Macro Exam 2

If in some year real GDP was $5 trillion and the GDP deflator was 200, what was nominal GDP?

$10 trillion

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute

$250 to GDP

In the economy of Talikastan in 2015, consumption was $3000, exports were $1200, GDP was $8000, government purchases were $1200, and imports were $600. What was Talikastan's investment in 2015?

$3200

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has

$50 more in his account, and his purchasing power has increased by $33.

CPI

(consumer price index) a measure of the overall cost of the goods and services bought by a typical consumer

How is CPI calculated

(cost of basket in current year/cost of basket in base year) x 100

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is

2.5 percent.

Social Security payments are

excluded from GDP because they do not reflect the economy's production.

Suppose that florists and landscape workers are not unionized. If florists unionize, then the wages of

florists will rise, and the wages of landscape workers will fall

People who are unemployed because they are in search of a job that suits their skills are included within

frictional unemployment

If the price of Italian shoes imported into the United States increases, then

the consumer price index will increase, but the GDP deflator will not increase.

Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was 4 percent. It follows that

the dollar value of savings increased at 10 percent, and the purchasing power of savings increased at 6 percent.

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. It follows that

the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent.

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent.

Opprotunity Cost

the most desirable alternative given up as the result of a decision

natural rate of unemployment

the normal rate of unemployment around which the unemployment rate fluctuates

Labor Force

the total number of workers, including both the employed and the unemployed

GDP does not reflect

the value of goods and services produced at home, the value of leisure, the quality of the environment.

The labor-force participation rate measures the percentage of the

total adult population that is in the labor force.

Unemployment rate

unemployed/labor force x 100

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

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be

2013

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is

4 percent

Suppose a gardener produces both tomatoes and squash in his garden. If the opportunity cost of one bushel of squash is 2/5 bushel of tomatoes, then the opportunity cost of 1 bushel of tomatoes is

5/2 bushels of squash

Gross investment

All construction, including housing, All capital goods, Change in inventories

inflation rate using CPI

CPI Year 2 - CPI Year 1/ CPI Year 1 x 100

what are the criticisms of unemployment rate

Discouraged workers: some people are no longer looking for a job because they have given up Underemployed workers: Someone who wants more hours but can't get them is still considered employed

Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP?

Ellen's but not Sam's.

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate.

What is the expenditure approach?

GDP = C + Ig + G +Xn

Which of the following is TRUE regarding GDP per person as a measure of standard of living?

GDP per capita is closely associated with other measures of standard of living.

Which of the following would lead to an increase in GDP for the United States in 2012? I. Toyota (a Japanese company) produces cars in the United States in May 2012. II. A 2012 model year Ford Fiesta is produced in Detroit, MI, but sits on the dealer lot until 2013. III. $10,000 worth of Canadian-grown wheat is imported by the United States in October 2012. IV. An ASU student purchases a burrito from a local vender in June 2012.

I, II, and IV

Government Purchases

Includes state and local government spending. Excludes Public Transfer Payments

Suppose that bartenders and waiters have no unions. Now suppose that bartenders form a union. What does this do the labor supply and wages of waiters?

Labor supply increases, and wages decrease.

GDP Deflator equation

Nominal GDP/Real GDP x 100

Jamarcus works part-time as a pizza delivery person in a college town. The Bureau of Labor Statistics counts Jamarcus as

employed and in the labor force.

The local car dealership has an increase in inventory of 100 newly produced cars in 2015. In 2016, it sells all 100 cars. Which of the following statements is correct?

The value of the cars in inventory will be counted as part of 2015 GDP, and the value of the cars sold in 2016 will not increase 2016 GDP.

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs.. Given this, we know that

Traci has an absolute advantage in chairs.

What are not included in GDP?

Transfer Payments, Intermediate Goods (Multiple Counting), Used Goods, Non-market activities

When an American household purchases a bottle of Italian wine for $100,

U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change.

Net Exports

Xn = Exports - Imports

A U.S. publisher purchases new computers that were manufactured in the U.S. This purchase by itself makes

a positive contribution both to investment and to GDP.

efficiency wages

above-equilibrium wages paid by firms to increase worker productivity

"Real" terms

account for changes in price level (inflation)

Amount in Today's dollars =?

amount in year T dollars x (price level today/price level in year T)

The natural unemployment rate includes

both frictional and structural unemployment.

For the purpose of calculating GDP, investment is spending on

capital equipment, inventories, and structures, including household purchases of new housing.

The nominal interest rate tells you

how fast the number of dollars in your bank account rises over time

What does GDP measure?

income and expenditures

An increase in the minimum wage

increases structural unemployment.

The theory of efficiency wages explains why

it may be in the best interest of firms to offer wages that are above the equilibrium level.

labor force participation rate

labor force/adult population x 100

minimum wage effects

more people are unemployed because the people who have the jobs already get the benefit. Its harder to get in the workforce

The amount of unemployment that an economy normally experiences is called the

natural rate of unemployment

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.

Real interest rate =?

nominal interest rate - inflation rate

Which of the following transactions is not included in GDP?

oranges sold by a farmer to a grocery store.

The Bureau of Labor Statistics counts discouraged workers as

out of the labor force. If the were counted as unemployed the unemployment rate would be higher.

Employed

people are currently holding a job in the economy, either full time or part time

Unemployed

people not working who have looked for work during previous 4 weeks

A firm may pay efficiency wages in an attempt to

reduce turnover, reduce incentives to shirk, attract a well-qualified pool of applicants.

Cyclical unemployment refers to

short-run fluctuations around the natural rate of unemployment

An increase in the price of Irish whiskey imported into the United States will be reflected in

the U.S. CPI, but not the U.S. GDP deflator.

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

the ability to produce a good using fewer inputs than another producer