Macro Test 2

Population 500 # employed 300 # unemployed 50 What is the labor force of this economy?

The labor force is #employed + #unemployed which =350

At the peak of the business cycle, the economy is typically operating:

at its capacity

At one time, Pittsburgh, Pennsylvania, was known for its poor air quality. Locals said that a man wearing a white shirt when he walked into the city would have a black shirt when he left it. Since that time, the city has greatly reduced its air and water pollution. As a result of cleaner air and water:

the standard of living of the citizens of Pittsburgh increased, even though the improvement of the environment was not reflected in its GDP.

what is real GDP?

the total value of final goods and services produced in a country in a year using prices in a base year.

If nominal GDP in 2014 is $20 billion while real GDP is $16 billion, then the GDP deflator in 2014 is:

to find the GDP deflator: nominal/real GDP x 100= (20/16) x 100=125

The twin perils of the modern macroeconomy are said to be:

unemployment and inflation

Business Cycles

vary in duration and magnitude

Population 500 # employed 300 # unemployed 50 What is the unemployment rate of this economy?

#unemployed/(unemployed + employed) 50/(50+300)=0.1428 or 14.3%

If personal consumption is $100, investment is $25, government purchases total $25, exports equal $10, imports equal $20, then GDP equals:

$100+$25+$25+$10-$20=$140

Suppose Robert has a wage contract subject to an escalator clause. He earned $22 per hour last year; in that same year, the consumer price index rose from 120.0 to 126.0. What should his wage be?

(new-old)/old x 100=5 (126-120)/120 x 100=5 $22.00 x 1.05%=$23.10

What are three of the main uses of the national income and product accounts?

1. to gauge the economy's position in the business cycle. 2. to track the success of macroeconomic policy. 3. to compare U.S. economic performance with that of other countries.

If the growth rate in an economy is 3.5%, then its GDP will double in about:

70/3.5=20 years

Last year, the consumer price index (CPI) was 115 and this year's CPI is 125. The rate of inflation is:

8.7%; (new-old)/old x 100=8.69= 8.7%

What is GDP per capita?

A country's GDP divided by its population. GDP per capita provides a useful measure of a country's relative standard of living.

If output equals A x (5k + 2L), what is output if A equals 2,000, capital equals 10, and labor equals 100?

A x (5k + 2L) 2,000 X (5(10) + 2(100))= 2,000(250)=500000

The mortgage crisis caused a lot of consumers to stop spending money. The decrease in spending led to a decrease in production. Which type of employment resulted?

Cyclical unemployment which results from changes in the business cycle, and where public policymakers can have their greatest impact by keeping the economy on a steady, low-inflationary, solid growth path.

What is real GDP in 2014 if nominal GDP in 2014 is $15 billion, the GDP deflator in 2014 is 110, and the GDP deflator in 2010 was 100?

Real GDP=Nominal GDP x (base/current) it is opposite of CPI calculation!! Real GDP=15 billion x (100/110)=13.636 answer: 13,636 billion

Suppose the Bureau of Labor Statistics collects data presented in the following table: Year Cost of Basket 2010 $200 2011 $230 2012 $250 If 2010 is the base year, then the consumer price index for 2012 is:

To calculate CPI: new/base x 100 $250/$200 x 100=125

Scott, who has a Ph.D. in physics, waits on tables for a living. Scott is characterized as: a. underemployed b. unemployed c. discouraged d. not part of the labor force

a

Inflation is:

a general rise in PRICES throughout the economy

Which of the following activities is an example of a non-market transaction? a. growing your own food in a vegetable garden b. hiring a maid to clean your home c. employing a lawn service to trim your bushes d. hiring a nanny to take care of your kids

a.

Tom is living with his parents. He looks at the help wanted ads but has not replied to any in the past four weeks. Tom is: a. not in the labor force b. temporarily in the labor force c. near employed d. unemployed

a. (Not in the labor force, because he isn't "actively" looking for work)

Which of the following is NOT a problem in using GDP to measure standard of living? a. failure to include exports and imports b. failure to include environmental impacts c. failure to include the value of investments in human capital d. failure to include the the value of non-market work

a. (because: it's asking about STANDARD OF LIVING)

Which group is helped by inflation? a. creditors b. restaurant owners who must reprint menus c. senior citizens on a fixed income d. debtors

a. (creditors, because the others are harmed by inflation)

Which of the following is NOT a concern regarding GDP as a measure of economic activity? a. the value of non-market work b. the value of investments in human capital c. the value of non-market natural resources d. the value of investments in the stock and bond markets

a. (the value of non-market work)

During a typical economic recovery: a. incomes fall b. unemployment drops c. inflation drops d. the become pessimistic

b

Improvements in production capacity will: a. move the economy along the PPF b. shift the PPF outward c. move the economy up to the PPF d. rotate the production possibility frontier (PPF) clockwise

b. (The PPF shifts outward because, long run growth occurs when resources are used more efficiently, thus expanding an economy's capacity to produce)

Which of the following statements is INCORRECT? a. The natural rate of unemployment is when cyclical unemployment is zero b. The natural rate of unemployment is the level at which inflationary pressures in the economy are at their maximum. c. The natural rate of unemployment is generally considered the equivalent of full employment. d. The natural rate of employment consists of only frictional or structural unemployment.

b. (the natural rate of unemployment (also known as FULL EMPLOYMENT)is the unemployment level at which inflationary pressures are at their MINIMUM!!)

If a country's population increases at a slower rate than the growth in its real GDP: a. the country's inflation has decreased b. average output per person has decreased c. GDP per capita has increased d. the standard of living in the country has declined

c. (GDP per capita has increased because it measures a country's relative standard of living by dividing GDP/population. It is relative, because it does not take into account the typical citizen given the differences in wealth between the rich and poor)

A legal system that enforces property rights is important to economic growth because: a. strong laws demonstrate commitment by legislators to economic growth b. bankruptcy laws encourage lending c. the legal system can help the government with tax collection d. legal protection of ideas and technologies gives people who innovate the ability to protect their work

d.

Zach has been laid off from his job as an aircraft worker and is afraid that he will not be recalled. He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Studies, Zach is: a. a discouraged worker b. employed c. not in the labor force d. unemployed

d. (He is considered unemployed, because he has been "actively looking for a job.")

Government funding of Los Alamos National Labs is an example of government acting in its role to promote economic growth by: a. promoting free and competitive markets b. ensuring a stable and secure financial system c. ensuring a stable legal system d. enhancing physical and human capital

d. (enhancing physical and human capital. It would help to know that Los Alamos National Labs is one of the largest government research labs in the country! Their purpose is to advance knowledge and invent products that enhance the lives of all citizens and to promote economic growth.)

Physical capital includes: a. land and raw resources that come from land b. the physical talents of people c. the ability to take physical resources and use them in creative ways to produce goods and services. d. manufactured products that used to produce other goods and services.

d. (manufactured products-physical equipment used to make goods and services. An oven, a blender, factory machines...)

Infrastructure is defined as a country's: a. financial capital b. private stock of capital c. investment in human capital d. public capital

d. Infrastructure-roads, bridges, power supplies-is public capital

Which is NOT a factor in the production function? a. technology b. capital c. labor d. money

d. money

Wages set high to discourage employee turnover are called _______________wages.

efficiency

In a simple circular flow diagram, total spending on goods and services in the product market:

equals the total income earned in the resource market

The U.S. gross domestic product is equal to the total market of all:

final goods and services produced by resources in the United States.

Economic growth is most commonly measured by:

real GDP (which is the total final goods and services produced in a country in a year measured using prices in a base year).

Which phase of the business cycle occurs immediately before a trough

recession

A benefit of using GDP per capita instead of GDP is that it:

takes into account the size of the population when measuring the value of the goods and services a country produces.

_____________is a measure of the change in average prices paid by urban consumers for a typical market basket of goods and services

the consumer price index

If in the past you have always painted your own home but now you hire a painting contractor to do the work, what is the effect on GDP?

GDP rises as a result of this change

What is real GDP per capita?

It is the GDP divided by population and provides a rough estimate of a country's standard of living.

The expenditure category that accounts for the largest share of GDP is:

Personal consumption expenditures

As a rule, the more capital employed with workers, the____________more their productivity and the ______________ their earnings. a. higher; higher b higher; lower c. lower; higher d. lower; lower

a. (a higher capital-to-labor ratio means higher productivity and, as a result, higher wages. Productivity and wages increase if a farmer switches from a plow pulled by an ox to high-tech piece of machinery)

Which of the following is FALSE? a. economic growth leads to longer life expectancies b. economic growth leads to increased consumption of goods and services c. economic growth always leads to a more equitable distribution of income d. Economic growth leads to lower poverty rates

c. (It is false that economic growth would always lead to a more equitable distribution of income. key word: always!!)

All of the following are considered sources of long-run growth EXCEPT: a. improvements in technology b. increases in productivity c. increases in demand d. increases in capital

c. (an increase in demand is temporary and has nothing to do with long run growth.)

___________unemployment includes workers who voluntarily quit their jobs to search for better positions: a. seasonal b. cyclical c. frictional d. structural

c. (frictional employment is unemployment for any economy that includes workers who voluntarily quit their jobs to search for better positions, or are moving to new jobs but may still take several days or weeks before they can report to their new employers)

Which is NOT a source of productivity growth? a. making investments in technological improvements b. raising the capital to labor ratio c. increasing the quality of labor d. moving resources from production to pension benefits

d. (because pension benefits do not produce growth)

GDP EXPENDITURES FOR 2010 Expenditure billions Personal consumption $10,353.5 Gross private domestic investment 1,769.1 Exports 1746.1 Imports 2251.5 Government purchases 2975.1 Capital consumption allowance 1030.2 According to the table, what was the GDP for 2010?

$14592.3 billion(C+G+I+X-M=$14,592.3; 10,353.5+2975.1+1769.1+1746.1-2251.5=14,592.3)

A sheep ranch produces $30 worth of wool. A suit manufacturer produces $60 worth of suits. A retail outlet sells a suit for $180. The change in GDP would be:

$180 (because GDP only counts final product)