Macro Economics Exam 2

Because Congress fixes the minimum wage in nominal terms, when there is inflation, the nominal minimum wage _____ and the real minimum wage _____. A. remains constant; falls B. remains constant; remains constant C. remains constant; increases D. increases; falls

A. remains constant; falls

What percent makes up full employment?

About 5%.

Which of the following transactions would be included in the GDP of the United States? A. Coca Cola produces soft drinks in England. B. Honda produces cars in Ohio. C. McDonalds sells hamburgers in Russia. D. Ford Motor Company produces cars in Mexico.

B. Honda produces cars in Ohio.

Which of these terms refers to the accumulated knowledge and skills workers acquire from education and training, or with life experiences?

Human capital

What is the formula to find Nominal GDP?

Nominal GDP= Current Quantity x Current Price

A sustained decrease in the price level is __________.

called deflation

If the consumer price index was 73 in 1979 and 225 in 2011, then prices in 2011 were on average:

three times as high as 1979

If the CPI was 207 in 2012 and 225 in 2016, what pay raise would someone who earned $50,000 in income in 2012 have to receive in order to keep his or her purchasing power constant in 2016?

$4,348 Inflation rate= ((225 - 207)/207) x 100 = 8.696 50,000 x .08696 = 4,348

Suppose the CPI in 2008 was 215.3 and the CPI in 2009 was 214.6, what was the inflation rate between 2008 and 2009?

-0.3 percent Inflation rate= ((214.6 - 215.3)/215.3) x 100 = -0.325

During the Great Depression the U.S. unemployment rate spiked as high as __________.

25 percent

Malthusian theory maintains the world will eventually run out of the resources needed to support the global population. This view is the primary reason economics has been called the:

Dismal science

What are Nominal variables?

Economic variables that are calculated in current year prices.

True or False: Intermediary goods are included in GDP.

False.

Which unemployments make up the Natural Rate of Unemployment?

Frictional and Structural.

What is the formula for Real GDP?

Real GDP= Current Quantity x Base Year Price

If the inflation rate is 6 percent and the nominal rate of interest is 4 percent, then the real interest rate is __________.

-2 percent Real = 4 - 6 = -2

If a country's real GDP is growing at a rate of 5 percent per year, approximately how long will it take for real GDP to double?

14 years. 70/5= 14.4

The working-age population is defined as the total number of people over the age of __________ who are not in jail, a hospital, the military or institutional care.

16

A person is considered to be a full-time worker if they work __________ hours a week or more.

35

If the current unemployment rate was 9% and the NRU is 5%, then there is how much cyclical unemployment?

4%

If the inflation rate equals 3 percent and the real interest rate equals 2 percent, then the nominal interest rate rate equals __________.

5 percent Nominal = 2 + 3 = 5

According to the rule of 70, if a nation's per capita real GDP doubled during the past 10 years, then its average annual rate of economic growth over that period was approximately __________.

7 percent

Labor unions are organizations of __________ that have the legal right to bargain with __________ about __________.

Employees, employers, wages and working conditions

True or False: Nominal GDP is adjusted for inflation.

False.

The short-term unemployment that arises from workers in the process of changing jobs is called __________.

Frictional Unemployment

3 Types of Unemployment

Frictional, Structural, and Cyclical Unemployment.

What is the formula for the GDP Deflator?

GDP Deflator= (Nominal GDP/Real GDP) x 100

Government policies can help to reduce the levels of the natural unemployment rate, but they can also help to increase it. Which of these policies can cause an increase in the level of the natural unemployment rate?

Increasing the minimum wage

How do you find the inflation rate?

Inflation Rate= ((New CPI - Old CPI)/ Old CPI) x 100 New CPI= Year in question. Old CPI= Year before or whatever "old" year is specified

__________ advocate active government intervention via fiscal policy when the economy is in recession.

Keynesian macroeconomists

What is the formula for the Labor force participation rate?

Labor force participation rate= (Labor force/Working-age population) x 100

__________ maintains that economic growth can be perpetual due to human desires and creativity leading to ever increasing standards of living.

New growth theory

What is the Natural Rate of Unemployment?

The amount of unemployment that would occur when the economy is at full employment.

The impact on output when adding additional capital will be small if the existing quantity of capital is large. Which key law in economics does this statement define?

The law of diminishing marginal returns.

True or False: Real value is a reflection of a value in the same unit of dollars based on a specific year.

True.

What is the formula for unemployment rate?

Unemployment rate= (Number of people employed/labor force) x 100

What are Real variables?

Variables that have been corrected to account for the effects of inflation.

Frictional Unemployment

Workers are temporarily transitioning between jobs.

Structural Unemployment

Workers have insufficient skills, so employers no longer demand them.

Suppose you are available for work but have not looked for a job for at least the last four weeks because you believe that no jobs are available. You would then be counted as __________.

a discouraged worker

Suppose the median household earned $8,726 in 1976 and $55,750 in 2016. During that time, also suppose the CPI rose from 52.2 to 207.28. a. The total growth rate in nominal median household income from 1976 to 2016 was ____. b. The total growth rate in real median household income from 1976 to 2016 (use the value in 2016 years dollars in your computations) was ____.

a. 538.89% = ((55750/8726) - 1) x 100 = 538.89% b. 60.89% = 8726/.522 = 16716.4751 = 55750/2.0728 = 26895.9861 = ((26895.99/16716.48) - 1) x 100 = 60.89%

An individual's decision regarding whether to work or enjoy leisure time depends on their __________.

after-tax wage rate

Attainable production levels occur at any point along a production function and at any point __________.

below the curve

When the economy is at full employment __________.

both frictional and structural unemployment remain

Marginally attached workers are individuals that do not have a job, are available and willing to work, __________.

have not looked for one in the previous four weeks but has looked for work sometime in the recent past

Extending unemployment benefits will typically result in __________ unemployment rates.

higher

According to some economists, Canada's generally higher natural rate of unemployment is primarily due to __________.

higher unemployment benefits

The imposition of a minimum wage law will tend to __________ unemployment.

increase

The only way that the standard of living of the average person in a country can increase is by:

increasing production faster than population growth.

The percentage rate of change in the price level is the definition of the __________.

inflation rate

When the economy is at the natural rate unemployment, the economy __________.

is at full employment

The labor force as a percentage of the working-age population is the

labor force participation rate

The unemployment rate is defined as the percentage of people in the __________.

labor force who are unemployed

The income effect states that a higher real wage rate generates a higher income which encourages __________.

less work

The consumer price index __________.

measures the cost of an unchanging basket of goods and services

When the unemployment rate is lower than the natural rate, the output gap is __________.

positive

Increases in the minimum wage will primarily increase __________.

teenage unemployment

If the minimum wage is set above the equilibrium wage rate, the __________.

unemployment rate will be higher than it would be without a minimum wage

The economic theory that maintains exploding population growth and scarce resources will ultimately end economic growth is called the __________.

Classical growth theory

Cyclical Unemployment

Results from a recession or a drop in the business cycle.

Which of these will help ensure that an economy experiences sustained economic growth?

Technological change

Since the year 2000, the labor force participation rate for men __________ and the labor force participation rate for women __________.

decreased; decreased

The relationship between the quantity of labor demanded at each and every real wage rate is called the __________.

demand for labor

The defining characteristic of long-run economic growth is:

rising productivity

What is the formula for CPI?

CPI= ((All quantities x Prices of Given Year)/ (All quantities x Prices of Base Year)) x 100 Given Year= Year in question.

__________ believe that markets function well and any deviation from long-run equilibrium is short-lived and will self-correct.

Classical macroeconomists

Economic growth is like?

Compound interest

What is the difference between Real and Nominal GDP?

Nominal GDP uses the current price and current quantity. Real GDP uses the base year price and current quantity.

What is the formula for the nominal interest rate?

Nominal interest rate= Real interest rate + inflation rate

When all of an economy's factors of production are fully employed the economy is operating at its __________.

Potential GDP

What is the formula to find the Real Value of Year Y?

Real Value= (Nominal Value of Year X) x (CPI of Year X/CPI of Year Y)

What is the formula for the Real interest rate?

Real interest rate= Nominal interest rate - inflation rate

At full employment, __________.

cyclical unemployment is zero

In measuring changes in the standard of living of a country, economists rely heavily on comparisons over time of real GDP per person because:

despite its well-known flaws, it is the best means we have of comparing the performance of an economy over time.

The production function begins to increase at a decreasing rate which illustrates __________.

diminishing returns

As the wage increases, the demand for labor curve:

does not shift, but the quantity demanded for labor decreases.

An increase in the nominal wage rate equals the increase in the real wage rate only if the inflation rate is ________

equal to zero

Many economists believe the CPI __________ inflation because it fails to consider quality improvements in products.

overstates

The output gap is the difference between __________.

potential GDP and actual GDP

At any given time around one-third of the working-age population is not considered to be in the labor force. Most of these individuals are __________.

retired or full-time students