate inputs b/c they are used up in making goods and providing services.

labor

In the United States, imports constitute:

less than 20% of nominal GDP

Economic growth is important because

lessens the burden of scarcity

The trough phase of the business cycle is characterized by employment and real output being at their highest/lowest level within a cycle.

lowest

The dollar value of all final goods and services that are produced during a fixed period of time is:

nominal gross domestic product

Sam purchases shares of Apple stock.

not included in GDP

You buy land with a pond on which you will, years later, build a home for your extended family. This transaction is:

not part of GDP b/c the land is not produced.

The US Military buys tanks from Toyota. The transaction is:

part of the govt purchases of GDP b/c they are bought from the govt

If an economy produces 100 pencils and 100 pens, and pencils sell for twice as much as pens,

pencils are weighted twice as important in the economy compared to pens

When a firm builds a new factory, this is an example of an investment in:

physical capital.

Suppose that an economy's labor became more productive between year 1 and year 2. We could conclude that this economy's:

production possibilities frontier shifted outward.

Suppose the Finnish govt undertakes a program that relaxes immigration but only for high skilled workers. This policy will result in an increase in the ___, causing ____.

quantity of resources; an outward, parallel, shift of PPF

The points on the production possibilities frontier show how we are allocating our ___ to the production of two different goods or services.

resources

Economics is possible when

resources increase, technology improves, and the productivity of existing resources improves.

___ occurs when households or firms take some of their income or profit and put it in a savings account, in the stock market, or in some other asset hoping to make a return on their money and spend it in the future.

saving

___ are money in the bank or a stock or bond; ___ occurs when you buy a house or expand a factory.

savings; investment

When inflation occurs:

some prices increase, some decrease, and some remain remain the same

A discouraged worker is:

someone who wants to work but is not actively looking for a job; not a part of the labor force

Throughout most of history, the average individual experienced standards of living that were ___ until the Industrial Revolution produced an era of increasing economic growth.

stable

Government and business purchases are included in:

the GDP price index

Which of the following statements is correct?

the GDP price index measures changes in price

When the unemployment rate equals the sum of frictional and structural employment:

the economy is operating at the natural rate of unemployment

Physical capital is:

the factories and machinery used to produce other goods and services.

Nominal gross domestic product measures the dollar value of:

the final good and services that are produced during a fixed period of time

Consumption and govt purchases are:

the largest components of GDP

The principle of diminishing returns to capital states that if the amount of labor and other inputs employed is held constant, then the greater the amount of capital in use the:

the less an additional unit of capital adds to production.

Real GDP is calculated as:

the output in each year multiplied by the prices in the base year.

Which of the following goods or services is excluded from the GDP?

the production of fruits and vegetables in someone's private backyard garden

China is allocating less of its output toward consumption and more towards:

the production of new capital

Which of the following would be likely to increase the doubling time for an economy's real GDP? -the rate of population growth slows -an increase in the technology used for producing goods and services -government policies improve the health of the population -better education increases the productivity of workers

the rate of population growth slows

Starting in the late 1600s, as economies started to grow:

the standards of living of the people within them grew also

Hovana has a labor force of 150 million people, 15 million of whom are currently frictionally unemployed and another 5 million of whom are currently structurally unemployed. If Hovana's actual unemployment rate is 16.3%, you can conclude that:

there is a recession

Social security payments are considered ____ payments and are NOT included in GDP.

transfer

While some countries have experienced improvements in standards of living, there are a few countries that are subject to absolute poverty.

true

Examples of transfer payments, or payments NOT included in the calculation of GDP, include: - export duties - unemployment insurance payments - medicare - international transactions - import duties - social security

unemployment payments, medicare, social security

Indicate which of the following is (are) NOT included directly in the calculation of GDP. - final goods - used goods - intermediate goods - govt spending on goods - final services

used goods, intermediate goods

When measuring GDP, we classify expenditures into 4 categories because:

we like to know who is consuming what

Knowing how fast an economy is growing relative to population tells us:

whether standards of living are rising or falling, on average

Between 1960 and 2000, the labor force participation rate increased because:

women increasingly entered the labor force; baby boomers had come out of working age and entered the labor force

Those favoring NAFTA argued that opening up Mexico's market to trade:

would help US exporters and would enable US consumers to buy less-expensive Mexican goods, would spur growth