MACROECONOMICS FINAL- HOMEWORK 1-6
The financial system of a country is important for long-run economic growth because
firms need the financial system to acquire funds from households
Some countries have larger underground economies than do other countries, because
of government policies that are retarding economic growth
The difference between the nominal interest rate and the real interest rate is
the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate.
The two key factors that cause labor productivity to increase over time are
the quantity of capital per hour worked and the level of technology
Consider the following data for a closed economy Y= $15 Trillion C= $7 Trillion I= $3 Trillion TR= $1 Trillion T= $3 Trillion Private Saving: Public Saving: Government purchases: The government budget balance is --- trillion and as a result the government budget is in ---
$6 trillion -$3 trillion $5 trillion -$3 Trillion Deficit
Y= $13 Trillion C= $8 Trillion G= $2 Trillion S(public)= -$1.0 Trillion T= $4 trillion Private Saving: Investment spending: Transfer Payments: The government budget balance is --- and as a result the government budget is in ---
$4 trillion $3 trillion $3 trillion -$1 Trillion Deficit
Complete the Following Table: The CPI in 2014 equals The CPI in 2016 equals
145.45 140.91
The following table illustrates the value added approach to calculating GDP. Please complete the table. Firm : Cotton Farmer, Textile Mill, Shirt Company, L.L.Bean Value of product: Raw Cotton= $3, Cotton woven into cotton fabric = $5, Fabric made into a shirt = $17, shirt sold on L.L. Bean's website= $37 Value Added by: The cotton farmer, the textile mill, the shirt company, L.L. Bean Value Added Equals: 3, 2, 12, -- Total Value Added: ---
20, 37
Suppose the consumer price index (CPI) of a country follows the path shown in the figure to the right. During which period did the country experience zero inflation? During which period did the country experience an increasing rate of inflation? During which period did the country experience a slow down in inflation, although the inflation rate remained positive? (This situation is called "disinflation.")
2000-2005 1990-1995 1995-2000
If real GDP per capita grows at a rate of 3.13.1 percent per year, it will take -- years to double
22.6
Real GDP per capita in the United States grew from about $6,000 in 1900 to about $47,772 in 2010, which represents an annual growth rate of 1.90 percent. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis If the United States continues to grow at this rate, it will take --- years for real GDP per capita to double If government economic policies meant to stimulate economic growth result in the annual growth rate increasing to 2.75, it will take --- years for real GDP per capita to double
36.84 25.45
Potential GDP
B. increases over time as the labor force grows. C. increases over time as technological change occurs
The figure above shows the values of the components of GDP for the year 20142014. Based on the data shown, which of the following statements regarding the components of GDP are false? (Graph)
Consumer spending on services is less than the sum of spending on durable and nondurable goods.
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
How does real GDP deal with the problem inflation causes with nominal GDP? A. By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced. B. Real GDP separates price changes from quantity changes C. Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years D. All of the above
D. All of the above
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being? A. The value of leisure is not included in GDP. B. GDP is not adjusted for crime or other social problems. C. GDP is not adjusted for pollution and it does not account for unequal income distribution. D. All of the above.
D. All of the above.
Indicate whether you agree or disagree with the following statements. "If nominal GDP is less than real GDP, then the price level must have fallen during the year."
Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP
"Whenever real GDP declines, nominal GDP must also decline."
Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.
Potential real GDP
Grows over time
Which of the following does NOT lead to long-run economic growth
Increase in average wages
With the shift in the demand for loanable funds, the equilibrium real interest rate ----- and the equilibrium quantity of loanable funds -----
Increases Increases
If the U.S. Bureau of Economic Analysis (BEA) added up the values of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP)?
Larger: The value of all goods and services sold would include intermediate goods.
The agency that identifies a recession is the
NBERlong dash—National Bureau of Economic Research.
Which of the following describes the effect of the business cycle on the inflation rate and the unemployment rate?
The unemployment rate increases and the inflation rate falls during recessions
The three economic questions that every society must answer are
What goods will be produced, how will they be produced, and who will receive the goods?
Why does inflation make nominal GDP, a poor measure of the increase in total production from one year to the next?
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
Calculate the missing values in the table below by using the provided data collected in the household survey for May 2017. (Enter your responses as whole numbers.) Category: Working- age population** ---- Employed** 152,923 Unemployed** ------ Unemployment rate 4.3% Labor force -------- Labor force participation rate 62.7%
Working age population 254,855 Unemployed** 6871 Labor Force ** 159,794
The high point of economic activity is called
a peak
The period between the high point of economic activity and the following low point is called
a recession
The low point of economic activity is called
a trough
The period between the low point of economic activity and the following high point is called
an expansion
The fact that the equilibrium quantity of loanable funds may increase along with an increase in the real rate of interest
assumes that demand for loanable funds increases with supply remaining unchanged
Scarcity is central to the study of economics because it implies that
every choice involves an opportunity cost.
Centrally planned economies allocate resources based on decisions by -------- while market economies answer these questions through decisions made by --------
government, households and firm
Crowding out occurs when
governments must borrow funds which causes interest rates to rise and thus private investment is reduced.
What is the rule of 70?
is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double
Potential real GDP is
the level of GDP attained when all firms are producing at capacity
As the CPI (consumer price index) increases,
the level of prices in the economy increases.
f a 3-month Treasury bill pays 5.5% and the change in the consumer price index (CPI) is 4.7%, what is the real interest rate (the true return to lending)?
0.8%
Consider the simple economy that produces only three products. Use the information in the following table to calculate the (annual rate of) inflation for 2018 as measured by the consumer price index (CPI). The inflation rate for 2018 as measured by the consumer price index (CPI) is
14.97%
If real GDP equals $11,567 billion in 2006 and $11,916 billion in 2007, and assuming population is constant over those two years, how many years will it take for real GDP per capita to double?
23.2 years
Real GDP per capital in the country of Arcadia grew from about $4641 in 1900 to about $42,063 in 2008, which represents an annual growth rate of 2.06 percent If Arcadia continues to grow at this rate, calculate the number of years when its real GDP per capita will double -- years
33.98 years
What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010?
Both real and nominal average hourly earnings increased
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy.
Y = $12 trillion C = $8 trillion G = $2 trillion Spublic = -$0.50 trillion T = $22 trillion Now suppose that government purchases increase from $2 trillion to $2.50 trillion but the values of Y and C are unchanged. What must happen to the values of S and I?
S and I drop by $0.500.50 trillion
The total value of saving in the economy must equal the total value of investment. Assume a closed economy, where: Which one of the following expressions shows the investment-saving equality?
S= Y-C-G
Which of the following best describes scarcity?
Scarcity is central to the study of economics because it implies tha
When the economy is at full employment, unemployment is equal to
the natural rate of unemployment.
If the economy is experiencing deflation,
the nominal interest rate will be lower than the real interest rate.
The type of unemployment most likely to result in hardship for the people who are unemployed is
structural because this type of unemployment requires retraining to acquire new job skills.
The natural rate of unemployment is
the sum of structural unemployment and frictional unemployment
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals
In an economy with rising prices, compared to the base year,
nominal GDP is larger than real GDP in years after the base year
Suppose that a simple economy produces only the following four goods and services: shoes, hamburgers, shirts, and cotton. Further, assume that allall of the cotton is used in the production of shirts. Use the information in the following table to calculate Nominal Gross Domestic Product (Nominal GDP) for 2019. PRODUCTION AND PRICE STATISTICS FOR 2019 Product: Shoes, Hamburgers, Shirts, Cotton Quantity: 150, 125, 75, 6,000 Price: $70.00, 3.00, 30.00, 0.80 The Nominal GDP for the year 2019 is
$13,125
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
70,288
"If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline."
Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall
"If real GDP stayed the same while nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined."
Agree. If nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined.
According to the FBI Bank Crime Statistics, there were nearly 4,000 bank robberies in the United States in 2014. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic partitions, called bandit barriers, that separate bank tellers from the public. According to a special agent with the FBI, "Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a bandit barrier, they go find another bank." Sources: U.S. Department of Justice, Federal Bureau of Investigation, "Bank Crime Statistics (BCS) Federally Insured Financial Institutions, January 1, 2014-December 31, 2014," www.fbi.gov; and Richard Cowen, "FBI: Banks Are to Blame for Rise in Robberies," NorthJersey.com, March 10, 2009. Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so?
Banks have no economic incentive to install the barriers.
Use the data in the following table to calculate the GDP deflator for each year (values are in billions of dollars, enter your response rounded to two decimal places -- remember to multiply by 100). Year: 2012 2013 2014 2015 2016 Nominal GDP $16,155 16,692 17,428 18,121 18,625 Real GDP $15,355 15,612 16,013 16,472 16,716 GDP Deflator -- -- -- -- -- Which span of years saw the largest percentage increase in the price level, as measured by change in the GDP deflator?
GDP Deflator: 105.21 106.92 108.84 110.01 111.42 2013 to 2014
In a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows Y =$11 trillion C =$8 trillion I =$2 trillion TR =$1 trillion T =$2 trillion Using the information above, what is the value of private saving and public saving?
Private saving equals $2 trillion and public saving equals $0 trillion.
Use the graph to help determine which one of the following statements is true
The average American in the year 2006 could buy nearly eight times as many goods and services as the average American in the year 1900
In August 2013, the working-age population of the United States was 245.9 million. The working-age population is divided into those in the labor force (155.5 million) and those not in the labor force (90.4 million). The labor force is divided into the employed (144.2 million) and the unemployed (11.3 million). Those not in the labor force are divided into those not available for work (84.1 million) and those available for work (6.3 million). Finally, those available for work but not in the labor force are divided into discouraged workers (0.9 million) and those currently not working for other reasons (5.4 million) Use this data to help determine which one of the following statements is true:
The unemployment rate is (11.3 million/155.5 million) x 100= 7.3% and The labor force participation rate is (155.5 million/245.9 million) x 100 = 63.2%
Why might the unemployment rate continue to rise during the early stages of a recovery?
a. Employment growth may be slow relative to the growth in the labor force and Some firms continue to operate well below their capacity even after a recession has ended.
Which equation represents the relationship between GDP and the four major expenditure components?
Y=C+I+G+NX
An insurance company is
a financial intermediary because they take premiums and use them to purchase financial securities
Suppose the information in the following table is for a simple economy that produces only the following four goods: shoes, hamburgers, shirts, and cotton. Further, assume that all of the cotton is used to produce shirts. a. If the base year is the year 2009, then real GDP for 2018 equals? and the real GDP for 2019 equals ? b. The (annual) growth rate of real GDP in 2019 is ?
a. 7125, 7685 b. 10.39%
The ease with which a financial security can be exchanged for money is referred to as
liquidity
Match each of the following scenarios with the appropriate graph of the market for loanable funds Graph 1- only a D1 line sloping downwards Graph 2- S1 shifting leftwards to S2 Graph 3- D1 line shifting rightwards to D2 Graph 4- only a S1 line sloping upwards a. an increase in the real interest rate results in little increase in private saving by households ? b. a decrease in the real interest rate results in a substantial increase in spending on investment projects by businesses? c. the federal government eliminates 401 (k) retirement accounts ? d. the federal government reduces the tax on corporate profits (assume no change in the federal budget deficit or surplus)?
a. graph 4 b. graph 1 c. graph 2 d. graph 3
An underground economy involves all of the following except
buying and selling of goods and services by obtaining a permit from the government
Firms care about their after-tax rate of return on investment projects. The graph on the right represents the market for loanable funds.The initial demand and supply curves are Upper D 1 and Upper S1, respectively. When business taxes increase, the equilibrium interest rate --- and the equilibrium quantity of loanable funds ---- What will be the effect of an increase in business taxes on the quantity of investment by firms and the economy's capital stock in the future?
decreases decreases The quantity of investment will decrease and the economy's future capital stock will decrease
The three types of unemployment are
frictional, structural, and cyclical unemploment.
How much does the quantity of loanable funds supplied increase with the increase in the interest rate from i1 to i2?
from L1 to L2
How much would the quantity of loanable funds demanded have increased if the interest rate had remained at i1?
from L1 to L3
Even though individuals earn interest on financial investments such as bonds, mutual funds, and certificates of deposits, they may still hold wealth in checking accounts because
individuals need money that is available to be spent on goods and services
