Macro Exam 2
Consider the following data for a CLOSED economy: Y = $12 trillion C = $8 trillion I = $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion What is the level of private saving in the economy?
$3 trillion
Current population survey
(or household survey) collects data needed to compute the unemployment rate
examples of a transfer payment (2)
1. Social security payments 2. unemployment insurance
If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?
3.5%
If real GDP per capita measured in 2009 dollars was $6000 in 1950 and $48000 in 2018, we would say that in 2018, the average American could buy ______ times as many goods and services as the average American in 1950.
8
frictional unemployment
short-term unemployment that arises from the process of matching workers with jobs
Government consumption and gross investment or "Government purchases"
spending by federal, state, and local governments on goods and services
business fixed investment
spending by firms on new factories, office buildings, and machinery used to produce other goods
investment
spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by households and firms on new houses
Residential investment
spending by households and firms on new single-family and multi-unit houses
consumption
spending by households on goods and services, not including spending on new houses
Nominal GDP is calculated by
summing the current values of final goods and services
depreciation is called
the consumption of fixed capital
the long-run aggregate supply curve will shift to the right if
the economy experiences technological change
if cyclical unemployment is eliminated in the economy, then
the economy is considered to be at full employment
According to Joseph Schumpeter, which of the factors of production is central to economic growth?
the entrepreneur
Value added
the market value a firm adds to a product
Gross domestic product (GDP)
the market value of all final goods and services produced in a country during a period of time, typically one year
real interest rate
the nominal interest rate minus the inflation rate
natural rate of unemployment
the normal rate of unemployment, consisting of frictional unemployment and structural unemployment
inflation rate
the percentage increase in the price level from one year to the next
unemployment rate
the percentage of the labor force that is unemployed
labor force participation rate
the percentage of the working-age population in the labor force
employment-population ratio
the percentage of the working-age population that is employed
When an economy faces diminishing returns
the slope of the per-worker production function becomes flatter as capital per hour worked increases
nominal interest rate
the stated interest rate on a loan
labor force
the sum of employed and unemployed workers in the economy
What is outlet bias?
the tendency for households to spend their money at discount stores as prices rise
Real GDP
the value of final goods and services evaluated at base-year prices
Nominal GDP
the value of final goods and services evaluated at current-year prices
Gross National Product (GNP)
the value of final goods and services produced by residents of the US, even if the production takes place outside of the US
An alternative way of calculating GDP is
the value-added method
Which of the following is NOT an assumption made by the dynamic model of aggregate demand and aggregate supply? A. The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages B. The aggregate demand curve shifts to the right during most periods C. Aggregate demand and potential real GDP decrease continuously D. Potential real GDP increases continuously
C; Aggregate demand and potential real GDP decrease continuously
Which of the following price indices comes closest to measuring the cost of living of the typical household? A. producer price index B. GDP deflator C. consumer price index D. household price index
C; consumer price index
exports are
goods and services produced in the US and purchased by foreign firms, households, and governments
The output of U.S citizens who work in Canada would be included in the
gross domestic product of Canada
Gross domestic product understates the total production of final goods and services because of the omission of
household production
Suppose in 2018, you purchase a house built in 2003. Which of the following would be included in the gross domestic product for 2018? A. the value of the house in 2003 B. the value of the services of the real estate agent C. the value of the house in 2018 D. the value of the house in 2018 minus depreciation
B; the value of the services of the real estate agent
Gross Private Domestic Investment or "investment" is divided into 3 categories:
Business fixed investment, residential investment, and changes in business inventories
A simple equation sums up the components of GDP:
Y = C + I +G + NX GDP = consumption + investment + government purchases + net exports
employed
in government statistics, someone who currently has a job or who is temporarily away from his or her job
unemployed
in government statistics, someone who is not currently at work but who is available for work and who has actively looked for work during the previous month
personal income
income received by households
a decrease in the real interest rate will
increase in consumption and investment
the "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off
investment and consumption spending
Because of the slope of the aggregate demand curve, we can say that
a decrease in the price level leads to a higher level of real GDP than demanded
Final good or service
a good or service purchased by a final user
Intermediate good or service
a good or service that is an input into another good or service, such as a tire on a truck
Consumer Price Index (CPI)
a measure of the average of the prices a typical urban family of four pays for the goods and services they purchase
price level
a measure of the average prices of goods and services in the economy.
GDP deflator
a measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100
efficiency wage
an above-market wage that a firm pays to increase workers' productivity
if full-employment GDP is equal to $4.2 trillion, what does the long-run aggregate supply curve look like?
it is a vertical line at $4.2 trillion of GDP
GDP includes only the ...
market value of final goods
GDP is measured using ...
market values, not quantities
examples of consumption expenditures on durable goods:
automobiles and furniture
financial system is made up of
banks and stock and bond markets
the real interest rate provides a ...
better measure of the true cost of borrowing and the true return from lending than does the nominal interest rate
Examples of consumption expenditures on services:
medical care, education, and hair cuts
underground economy
buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal
a decrease in the price level will
move the economy down along a stationary short-run aggregate supply curve
The demand for loanable funds has a ________ slope because the lower the interest rate, the ______ number of investment projects are profitable, and the ______ the quantity of loanable funds demanded.
negative; greater; greater
real interest rate =
nominal interest rate - inflation rate
The value of worn-out machinery, equipment, and buildings is called
depreciation
Real GDP is calculated by
designating a particular year as the base year and then using the prices of goods and services in the base year to calculate the value of goods and services in all other years
The Bureau of Labor Statistics would categorize a person as _____ if they were temporarily away from their job because they were ill
employed
disposable personal income
equal to personal income minus personal tax payments, such as the federal personal income tax
Real GDP will increase
only if the quantity of final goods and services produced rises
Consumption expenditures are made by households are divided into 3 categories:
expenditures on services, expenditures on nondurable goods, and expenditures on durable goods
Net exports of goods and services, or "Net exports"
exports minus imports
examples of consumption expenditures on nondurable goods:
food and clothing
The advice to "keep searching, there are plenty of jobs around here for which you are qualified," would be most appropriate for which of the following types of unemployment?
frictional unemployment
seasonal unemployment refers to
frictional unemployment due to factors such as weather or variations in tourism and other calendar-related events
3 types of unemployment
frictional, structural, and cyclical unemployment
when the only remaining unemployment is structural and frictional unemployment, the economy is said to be at
full employment
transfer payments
payments by the government to households for which the government does not receive a new good or service in return
discouraged workers
people who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them
GDP includes only current ...
production; takes place during the indicated time period
potential GDP refers to the level of
real GDP in the long run
recession
A slowdown in a nation's economy
which of the following statements is TRUE? A. GDP accounting rules do not adjust for production that pollutes the economy B. Household production is counted in GDP as it amounts to real production C. A decrease in the crime rate increases GDP as people will spend more on security D. GDP growth distributes income equally to people in the economy
A; GDP accounting rules do not adjust for production that pollutes the economy
Purchases of which of the following goods would be dramatically reduced during a recession? A. refrigerators B. ink pens C. tomatoes D. gasoline
A; refrigerators
Which of the following transactions represents the purchase of a final good? A. your father buys a new John Deere riding lawn mower B. Delta buys a new European-made jetliner C. Apple computer buys computer processors from Intel D. Starbucks purchases coffee beans
A; your father buys a new John Deere riding lawn mower
Under which of the following circumstances would private saving be positive in a closed economy? A. Y = $6 trillion C = $2 trillion TR = $8 million G = $3 trillion public saving = $1 trillion B. Y = $8 trillion C = $2 trillion TR = $4 trillion G = $2 trillion public saving = $4 trillion C. Y = $9 trillion C = $5 trillion TR = $1 trillion G = $1 trillion public saving = $3 trillion D. Y = $10 trillion C = $5 trillion TR = $2 trillion G = $2 trillion public saving = $1 trillion
D
Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does NOT rise? A. AD shifted to the right by more than SRAS B. AD shifted to the right by less than SRAS C. SRAS shifted to the right by more than LRAS D. SRAS and AD do not shift
D; SRAS and AD do not shift
If property rights are NOT enforced in a country, then
Entrepreneurs are unlikely to risk their own funds investing in such an economy
transfer payments are not included in
GDP because they are not received in exchange for production of a new good or service
the invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age. What did this technological change do to the short-run supply curve?
It shifted the short-run aggregate supply curve to the right
Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?
Short-tun aggregate supply will shift to the right
Consider two countries, Alpha and Beta. In Alpha, real GDP per capita is $6000. In Beta, real GDP per capita is $9000. Based on the economic growth model, what would you predict about the growth rates in real GDP per capita across these two countries?
The growth rate of real GDP per capita will be higher in Alpha than it is in Beta
changes in business inventories (investment)
changes in the stocks of goods that have been produced but not yet sold
Real GDP holds prices ...
constant, which makes it a better measure than nominal GDP of changes in the production of goods and services from one year to the next.
4 major components of GDP:
consumption, investment, government purchases, and net exports
interest rate is the
cost of borrowing funds, expressed as a percentage of the amount borrowed.
if the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would
decrease
factors of production
labor, capital, natural resources, and entrepreneurial ability - to produce goods and services
the sum of wages, interest, rent, and profit is
total income in the economy
cyclical unemployment
unemployment caused by a business cycle recession
structural unemployment
unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs
Real GDP is GDP in a given year
valued in the prices of the base year