H Macro

The consumer price index is based on a market basket of goods and services and the consumption patterns​ of:

an average urban household

How can government policies shift the aggregate demand curve to the​ right?

by increasing government purchases

How does the dynamic model of aggregate supply and aggregate demand explain​ inflation?

by showing that if total spending in the economy grows faster than total​ production, prices will rise

To calculate personal income from national​ income, what must the BEA​ do?

add government transfer payments

True or False Most economists agree that the​ above-market wage paid in unionized industries significantly increases the unemployment rate in the United States.

False

When the economy was expanding in early​ 2007, fewer than​ _______ percent of the unemployed had been jobless for more than 6 months.

20

True/False The Austrian school is best known for arguing the superiority of government economic planning over the market system.

False

True/False To avoid the cost of the purchasing power of paper money decreasing with​ inflation, workers and firms will try to hold as much paper money as possible

False

If the CPI was 207 in 2009 and 225 in​ 2013, what wage would someone who earned a​ $50,000 income in 2009 have to earn in 2013 in order to keep her purchasing power​ constant?

$54348

What is the correct formula for calculating the unemployment​ rate?

(number of unemployed/ labor force)*100

n artist buys scrap metal from a local steel mill as a raw material for her sculptures. Last​ year, she purchased ​$5000 worth of scrap metal. With the steel she produced 10 authentic sculptures that she sold for ​$800 each to a local art dealer. The art dealer then sold all of the sculptures to art collectors for an average of ​$1000 each. The total value added of the art dealer is ​$

2000

An artist buys scrap metal from a local steel mill as a raw material for her sculptures. Last​ year, she purchased ​$6 comma 000 worth of scrap metal. With the steel she produced 10 authentic sculptures that she sold for ​$900 each to a local art dealer. The art dealer then sold all of the sculptures to art collectors for an average of ​$1 comma 100 each. The total value added of the artist is $

3000

​Almora, a developing open​ economy, is experiencing an economic boom since it discovered oil reserves off its coast two years ago. Bill​ Hudson, an economist with the Finance Ministry of​ Almora, said in an interview that the oil boom has improved the average standard of living in the economy. Robin Peters is an industry analyst who does not agree with​ Hudson's view. In one of his recent articles in the​ country's leading business​ daily, Robin claimed that the high rate of inflation following the boom has actually weakened the expansionary impact on the economy. Which of the​ following, if​ true, will support​ Bill's argument? A. The number of Almorans who had settled abroad but are coming back to their homeland has been increasing in the last two years. Your answer is correct.B. There has hardly been any change in the average income level of​ low-income groups in the past five years. C. The government increased its budget allocation toward unemployment benefits this year. D. The diversity of population is very low in Almora. E. The manufacturing sector in Almora accounts for only 8 percent of its GDP.

A. The number of Almorans who had settled abroad but are coming back to their homeland has been increasing in the last two years.

Which of the following factors does not cause the aggregate demand curve to​ shift? A. a change in the price level B.a change in foreign variables C.a change in government monetary or fiscal policies D.a change in the expectations of households and firms

A. a change in the price level

Which of the following changes does not cause an increase in the quantity of goods and services that can be produced by one​ worker, or in one hour of​ work? A. an increase in the number of workers B. an increase in the quantity of capital per hour worked C. an increase in the literacy rate D. technological change

A. an increase in the number of workers

Why in microeconomics can we measure production in terms of​ quantity, but in macroeconomics we measure production in terms of market​ value? ​A. If, in​ macroeconomics, we measured production using​ quantities, we would add tons of wheat grown by U.S. farmers to the number of iPods produced by​ Apple, to gallons of​ milk, and so on. B. When we measure total​ production, we​ can't just add together the quantities of every good and service because the result would be meaningless. C. Measuring production using market value in dollar terms allows us to add together many different goods and services. D. Both A and C. E. All of the above.

E.

Which of the following is not a reason that the economy is considered to have been more stable in the 1950-2007 period than in other​ periods? A. the increasing importance of services and the declining importance of goods B. continually falling oil prices C. the establishment of unemployment insurance programs D. the use of active government policies to stabilize the economy

B. continually falling oil prices

What is the best use of the rule of 70 among those listed​ below? A. to calculate the difference between the growth rate in real GDP and the growth rate in real GDP per capita B. to judge how rapidly real GDP per capita is growing over long time periods C. to find the average annual growth rate of real GDP D. to forecast the duration of recessions

B. to judge how rapidly real GDP per capita is growing over long time periods

During the current​ year, the government in the country of Brungaria has adopted a fiscal stimulus package to boost economic growth. The stimulus package is a major factor behind the increase in government purchases this year. As a result of these​ policies, Brungaria will experience a substantial increase in overall​ employment, gross​ investment, and consumption expenditure. In​ response, the Economic Advisory Committee of the government announces at a press conference that these results will ensure that​ Brungaria's GDP will be higher this year than it was in the previous year. Which of the​ following, if​ true, would undermine the claim of the Economic Advisory​ Committee? ​Brungaria's exports have fallen significantly in the current year. The value of goods and services imported by the country this year will be lower than the value of imports in the previous year. In the past​ year, immigration from neighboring countries has increased significantly. The government lacks the ability to borrow adequate funds to finance a stimulus package next year. In the current​ year, total expenditures on consumption are greater than expenditures on investment.

Brungaria's exports have fallen significantly in the current year

Firm​ X, a leading manufacturer of rubber tires in country​ A, caters to almost​ one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon​ Reeds, the CEO of firm​ X, feels that these fluctuations in the business environment are​ short-lived and expects the economy to recover very soon. In spite of the​ recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The​ firm's marketing​ head, Sandra​ Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making​ large-scale investments in the present climate. Which of the​ following, if​ true, would support the marketing​ head's claim? A. Input prices declined substantially due to the recession. B. In the previous​ recession, a leading player in the hospitality sector had expanded its facilities but was unable to recover its costs later. C. Import barriers were reduced recently to encourage competition. D. The fact that the economy is in recession was announced a quarter after GDP started to decline. E. Unemployment in the economy was lower than expected during the recession.

C. Import barriers were reduced recently to encourage competition.

Which of the following changes will ensure that an economy experiences sustained economic​ growth? A.increasing the amount of labor B. increasing the amount of raw materials C. technological change D. increasing the amount of capital

C. technological change

Paul Schumer and Jim​ Miller, two analysts at a research​ institute, discuss the rising costs of higher education in their country. Paul feels that escalating tuition fees in colleges and universities are indicative of a bubble in the higher education market. According to​ Jim, however, the rising costs are the result of better quality education being provided by the institutions in recent years. Which of the​ following, if​ true, will weaken​ Paul's argument? A. A recent survey reveals that a large number of domestic workers have emigrated due to a lack of job opportunities in the country. B. The government agency that provides accreditation to colleges has been accused of corruption. C. Some universities are relying on inflated placement figures to attract students. D. Fewer students are opting to enroll in higher education courses. E. The number of foreign students enrolling in domestic universities has increased steadily in the last three years.

E. The number of foreign students enrolling in domestic universities has increased steadily in the last three years.

Firm​ X, a leading manufacturer of rubber tires in country​ A, caters to almost​ one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon​ Reeds, the CEO of firm​ X, feels that these fluctuations in the business environment are​ short-lived and expects the economy to recover very soon. In spite of the​ recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The​ firm's marketing​ head, Sandra​ Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making​ large-scale investments in the present climate. Which of the following questions is most relevant to answer in order to determine the accuracy of the​ CEO's claim? A. Does the current recession affect every firm in country A​ equally? B. What proportion of total employment does the tire industry account​ for? C. What is the tire​ industry's contribution to the​ country's GDP? D. What are consumer expectations of future​ growth? E. How quickly did the economy recover the last time there was a​ recession?

D. What are consumer expectations of future​ growth?

Which of the following are financial securities that represent promises to repay a fixed amount of​ funds? A. stocks B. both stocks and bonds C. neither stocks nor bonds D. bonds

D. bonds

Which of the following is not a service that the financial system provides for savers and​ borrowers? A. risk sharing among savers B. matching savers with borrowers C. increased liquidity for savers D. guaranteeing savers high rates of return

D. guaranteeing savers high rates of return

The computation of the average annual growth rate of real GDP A. involves computing the percentage change in real GDP between the first year and the last year for the period being examined. B. involves simply averaging the growth rate for each​ year, but only if data for many years are available. C. is the same for shorter periods of time as for longer periods of time. D. is more complex when examining data for a long period of time than when examining data for only a few years.

D. is more complex when examining data for a long period of time than when examining data for only a few years.

During the last half of the twentieth​ century, the U.S. economy experienced A. much more severe swings in real GDP than in the first half of the twentieth century. B. an inflation rate that increased during both recessions and expansions. C. long​ recessions, interrupted by relatively short expansions. D. long​ expansions, interrupted by relatively short recessions.

D. long​ expansions, interrupted by relatively short recessions.

Which of the following factors determines the supply of loanable​ funds? A. changes in the interest​ rate, which cause firms to undertake more or fewer investment projects B. the number of financial intermediaries available C. the quantity of stocks and bonds issued by firms D. the willingness of households and governments to save

D. the willingness of households and governments to save

What happens if we measure GDP by adding up the value of every good and service produced in the​ economy? This is the correct measure of nominal GDP but not real GDP. This is the correct measure of real GDP but not nominal GDP. GDP is underestimated because of double counting. GDP is overestimated because of double counting.

GDP is overestimated because of double counting

Which of the following is not a shortcoming of GDP as a measure of​ well-being? GDP only counts final goods and services and not intermediate goods. GDP is not adjusted for the effects of pollution caused by the production of goods and services. GDP is not adjusted for crime and other social problems. GDP does not include the value of leisure.

GDP only counts final goods and services and not intermediate goods

When a significant fraction of domestic production takes place in​ foreign-owned facilities, a​ country's difference between GDP and GNP is as​ follows:

GDP will be much larger than GNP

If Americans still worked​ 60-hour weeks, as they did in​ 1890, GDP would be much higher than it​ is, but the​ well-being of the typical person would not necessarily be higher. GDP would be lower than it​ is, but the​ well-being of the typical person would be higher. both GDP and the​ well-being of the typical person would be much higher than they are. both GDP and the​ well-being of the typical person would be lower than they are.

GDP would be much higher than it​ is, but the​ well-being of the typical person would not necessarily be higher

What is the GDP Deflator equation

GNP/GDP*100

How does the size of a​ country's GDP affect the quality of life of the​ country's people?

Generally, the more goods and services people​ have, the better off they are.

As the economy nears the end of an​ expansion, what typically​ occurs?

Interest rates are usually rising. Wages are usually rising faster than prices. The profits of firms will be falling.

It has been argued by economists and policymakers that measured GDP undervalues the economic activity conducted by women. Drawing on the material from this​ chapter, provide two reasons why measured GDP might underrepresent the economic contributions of women.

Measured GDP undervalues the contributions of women to economic activity by omitting the value of household production​ and, to a lesser​ extent, underground economic activity.​ Women, in almost all countries around the​ world, are disproportionately engaged in household​ production, relative to men. These activities are production​ that, like productive activity conducted outside of the​ household, generate economic value. It​ is, however, not included in standard measures of GDP.​ Additionally, in many lower and middle income​ countries, women are disproportionately engaged in underground economic​ activity, relative to men. The omission of the informal sector from standard GDP calculations also disproportionately disregards the economic contributions of women. Since measured GDP does not include household production or underground economic​ activity, it underrepresents the economic contributions of women.

Milton Friedman argued that the Federal Reserve should adopt a​ ________ to reduce fluctuations in real​ GDP, employment, and inflation.

Monetary Growth Rule

Consider the macroeconomic data provided in the table below. Explain why nominal GDP would grow when real GDP is not growing. Nominal GDP ​$10 trillion (2017) ​$11 trillion (2018) Real GDP ​$10 trillion (2017) ​$10 trillion (2018)

Nominal GDP may​ grow, even when real GDP does not​ grow, if there is inflation. Nominal GDP grows whenever there is an increase in​ production, and when there is an increase in the level of prices in the economy. Since Nominal GDP is calculated using​ current-year prices, nominal GDP increases when there is an increase in​ prices, even if there is no actual increase in production. Real​ GDP, however, grows only when there is an increase in production. Since real GDP is calculated using​ base-year prices, it is not influenced​ year-to-year by changes in the level of prices.

True or False If inflation is unexpectedly​ high, borrowers will benefit and lenders will be harmed.

True

True or false The producer price index​ (PPI) tracks the prices firms receive for goods and services at all stages of production.

True

What are the four categories of​ income?

Wages Interest Rent Profit

What are views new classical macroeconomists​ hold?

Workers and firms have rational expectations. Wage and price stickiness is not important for explaining fluctuations in real GDP. The economy will normally be at potential real GDP.

If the economy adjusts through the automatic​ mechanism, then a decline in aggregate demand causes

a recession in the short run and a decline in the price level in the long run

What usually causes Stagflation

a supply shock as a result of an unexpected increase in the price of a natural resource

Suppose that you are available to go to work but have not looked for a job for at least the last four weeks because you believe that there​ aren't any jobs available. You would be counted as

a discouraged worker

A higher per capita GDP translates​ to:

a higher standard of living

An average of the prices of the goods and services purchased by a typical family is​ the:

consumer price index

Inflation at the consumer level is measured by​ the....

consumer price index

The country of Alaine produces​ 1,000 tons of corn during a year. It is valued at​ $500 per ton. A lobbyist for the corn industry in Alaine argues that the total value of corn production should be included in the​ country's GDP for the same year. The​ lobbyist's claim is based on the assumption that

corn is not used in the production of other goods

Workers who lose their jobs because of a recession are experiencing...

cyclical unemployment

Which of the following are likely to increase the measured level of GDP and which are likely to reduce​ it? If higher tax rates cause more people to hide the income they​ earn, the measured GDP...

decrease

Which of the following are likely to increase the measured level of GDP and which are likely to reduce​ it? When the number of people working outside the home decreases​, the measured level of GDP...

decrease

Recessions cause the inflation rate to​ _________, and the unemployment rate to​ _________.

decrease increase

Holding all else​ constant, a federal government budget deficit will...

decrease the supply of loanable funds and increase the equilibrium real interest rate.

During​ recessions, the inflation rate...

decreases

What do we subtract from the GDP to obtain national income?

depreciation

In the long​ run, changes in the price level ________________ the level of real GDP.

do not affect

Purchases of which types of goods are business cycles most likely to​ affect?

durable goods

When a firm pays a wage that is higher than the market wage in order to increase worker​ productivity, the wage is called

efficiency wages

True/False If income rises more slowly than the rate of​ inflation, purchasing power will rise.

false

When the economy is at full​ employment, which types of unemployment​ remain?

frictional structural

The​ short-term unemployment that arises from the process of matching workers with jobs is called...

frictional unemployment

In April​ 2017, which of the following demographic groups had a higher rate of unemployment than the unemployment rate for the total​ population?

high school dropouts

In the​ circular-flow diagram, who supplies factors of production in exchange for​ income?

households

Of the eight categories in the CPI market​ basket, which three categories make up more than 75 percent of the​ basket?

housing transportation food

If the economy is initially at​ full-employment equilibrium, then an increase in aggregate demand causes​ _____________ in real GDP in the short run and​ ___________ in the price level in the long run.

increase increase

Which of the following are likely to increase the measured level of GDP and which are likely to reduce​ it? When there is a sharp increase in the crime​ rate, the measured level of GDP...

increase or decrease

Increases in the minimum wage will

increase teenage unemployment.

A sustained increase in the general level of prices is known​ as:

inflation

An important conclusion to draw from the​ circular-flow diagram is that

we can measure GDP by calculating the total value of expenditures on final goods and​ services, or we can measure GDP by calculating the value of total income

The unemployment rate in the United States is usually​ ________ than the unemployment rates in most other​ high-income countries, partly because the United States has​ _________ requirements for the unemployed to receive government payments.

lower more stringent

An article in the Wall Street Journal discussed the views of Canadian Minister of Finance Joe Oliver on the effect of falling oil prices on the Canadian economy. According to the​ article, Oliver argued that​ "lower oil prices would have a broadly neutral impact on real ... gross domestic​ product, but have a negative effect on nominal​ GDP." ​Source:​ Reuters, "Canada Pushes Back Budget to April Due to Market​ Instability," New York Times​, January​ 15, 2015. Oliver must be expecting the effect of lower oil prices to:

lower the inflation​ rate, which would offset the reduction in nominal GDP

In an economy with rising​ prices, compared to the base​ year, nominal GDP is larger than real GDP in years after the base year. nominal GDP is equal to real GDP in years after the base year. nominal GDP is larger than real GDP in years before the base year. nominal GDP is equal to real GDP in years before the base year.

nominal GDP is larger than real GDP in years after the base year

In an economy with rising​ prices, compared to the base​ year

nominal GDP is larger than real GDP in years after the base year.

The BLS collects price statistics from traditional​ full-price retail​ stores, which do not reflect the prices some consumers pay by shopping at discount stores or on the Internet. This is a description of which​ bias?

outlet bias

According to Karl Marx, the owners of businesses monopolized the means of production and exploited workers by

paying them wages lower than the value of​ workers' contributions to production.

Disposable personal income is equal to:

personal income minus personal tax payments.

What is the best measure of the standard of living of the typical person in a​ country?

real GDP per person

unemployment rate typically...

rises during a recession and after the recession has ended

Two important trends in the labor force participation rates of adults aged 20 and over in the United States since 1948 are the​ _________ labor force participation rate of adult women and the​ __________ labor force participation rate of adult men.

rising falling

Potential GDP is what in relation to Real GDP

sometimes​ greater, sometimes​ less, and sometimes equal to actual real GDP

In calculating​ GDP, which levels of government spending are included in government​ purchases? spending by governments only on national​ security, social​ welfare, and other national programs spending by the federal government and some state​ governments, but not local governments spending by​ federal, state, and local governments spending by the federal government only

spending by​ federal, state, and local governments

Changes in the CPI overstate the true inflation rate due to four​ "biases." If apple prices rise rapidly during the month while orange prices​ fall, consumers will reduce their apple purchases and increase their orange purchases. Which of the four biases is concerned with this consumer​ behavior?

substitution bias

What factors will cause the​ long-run aggregate supply curve to shift to the​ right?

the accumulation of more machinery and equipment technological change an increase in the number of workers in the economy

From a trough to a​ peak, the economy goes through...

the expansionary phase of the business cycle.

In determining whether to borrow​ funds, firms compare the rate of return they expect to make on an investment with...

the interest rate they must pay to borrow the necessary funds.

Gross domestic product is best defined as the amount of all incomes earned by all citizens of a​ country, including those living overseas. the total quantity of goods and services produced in a country during a period of time. the market value of all final goods and services produced in a country during a period of​ time, typically one year. the total value of all goods that can be found in a country.

the market value of all final goods and services produced in a country during a period of​ time, typically one year.

The real interest rate equals...

the nominal interest rate minus the inflation rate.

Which of the following is included in the​ economist's definition of​ investment? the purchase of a rare coin or a deposit in a savings account the purchase of new​ machines, factories, or houses the purchase of a share of stock All of the above.

the purchase of new​ machines, factories, or houses

Computation of the CPI assumes that households buy the same market basket of products each month. For this​ reason, which one of the following factors is not relevant in calculating the​ CPI? A. the quantities of the products households purchase in the base year B. the prices of the products households purchase in the base year C. the prices of the products households purchase in the current year D. the quantities of the products households purchase in the current year

the quantities of the products households purchase in the current year

The extent of job creation and job destruction is

what we would expect in a vibrant market system

​Typically, when will the National Bureau of Economic Research​ (NBER) announce that the economy is in a​ recession?

year or more after the recession has begun

How would it affect the unemployment rate if the Bureau of Labor Statistics counted as unemployed both​ (1) discouraged workers and​ (2) people who work​ part-time but would prefer to work​ full-time?

the unemployment rate would increase

if price level increases, then...

there will be a movement up along a stationary aggregate demand curve.

The​ "normal" underlying level of unemployment in the economy is...

the​ full-employment rate of unemployment. the sum of structural unemployment and frictional unemployment. the natural rate of unemployment.

seasonal unemployment

unemployment linked to seasonal work

frictional unemployment

unemployment that occurs when people take time to find a job

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

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves

The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called...

value added