Macroecon Unit 2

A headline states, "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?

cyclical

Increases in the value of a product to each user, including existing user, including existing users, as the total number users rises is called:

network effects

Real GDP is preferred to nominal GDP as a measure of economic performance because

nominal GDP uses current prices and thus may over or understate true changes in output

In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are

not counted

Supply shocks

occur when sellers face unexpected changes in the availability and/or prices of key inputs

National income accountants can avoid multiple counting by

only counting final goods

Suppose that real GDP increases by 5 percent while the population of a country increases by 7 percent. Then:

output per person necessarily decreases

Under what circumstances do rates of economic growth understate the growth of economic well-being?

product quality has improved

A consumer price index attempts to measure changes in:

the price of a select market basket of goods and services

An anti-growth view would be that there may be a significant trade-off between productivity and

the quality of life

Human capital refers to

the skills and knowledge that enable a worker to be productive

Labor productivity is defined as

total output/worker-hours

For comparing changes in potential military strength and political preeminence, the most meaningful measure of economic growth would be changes in

total real output

The GDP tends to:

understate economic welfare because it does not take into account increases in leisure

During periods of full employment:

unemployment rate for African-Americans is about twice the rate for whites

Real GDP measures the

value of final goods and services produced within the borders of a country, corrected for price changes

A price index is

a comparison of the current price of a market basket to a fixed point of reference

A college graduate using the summer following graduation to search for a job would best be classified as:

a part of frictional unemployment

The GDP gap measures the difference between

actual GDP and potential GDP

Shocks to the economy occur when

actual economic events do not match what people expected

Which is a demand factor in economic growth?

an increase in total spending in the economy

Economic growth can be portrayed as

an outward shift of the production possibilities curve

The system that measures the economy's overall performance is formally known as

national income accounting

If the annual inflation rate is 5 percent a year, about how many years will it take for the price to doulbe?

14 years

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is:

$320 billion

What is the correct way to calculate the unemployment rate?

(unemployed/labor force)*100

GDP in an economy is $4,600 billion. Consumer expenditures are $3,500 billion, government purchases are $900 billion, and gross private domestic investment is $400 billion. Net exports are:

-$200 billion

1. Improvements in technology. 2. Increases in the supply (stock) of capital goods 3. Purchases of expanding output 4. Obtaining the optimal combination of goods, each at least-cost production 5. increases in the quantity and quality of natural resources 6. increases in the quantity and quality of human resources. Use the accompanying list to answer the following question. As distinct from the supply factors and demand factor of economic growth, the efficiency factor(s) of economic growth is (are)

1 and 3 only

A nation's average annual real GDP growth rate is 2.5 percent. Based on the rule of 70, the approximate number of years that it would take for this nation's real GDP to double is

28 years

If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is

300

A nation has a population of 300 million people. Of these, 80 million are retired, in the military, in institutions, or under sixteen years old. There are 210 million who are employed and 10 million who are unemployed. What is the unemployment rate?

4.5 percent

If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation was approximately

5.9 percent

The unemployment rate in an economy is 6 percent. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is

9 million

In which of the following cases would real income rise? A. Nominal income rises by 8 percent, and the price level rises by 10 percent B. Nominal income rises by 2 percent, and the price level remains unchanged C. Nominal income falls by 4 percent, and the price level fall by 4 percent D. real income will rise in all of the above cases

B. Nominal income rises by 2 percent, and the price level remains unchanged

In which industry or sector of the economy is out put LEAST likely to be affected by the business cycle? A. automobile production B. agricultural commodities C. housing construction D. capital goods production

B. agricultural commodities

Which of the following statements is correct? A. Search unemployment is the broadest unemployment category because it covers all other types of unemployment B. structural unemployment is unemployment resulting from changes in the structure of consumer demand or technology C. Frictional unemployment is the result of friction between labor and management over how best to perform work D. Cyclical unemployment is also called wait unemployment because this unemployment depends on the timing of the business cycle

B. structural unemployment is unemployment resulting from changes in structure of consumer demand or technology

Which of the following measure the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers? A. the Retail Trade survey B. The Wholesale Price index C. The Consumer Price index D. The GDP price index

C. The consumer price index

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

Expansion

The accompanying list describes the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. 1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. 2. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. 3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills. 4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work Which individual is cyclically unemployed?

George

Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is:

Structural

During a severe recession, we would expect output to fall the most in

The construction industry

The industries or sectors of the economy in which business cycle fluctuations tend to affect output the most are:

capital goods and durable consumer goods

When oil and energy prices rise, the economy tends to experience

cots-push inflation

In calculating the unemployment rate, part-time workers are

counted as employed because they are receiving payment for work

Which of the following would most likely occur during the expansionary phase of the business cycle?

demand-pull inflation

As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by

dividing the annual rate of inflation into 70

Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as

employed

Okun's law indicates that for

every 1 percent that the actual unemployment rate exceeds the natural unemployment read, a 2 percent GDP gap is generated

The natural rate of unemployment is the

full-employment unemployment rate

The best example of a "frictionally unemployed" worker is one who

is in the process of voluntarily switching jobs

The unemployment rate is interpreted as the percentage of the

labor force that are not employed

Computation of GDP by expenditures method would include the purchase of

land by the U.S. Department of Interior

A recession is a decline in

real GDP that lasts six months or longer

Demand shocks

refer to unexpected changes int he desires of households nad businesses to buy goods and services

A worker who loses a job at a call center because the company moved the call center operations to another country is an example of

structural unemployment

The inflation rate measures the percentage growth rate of

the CPI from one year to the next

The following national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320); imports ($35); exports ($22); personal consumption expenditures ($2,460); and, government purchases ($470). What is GDP in this economy?

$3,237 billion

Which of the following countries would economists say DEFINITIVELY is achieving modern economic growth? A: Nigeria experiences a 2.7 percent increase in real GDP per person B: Ghana experiences a 3.6 percent increase in nominal GDP per person C: Zimbabwe experiences a 5.6 percent increase in nominal GDP D: South Africa experiences a 4.2 percent increase in real GDP

A: Nigeria experiences a 4.2 percent increase in real GDP

Which of the following is included in GDP? A: fees received by stockbrokers B: cash gifts from relatives during the holidays C: welfare payments received by some households D: payments received from selling stocks in one's protfolio

A: fees received by stockbrokers

Gross domestic private investment, as define in national income accounts, would include the following, EXCEPT A: government construction of new highways and dams B: the value of all capital goods bought by business firms C: changes to business inventories D: all domestic construction done by the private sector

A: government construction of new highways and dams

Which of the following institutional arrangements is most likely to promote growth? A: unrestricted trade between nations B: all of these C: patents and copyrights that expire quickly and are loosely enforced D: strong government control over resource allocation decisions

A: unrestricted trade between nations

Which of the following economic regions has experienced the LEAST growth in real GDP per capita since 1820?

Africa

Which of the following is an example of a demand shock? A: Hurricane Harry knocks out oil drilling platforms in the Gulf of Mexico B: Consumers become more worried about job loss and buy fewer goods and services than expected C: Floods in the Midwest destroy crops D: the federal government unexpectedly requires automobile producers to raise fuel efficiency standards

B: Consumers become worried about job loss and buy fewer goods and services than expected

Which of the following statements is most accurate about advanced economies? A: economies experience a positive growth trend over the short run but experience significant variability in the long run B: economies experience a positive growth trend over the long run but experience significant variability in the short run C: economies experience positive and stable growth over both the long run and short run D: economies experience long-run growth in output but can experience significant growth in the short run

B: Economies experience a positive growth trend over the long run but experience significant variable in the short run

Which of the following is included in GDP: A: cash gifts from relatives during the holidays B: fees received by stockbrokers C: payments received from selling stocks in one's portfolio D: welfare payments received by some households

B: fees received by stock brokers

Which of the following activities is excluded form GDP, causing GDP to understate a nation's production? A: the services of healthcare workers B: goods and services produced in the underground economy C: the services of military personnel D: the construction of new buildings

B: goods and services produced in the underground economy

Which of the following is not included in personal consumption expenditures? A: new furniture and appliances bought by homeowners B: purchases of mutual funds by consumers C: payments for cable and Internet services to homes D: food purchased at supermarkets

B: purchases of mutual funds by consumers

Which would be considered an investment according to economists? A: the purchase of newly-issued shares of stock in Microsoft B: the construction of a new computer chip factory by Intel C: the purchase of shares of stock by Fidelity, a mutual fund company D: the sale of government bonds by the nation's central bank

B: the construction of a new computer chip factory by Intel

All of the following are sources of increasing returns and economies of scale EXCEPT A: simultaneous consumption B: the multiplier effect C: network effects D: learning by doing

B: the multiplier effect

Which is best considered a supply factor for the long-run economic growth? A: government spending B: the stock of capital goods C: full employment of resources D: personal consumption expenditures

B: the stock of capital goods

Which of the following is an example of a supply shock? A: A surprise tax rebate from the government gives people more money to spend B: A surge in consumer optimism prompts increased buying of goods and services C: A dramatic increase in energy prices increase production costs for firms in the economy D: Government increases spending on education

C: A dramatic increase in energy prices increases production costs for firms in the economy

Which of the following is the best example of financial investment? A: Ford Motor Company builds a new manufacturing plant B: A student pursues an MBA degree C: A retiree purchases Google stock D: a young couple purchases a new home

C: a retiree purchase Google stock

Which of the following institutional structure is most likely to promote growth? A: a system of tariffs and other trade barriers to protect domestic companies B: all of these C: a well-enforced system of patents and copyrights D: a tightly regulated market system

C: a well-enforced system of patents and copyrights

Which of the following is NOT a supply factor in economic growth? A: the stock of capital B: the size and quality of the labor C: aggregate expenditures of households, businesses, and government D: technological advance

C: aggregate expenditures of households, businesses, and government

Which of the following activities is excluded from GDP, causing GDP to understate a nation's production? A: the services of health care workers B: the services of military personnel C: goods and services produced in the underground economy D: the construction of new buildings

C: goods and services produced in the underground economy

Which of the following activities is excluded from GDP, causing GDP to understate a nation;s well-being? A: The construction of new houses B: the services of used-car dealers C: the child-care services provided by stay-at-home parents D: government expenditures on military equipment

C: the child-care services provided by stay-at-home parents

Which of the following would an economist consider to be investment? A: a stockbroker buying 10,000 shares of Starbucks stock B: all of these C: Oprah buying a $10 million home from a fellow celebrity D: Boeing building a new factory

D: Boeing building a new factory

Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices? A: Firms are quick to let go of workers when negative demand shocks occur B: Firms are reluctant to adjust inventory levels because the costs are higher than changing the quantity of output produced C: Firms respond to shorter-term demand shocks by adjusting production levels; more persistent changes in demand result in changes in inventories D: Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels

D: Firms respond to shorter-term demand shocks by adjust inventories; more persistent changes in demand result in changes in production levels

Which of the following is an example of a supply shock? A: A surge in consumer optimism prompts increased buying of goods and services B: a surprise tax rebate from the government gives people more money to spend C: Government increases spending on education D: a dramatic increase in energy prices increases production costs for firms in the economy

D: a dramatic increase in energy prices increases production costs for firms in the economy

Which of the following is a final good or service? A: fertilizer purchased by a farm supplier B: diesel fuel bought for a delivery truck C: Chevrolet windows purchased by a General Motors assembly plant D: a haircut purchased by a father for his 12-year-old son

D: a haircut purchased by a father for his 12-year-old son

What is the difference between financial investment and economic investment?

Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods

The monetary value of all final goods and services produced by the United States economy during a year is:

GDP

Suppose the total monetary value of all final goods and services PRODUCED in a particular country in 2008 is $500 billion and the total monetary value of final goods and services SOLD is $450 billion. We can conclude that:

GDP in 2008 is $500 billion

Why are economists concerned about inflation?

Inflation lowers the standard of living for people whose income does not increase as fast as the price level

If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

Nominal GDP would rise, but real GDP would be unchanged

What effect will a negative supply shock have on the main measures of economic performance?

Real GDP will decrease, inflation will increase, and unemployment will increase

Net exports is a POSITIVE number when

a nation's exports of goods and services exceed its imports

Net exports are negative when

a nation's imports exceed its exports

If prices of goods and services were free to quickly adjust, then

a negative demand shock would have no short-run effect on unemployment

Higher oil prices are most likely to lead to:

a negative supply shock

Unemployment describes the condition where

a person cannot get a job but is willing to work and is actively seeking work

The entry of women into the workforce since the 1960s resulted in:

a shift outward in the production possibilities curve in the United States

For which of the following goods and services are prices LEAST sticky?

airline tickets

Critics of economic growth

argue that economic growth does not resolve socioeconomic problems such as an unequal distribution of income and wealth

Real GDP per capita:

can grow either more slowly or more rapidly than real GDP

Trends in educational attainment in the U.S> since 1960 indicate that the percentage of adults

completing college has been rising, and so has the percentage completing high school

The largest component of total expenditures in the United States is

consumption

GDP can be calculated by summing

consumption, investment, government purchases, and net exports

Real GDP measures:

current output at base year prices

Real GDP per capita is found by

dividing real GDP by population

What economic concept would be most closely associated with a situation where an aluminum plant expands its operations and uses extensive computerization in the production line to reduce per-unit costs of production?

economies of scale

Economic growth is best defined as an increase in

either real GDP or real GDP per capita

A competitive market system

encourages growth by allowing producers to make profitable investment decisions based on market signals

One major aspect of the socio-cultural-political environment of the United States which has generally been conducive to economic growth is the

favorable attitude toward work and risk-taking

Final goods and services refers to

goods and services purchased by ultimate users, rather than for resale or further processing

Real GDP and nominal GDP differ because the real GDP:

has been adjusted for changes in the price level

Gross domestic product (GDP) measures and reports output

in dollar amounts and percentage growth

Economists who believe that the recent increase in the average productivity growth rate may be permanent claim that the above-normal economic growth in the United States between 1995 and 2009 was created by:

increased entrepreneurial activity, application of information technology, and global competition

A nation's gross domestic product (GDP)

is the dollar value of all final output produced within the borders of the nation during a specific period of time

Growth is advantageous to a nation because it:

lessens the burden of scarcity

When gross investment is positive, net investment

may be either positive or negative

The rate of unemployment when the economy is at its potential output is called the:

natural rate of unemployment

If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that:

net investment is negative

Banks and other financial institutions

promoted economic growth by helping to direct household savings to businesses that want to invest

A nation's infrastructure refers to

public capital goods such as highways and sanitation systems

Before the period of modern economic growth:

rates of population growth virtually matched rates of output growth

The three statistics that are the main focus for those measuring maroeconomic health are

real GDP, inflation, and unemployment

When economists refer to "investment," they are describing a situation where

resources are devoted to increasing future output

If an economy wants to increase its current level of investment, it must:

sacrifice current consumption

The business cycle depicts

short-run fluctuations in output and employment

The business cycle depicts:

short-run fluctuations in output and employment

In economics, the word "shocks" refers to:

situations where firms; expectations are unmet

A decline in a nation's rate of productivity growth will:

slow the growth of the standard of living

Economic historians identify which invention as a major factor that started the Industrial Revolution in Britain?

steam engine

Macroeconomics is mostly focused on

the economy as a whole

If depreciation exceeds gross investment

the economy's stock of capital is shrinking

real per capita GDP

was much more equal across nations in 1820 than it is today

Shocks to the economy occur

when expectations are unmet

Real gross domestic product

will increase if there is an increase in the level of output