Macroeconomics HW 3 // Quiz 2

Equation: GDP price Index (in hundredths)

= N. GDP/R. GDP

Equation: R. GDP

R. GDP = Labor productivity x Labor hours

Equation: R. GDP

R. GDP = Pbase x Qyears

1. Anderson sells $100 worth of wool to Bill. Bill makes cloth out of the cotton and sells to Cathy for $300. Cathy makes Halloween costumes and sells to Daniel for $700. Daniel sells the costumes to children for $1200 for the holiday. The total GDP of this production is: A. $1,200. B. $1,000. C. $2,300. D. $1,100.

A. $1,200

1. Jack sells $200 worth of wool to Bill. Bill makes cloth out of the cotton and sells to Cathy for $400. Cathy makes Halloween costumes and sells to Daniel for $800. Daniel sells the costumes to children for $1300 for the holiday. The total GDP of this production is: A. $1,300. B. $1,400. C. $2,700. D. $1,100.

A. $1,300.

1. Lowland has an actual GDP of $520 billion and a negative GDP gap of $15 billion, then the potential GDP is: A. $535 billion. B. $505 billion. C. $520 billion. D. $15 billion.

A. $535 billion.

1. Farmland sees its consumer price index (CPI) rising from 200 to 220 in a particular year, the rate of inflation in that year is: A. 10 percent. B. 33 percent. C. 20 percent. D. 11 percent.

A. 10 percent.

1. Economic growth can be depicted with: A. an up and outward shift of the production possibilities curve (PPC). B. an inward or downward shift of the production possibilities curve (PPC). C. a point moving from the production possibility curve (PPC) to somewhere inside the of it. D. a point moving along one single production possibilities curve (PPC).

A. an up and outward shift of the production possibilities curve (PPC)

1. In expenditure approach of GDP calculation, government purchases include government spending on: A. consumption goods and public capital goods. B. consumption goods only. C. public capital goods only. D. consumption goods, public capital goods, and transfer payments like social security payments.

A. consumption goods and public capital goods

1. When an economy moves across different phases of a business cycle, which phase is most likely to see a rising real output and falling unemployment rates? A. expansion. B. peak. C. trough. D. recession.

A. expansion.

5. In a year, Highland has a personal consumption expenditure of $70b, the purchase of stocks and bonds of $30b, net exports of -$20, government spending of $10b, sales of second-hand products of $8b, and gross investment of $55b. what is Highland's GDP in that year?

Answer: $115 billion GDP = C + Ig + G + Xn GDP = $70 + (-20) + 10 + 55 = 115

1. In 1990, Dreamland had a nominal GDP of $360 billion. In 2000, its nominal GDP rose to $450 billion. If we choose 1985 as base year (GDP price index is 100 in 1985), the GDP price index was 120 in 1990 and 125 in 2000. Between 1990 and 2000, the real GDP of Dreamland: A. increased by $60 billion. B. decreased by $30 billion. C. increased by $120 billion. D. increased by $170 billion.

A. increased by $60 billion

1. Dreamland's labor productivity fell by 4 percent and its total worker-hours remained unchanged between 1990 and 2000. This means in Dreamland: A. its real GDP declined. B. its capital stock increased. C. its production possibilities curve shifted outward. D. a point moves along one single production possibilities curve.

A. its real GDP declined

1. Wonderland's labor productivity fell by 3 percent and its total worker-hours remained unchanged between 2000 and 2010. This means in Dreamland: A. its real GDP declined. B. its capital stock increased. C. its production possibilities curve shifted outward. D. a point moves along one single production possibilities curve.

A. its real GDP declined.

1. When the U.S. economy reaches its natural rate of unemployment: A. the U.S. economy also reaches its potential output. B. the U.S. economy still experiences a very little cyclical unemployment. C. the U.S. economy only experiences frictional unemployment. D. the U.S. economy only experiences structural unemployment exists.

A. the U.S. economy also reaches its potential output.

1. In national income and product accounts, investment include: A. the increase in business inventories. B. the increase in the balance of a savings account. C. the purchase of stock shares of IT company. D. the purchase of durable goods such as TVs, cars, and refrigerators.

A. the increase in business inventories

1. Economists use the term human capital to describe: A. the skills and knowledge that workers gained from school and training B. the machines and tools used by workers. C. the accumulation of financial assets by households. D. the purchase of newly built houses by households.

A. the skills and knowledge that workers gained from school and training

1. In economics, the accumulation of human capital means: A. the time people spend on acquiring the skills and knowledge from school and training B. the amount of machines and tools accumulated in the country. C. the accumulation of financial assets by households. D. the purchase of newly built houses by households.

A. the time people spend on acquiring the skills and knowledge from school and training

Equation: Rule of 70

AKA: # of years to double =70/annual growth rate

3. At the beginning of 2015, Dreamland starts the year with $2b in capital stock. During the year, the gross investment is $0.15b and depreciation is $0.05b. By the end of 2015, how much is the capital stock in Dreamland?

Answer: $2.1b. Gross Investment $0.15 b - Depreciation 0.05 b = Net Investment 0.10 b + Capital Stock 2 b = ANSWER 2.1 b

4. In 2016, Wonderland had a GDP of $200 billion. If its gross domestic investment was $50 billion, consumer consumption was $130 billion, and net export was - $10 billion. How much is the government spending?

Answer: $30 billion. GDP = C + Ig + G + Xn $200 = 130 + 50 + G + (-10) G = 30

6. Guilderland is a "leader country" who has real GDP per capita of $80,000. Slingerlands, a "follower country", has real GDP per capita of $40,000. Assume from now on Guilderland has stopped growing while Slingerlands rises at an annual rate of 5 percent. How long will it take for Slingerlands to catch up with Guilderland in terms of same standard of living?

Answer: 14 years. 70/5 = 14

9. Christine's bakery shop makes 5% more profit in nominal terms this year. Later on she learn that this year the inflation rate is 3%. How much more profit in real terms does Christine's bakery earn this year? If inflation is stable at 3% over the next year, Christine wants to make 4% more profit in real terms next year, how much more profit in nominal terms should she earn?

Answer: 2% (=5%-3%); 7% (=3%+4%)

8. In 2015, Wonderland had a CPI of 110 and it became 132 in 2016. How much is the inflation rate in Wonderland in 2016. If in 2016, Wonderland had a CPI of 99. How much is the inflation in 2016? What is it called?

Answer: 20%; -10%. Deflation

1. In 2015, Dreamland had a real GDP of $300 billion. In 2016, the real GDP became $312 billion. What is the real GDP growth rate in Dreamland from 2015 to 2016? If the population size in Dreamland is 100 in 2015 and 102 in 2016, what is the growth rate of real GDP per capita?

Answer: 4%; 1.96% ([312-300]/300)x100 = 4 300/100 = 3 312/102 = 3.058 ([3.058-3]/3)x100 = 1.96

4. In a year, Wonderland has 10 million people working full time. It also has 0.8 million people unemployed but actively looking for work. It also has 1 million discouraged workers who are unemployed and stop looking for work. What is Wonderland's unemployment rate?

Answer: 7.4%

7. In 1990, Guilderland only produced 7,000 buckets of chicken and the price of chicken was $10. In 2015, the chicken price was $16 and Guilderland produced 22,000 buckets. If 2015 is set as the base year, what is the GDP price index in 1990? How much did the price level in Guilderland rise from 1990 to 2015? What is the real GDP in 1990 and 2015?

Answer: GDP Price Index = 62.5; price level increased by 60%; Real GDP in 1990 = $112,000; Real GDP in 2015 = $352,000. 10 x 7000 / 16 x 7000 ((The 7000 cancels out)) (10/16)x100 = 62.5 100-62.5/62.5 = 60% 1990 = 7000x16 = 112,000 2015 = 22,000x16 = 325,000

2. In national income accounting, why should we include "changes in inventories" rather than "inventory" itself? If Wonderland's inventories declined by $2 billion during 2015, how would this affect Wonderland's gross private domestic investment and gross domestic product in 2015? Explain your answer.

Answer: Inventory is the production that is unsold. It is the "change in inventory" NOT inventory itself that will reflect the difference between the previous production and current production. GDP is the production of a certain period therefore we only need to include the production of that period. Details refer to the class example. A decrease of $2b in inventory will reduce Wonderland's gross private domestic investment and GDP in 2015 by $2b.

6. In 2000, Lowland had a GDP of $25 trillion, in which personal consumption was $8 trillion, gross investment was $ 3trillion, government expenditures were $3.5 trillion. how much was net exports? If its personal income was $10 trillion and the government collected $2.5 trillion in personal taxes, how much was the disposable income?

Answer: Net export $10.5 trillion. Disposable income $7.5 trillion. GDP = C + Ig + G + Xn 25 = 8 + 3 + 3.5 + Xn 10.5 = Xn <-- Net

7. In 2005, Wonderland had labor hours of 200 and productivity of $7 per hour per worker. How much is the real GDP in Wonderland in 2005? If in 2010, the labor hours available became 220 and productivity rose to $10 per hour, how much is the real GDP growth rate in Wonderland from 2005 to 2010?

Answer: Real GDP is $1400, real GDP growth rate is 57.1% production x Labor Hours 2005: 7x200 = 1400 2010: 10x220 = 2200 %change = [(2200-1400)/1400] x 100 = 57.14

6. What is the unemployment that is associated with the potential output of the economy?

Answer: The natural rate of unemployment.

7. Many economists agree that the natural unemployment of the U.S. is about 5%. During the Great Recession of 2007-09, the unemployment rate peaked at about 10%. How big was the negative GDP gap in the U.S. then?

Answer: d. 10 percent.

1. What is economic growth accounting? Rearrange the following contributors to the growth of productivity in order of their quantitative importance: economies of scale, quantity of capital, improved resource allocation, education and training, technological advance.

Answer: economic growth accounting is to separate contributing factors of economic growth and their contributing shares to a country's economic growth. The primary contributing factors include the amount of labor hours and the labor productivity.

1. Which of the following goods are usually intermediate goods and which are usually final goods: running outfits; cotton; pick-up truck; notepad; coal; ice cream; lumber?

Answer: final goods: running outfits, pick-up truck, notepad, ice cream Intermediate goods: cotton, coal, lumber

1. List the following factors for modern economic growth: supply factors, demand factors, efficiency factors. Use PPC to demonstrate how these factors will affect the economic growth of a country.

Answer: supply factors: the quantity and quality of natural resources, human resources, physical capital stock, technology; demand factor: expenditure demand to keep full employment; efficiency factor: productive and allocative efficiency.

2. Why people are so concerned about unemployment? What is negative GDP gap and what are the main effects of it?

Answer: unemployment is a waste of resource (labor), which otherwise can be put into production and increase the production and income. Also it creates troubles for household and society, like anxiety, unsettlement, social instability, etc. Negative GDP gap occurs when the actual real GDP is lower than the potential GDP of the economy. The effect of negative GDP gap is that those amount of products that is not produced will become a loss for the economy forever. The income related to those production is also lost. Some resources are not used at their full capacity. That is to say, the economy is experiencing unemployment.

3. What is the difference between demand-pull inflation and cost-push inflation? Which one is more likely to cause a negative GDP gap? Which one is more likely to cause a positive GDP gap? What is core inflation? Why do we need to check core inflation?

Answer:the demand-pull inflation happens when aggregate spending exceed the aggregate production (GDP) of the economy. Some people describe it as too much spending on too few goods. Cost-push inflation happens when resource prices increase and thus push up the production cost, then the overall price level. The cost-push inflation is more likely to cause a negative GDP gap since a higher production cost and higher product prices will push back spending and thus the output will fall. This makes the actual production (GDP) is lower than the potential GDP. The demand-push inflation is more likely to cause positive GDP gap since strong demand induce higher production, which makes actual GDP higher than the potential GDP. The core inflation is the calculated without foods and energy products in the fixed basket. The prices of foods and energy products change more frequently. It adds more noise to the usual inflation gauge. Therefore core inflation is more stable and more reliable than the usual inflation.

1. List the phases of business cycle. Why are capital goods and durable goods more severely affected by business cycle than non-durable goods?

Answer:trough, recovery, peak, and recession. Capital goods cost much and are more related to business perspectives of economic situation. When recession is on the horizon, usually it will decline first. Consumer durable goods also cost much and when economy is on the way down, consumer income is lower and those purchase can be postponed. But nondurable goods like foods, clothes, consumers cannot cut much or postpone much.

5. Determine the types of unemployment, frictional unemployment, structural unemployment, or cyclical unemployment. a. Jack just graduated from JWU last week and is waiting for the start of his new job. b. In 2008, Mary, an associate at a local branch of Bank of America, was laid off. c. The ecommerce gradually gain popularity and it create lots of competition with traditional retail business. Macy's and Walmart has been closing stores across the country and laid off some sale personnel d. Hundreds of computer software jobs were lost because of outsourcing to workers in India.

Answers: a. frictional unemployment b. cyclical unemployment c. structural unemployment d. structural unemployment

5. According to rule of 70, what is the annual growth rate for Lowland to double its GDP in 5 years? In 10 years? In 20 years?

Answers: 14%; 7%; 3.5%. 5=70/x x=14 10=70/x x=7 20=70/x x=3.5

10. If you loan out your money for 4% nominal interest rate and the inflation premium is 2%, how much is the real interest rate on your loan? If the inflation premium is stable and you want to make 3% real interest rate, how much nominal interest rate should you charge on your loan?

Answers: 2%; 5%.

1. For modern economic growth, what are the major institutional factors?

Answers:Strong protection of property rights, intellectual rights like patents and copyrights, functioning and efficient financial institutions, promotion of education, free trade, and competitive markets

1. Highland only produces three goods. In 2010, Highland produced the amount of each product as following: A = 10, B = 30, C = 5. The prices information of all three products were A = $2, B = $3, and C = $1. Based on this information in 2010, Highland had a nominal GDP of: A. $120. B. $115. C. $145. D. $190.

B. $115

Table (in billions) Government purchases - $20 Consumption - $100 Gross domestic Investment - $30 Depreciation - $10 Export - $8 Import - $16 1. Refer to the table above, the GDP is: A. $184. B. $142. C. $160. D. $158.

B. $142

Year - Units of output of hamburger - price of hamburger - price index (Year1 is base year) 1 - 10 - 10 - 100 2 - 12 - 20 - 200 3 - 15 - 30 - 300 4 - 20 - 40 - 400 1. Refer to the table above, the nominal GDP in year 2 is: A. $120. B. $240. C. $245. D. $170.

B. $240

1. Country A's total labor-hour is 125 and its labor productivity is $4 of output per worker per hour, then Country A's real GDP is: A. $125. B. $500. C. $250. D. not enough information to tell.

B. $500

1. Country Springland's total labor-hour is 100 and its labor productivity is $5 of pizzas per worker per hour, then Country Springland's real GDP is: A. $125. B. $500. C. $250. D. not enough information to tell.

B. $500.

The following table shows the employment information for Wonderland. All figures are in millions. Answer questions 8 through 10 with the table. Total Population: 245 Unemployed: 15 Employed: 170 Discouraged Workers: 10 1. Based on the information in the table, Wonderland has a labor force of: A. 245 million. B. 185 million. C. 195 million. D. 170 million.

B. 185 million.

1. Mononia only produces three products. In 2012, Mononia produced the amount of three products as following: A = 10, B = 30, C = 5. The prices of all three products were are A = $2, B = $3, and C = $1. Based on this information in 2012, if we choose 2000 as base year when the price of each product was $1, then the GDP price index in 2012 was: A. 205.5. B. 255.5. C. 39.3. D. 100.

B. 255.5

1. Most economists agree that the natural rate of unemployment in the U.S. economy is about 5 percent. If the current unemployment rate is 8 percent, according to Okun's law, the negative GDP gap is: A. 8 percent. B. 6 percent C. 10 percent. D. 13 percent.

B. 6 percent

1. United Automobile Workers (UAW), a labor union, argued that its members' standard of living was falling. But some critics argued that this couldn't be true because the union members had increases in their nominal income through collective bargaining. Do you agree? A. Yes. If one has a large nominal income, his standard of living will surely increase. B. No. If prices increase more proportionately than the increase in nominal income, the real income actually falls. C. No. If prices increase less proportionately than the increases in nominal income, the real actually income increases. D. Yes. If prices increase less proportionately than the increases in nominal income, the real income actually falls.

B. No. If prices increase more proportionately than the increase in nominal income, the real income actually falls.

1. According to national income accounting, which of the following is not economic investment? A. The purchase of a new drill press by a local pluming company. B. The purchase of 100 shares of GE stocks by a college student. C. Real estate project developed by a construction company. D. The increase in inventory of a local food company.

B. The purchase of 100 shares of GE stocks by a college student

1. Most macroeconomists agree that the immediate cause of most business cycle is: A. an unexpected drop in the labor productivity. B. an unexpected change in the total spending. C. the destruction of old products and invention of new products. D. the life cycle of bubbles in financial market.

B. an unexpected change in the total spending.

1. The economic fluctuation, or the ups and downs in an economy's outputs over time is called: A. economics recessions. B. business cycles. C. economic growth. D. periodic change in output.

B. business cycles.

1. Although economic growth improves the standard of living of a country, some critics argues that: A. economic growth and industrialization can reduce pollution. B. economic growth itself cannot necessarily resolve some socioeconomic problems like inequality in income distribution. C. economic growth can increase people's economic security. D. economic growth can create balance economic growth and civilization advance.

B. economic growth itself cannot necessarily resolve some socioeconomic problems like inequality in income distribution.

1. When calculating GDP, transfer payments should be: A. excluded because they only affect the price level of the economy. B. excluded because they do not reflect current production. C. included because they belong to the investment spending. D. included because they increase the income of recipients.

B. excluded because they do not reflect current production

1. Jack is temporarily unemployed because he just quitted his job with a local cable company and will begin his own business, an electric company, next week. Now Jack can be claimed as: A. cyclically unemployed. B. frictionally unemployed. C. structurally unemployed. D. self-employed.

B. frictionally unemployed.

1. When the depreciation (consumption of fixed capital) is higher than the gross domestic investment, it indicates that: A. real GDP is increasing but nominal GDP is decreasing. B. net investment is negative. C. net export is negative. D. the country's capital stock is increasing.

B. net investment is negative

1. People hold different opinions about the relation between economic growth and pollution. The economic growth proponents think: A. pollution is an inevitable and people have to suffer from it. B. pollution happens, not because of growth, but because common resources are treated as free goods. C. pollution declines as an economy shifts from agriculture to manufacturing. D. pollution is harmful to economic growth and it should be reduced to zero.

B. pollution happens, not because of growth, bit because common resources are treated as free goods

1. A country's labor productivity can be calculated as the: A. ratio of capital to labor. B. real output per worker hour. C. real output per capita. D. ratio of worker hours to real GDP.

B. real output per worker hour

1. A country's natural rate of unemployment include: A. cyclical and frictional unemployment. B. structural and frictional unemployment. C. structural and cyclical unemployment. D. cyclical, frictional, and structural unemployment.

B. structural and frictional unemployment.

1. People use the phrase "too much money chasing too few goods" to best describe: A. the cost-push inflation. B. the demand-pull inflation. C. the inflation premium. D. the real GDP gap.

B. the demand-pull inflation.

1. A Demand-pull inflation is described as the inflation when: A. prices of production input rise, pushing up production costs and then the overall price level. B. the economy's total spending exceeds its total output at the current price level. C. when the economy has reached its potential production level. D. it is also called cost-push inflation.

B. the economy's total spending exceeds its total output at the current price level.

1. In business cycle analysis, the decline of real GDP is called: A. the trough. B. a recovery. C. a recession. D. the peak.

C. a recession.

1. When an economy experiences increases in wages or other resource prices, we can expect this economy is likely to have: A. demand-push inflation. B. demand-pull inflation. C. cost-push inflation. D. cost-pull inflation.

C. cost-push inflation.

The following table shows the employment information for Wonderland. All figures are in millions. Answer questions 8 through 10 with the table. Total Population: 245 Unemployed: 15 Employed: 170 Discouraged Workers: 10 1. Based on the information in the table, if Wonderland has a natural rate of unemployment of 5 percent, then its: A. frictional unemployment is about 1 percent. B. structural unemployment is about 2 percent. C. cyclical unemployment is about 3 percent. D. marginal unemployment is about 4 percent.

C. cyclical unemployment is about 3 percent.

1. In Dreamland, its unemployment rate is 8 percent and its natural rate of unemployment is 4 percent, this means its: A. frictional unemployment rate is 4 percent. B. cyclical and frictional unemployment rates together are 8 percent. C. cyclical unemployment rate is 4 percent. D. natural rate of unemployment is 12 percent.

C. cyclical unemployment rate is 4 percent.

1. Based on economists' estimate, Highland is seeing insufficient overall demand for goods and services, this is most likely associated with: A. structural unemployment. B. frictional unemployment. C. cyclical unemployment. D. natural unemployment.

C. cyclical unemployment.

1. During the Great Recession in 2007-2009, which of the following will most likely change with the recession: A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. seasonal unemployment.

C. cyclical unemployment.

1. In expenditure approach of national income accounting, the consumption includes purchases of: A. both new and used products. B. durable goods and nondurable goods but not services. C. durable goods, nondurable goods, and services. D. changes in business inventories.

C. durable goods, nondurable goods, and services

1. People debates on economic growth. The proponents agree to the following arguments except: A. economic growth provides the necessary means of improving people's standards of living. B. economic growth makes it easier to reduce poverty when the economy has more outputs. C. economic growth is doomed with higher pollution. D. economic growth creates more education opportunities.

C. economic growth is doomed with higher pollution.

1. Two years ago, Kathy quitted her job as an associate at a local branch of Bank of America and went to earn a MBA degree. With the degree in hand, she is now searching for a job in management. Kathy now belongs to: A. structural unemployment. B. cyclical unemployment. C. frictional unemployment. D. not-in-labor-force.

C. frictional unemployment.

1. According to economists, the economies of scale is the fact that: A. public corporations have complex structure and thus less efficient in operation than small partnership business. B. infrastructure investment in highways, utilities, and so on boost economic growth. C. large corporations are able to use more efficient technologies than smaller companies. D. the reallocation of labor force among different industries.

C. large corporations are able to use more efficient technologies than smaller companies

1. Mary works at home as her own housekeeper and full-time caretaker of her children. Mary can be claimed as: A. cyclically unemployed. B. frictionally employed. C. not in the labor force. D. structurally unemployed.

C. not in the labor force.

1. An economy's full-employment level of output is also called: A. real output. B. equilibrium output. C. potential output. D. actual output.

C. potential output.

1. Economists agree that a sudden change in total spending can cause cyclical movement of real outputs and unemployment. This is mainly because? A. the sudden change in total spending triggers supply shocks which cause the cyclical movements in output and unemployment. B. the sudden change in total spending catches the government off guard. C. prices are sticky in the short run. D. prices are free to change in the long run.

C. prices are sticky in the short run.

1. Paul is told by his boss that his salary will increase from $20,000 to $22,000 next year. If the consumer price index is expected to increase from 100 to 104, Paul's real income will: A. fall by about 10 percent. B. fall by about 4 percent. C. rise by about 6 percent D. rise by about 20 percent.

C. rise by about 6 percent

1. The graph above is the PPC of Wonderland. If Wonderland has an increase in its labor productivity, it would: A. move Wonderland's production point away from point A and toward point B. B. move Wonderland's production point away from point B and toward point A. C. shift the PPC from AB to CD. D. shift the PPC from CD to AB.

C. shift the PPC from Ab to CD

1. Maria was laid off two days from a local steel company due to the competition from overseas. She is planning to move to Mississippi to look for a job. Now she belongs to: A. seasonal unemployment. B. cyclical unemployment. C. structural unemployment. D. frictional unemployment.

C. structural unemployment.

1. When a country is experiencing Inflation, it means that: A. the prices of all products are rising, but may at different rates. B. the prices of all products are rising and at the same rate. C. the overall price level is rising, although the prices of some products may be falling. D. real income of the economy is increasing.

C. the overall price level is rising, although the prices of some products may be falling.

1. Lowland's labor productivity and total amount of available labor hours both decreased by 3 percent between 2010 and 2016. This means in Wonderland: A. the real GDP increased by 3 percent. B. the real GDP remained constant. C. the real GDP decreased by 6 percent. D. the capital stock increased by 3 percent.

C. the real GDP decreased by 6 percent.

1. Wonderland's labor productivity and total amount of available labor hours both grew by 2 percent between 2005 and 2015. This means in Wonderland: A. the real GDP increased by 2 percent. B. the real GDP remained constant. C. the real GDP increased by 4 percent. D. the capital stock increased by 2 percent.

C. the real GDP increased by 4 percent

1. The natural rate of unemployment in a country is: A. always higher than the full-employment rate of unemployment. B. always lower than the full-employment rate of unemployment. C. the unemployment rate when the economy is at its potential output. D. calculated as the ratio of total unemployment to the labor force.

C. the unemployment rate when the economy is at its potential output.

Year - Units of output of hamburger - price of hamburger - price index (Year1 is base year) 1 - 10 - 10 - 100 2 - 12 - 20 - 200 3 - 15 - 30 - 300 4 - 20 - 40 - 400 1. Refer to the table above, the real GDP in year 4 is: A. $180. B. $350. C. $325. D. $200.

D. $200

1. In 2010, Wonderland's real GDP is $160 billion and nominal GDP is $480 billion, the GDP price index for that year is: A. 100. B. 250. C. 350. D. 300.

D. 300

The following table shows the employment information for Wonderland. All figures are in millions. Answer questions 8 through 10 with the table. Total Population: 245 Unemployed: 15 Employed: 170 Discouraged Workers: 10 1. Based on the information in the table, Wonderland has an unemployment rate of: A. 5.5 percent. B. 4.2 percent. C. 6.7 percent. D. 8.1 percent.

D. 8.1 percent.

1. Business cycle tends to have different tolls on different industries in an economy. Which of the following industries or sectors are more likely to be affected the most by business cycle? A. guns, tanks and other military goods. B. college education services and nondurable consumer goods, like foods. C. high school education service and consumer clothing. D. capital goods and durable consumer goods.

D. capital goods and durable consumer goods.

1. If the U. S. economy sees rising per-unit production costs, soon enough we can expect: A. natural unemployment. B. structural unemployment. C. demand-push inflation. D. cost-push inflation.

D. cost-push inflation.

1. A country's real income is calculated by: A. dividing nominal income by 50. B. multiplying nominal income by 2. C. dividing the consumer price index (in hundredths) by nominal income. D. dividing nominal income by the consumer price index (in hundredths).

D. dividing nominal income by the consumer price index (in hundredths).

1. If an economy's production capacity is expanding: A. real GDP is increasing but nominal GDP is decreasing. B. net exports is a surplus. C. Disposable income exceeds personal income D. gross domestic investment exceeds depreciation.

D. gross domestic investment exceeds depreciation.

1. In national income accounting, the net domestic investment is: A. the amount of tool, machinery, and equipment worn out in production in a year. B. GDP less gross domestic investment. C. gross domestic investment less net exports. D. gross domestic investment less the amount of investment worn out in a year.

D. gross domestic investment less the amount of investment worn out in a year.

1. In a year, Country Springland has a real GDP of $4,000 and labor productivity of $8. This means in that year: A. its real GDP per capita is $500. B. the GDP price index is higher than 1000. C. its nominal GDP is $5000. D. it total amount of labor hours is 500.

D. it total amount of labor hours is 500.

1. In a year, Country B has a real GDP of $5,000 and labor productivity of $10. This means in that year: A. its real GDP per capita is $500. B. the GDP price index is higher than 1000. C. its nominal GDP is $5000. D. its total amount of labor hours is 500.

D. its total amount of labor hours is 500

1. At full employment, if Country A devotes a substantial amount of its resources to producing capital goods, we can expect that: A. current consumption will rise. B. future consumption will fall. C. real GDP will grow slower. D. labor productivity will rise.

D. labor productivity will rise

1. In business cycle analysis, an economic recession is defined as the period when: A. demand-pull inflation occurs. B. nominal GDP declines. C. cost-push inflation occurs. D. real GDP declines.

D. real GDP declines.

1. The graph above is the PPC of Wonderland. If Wonderland has an increase in its human capital, it would: A. move Wonderland's production point away from point A and toward point B. B. shift the PPC from CD to AB. C. move Wonderland's production point away from point B and toward point A. D. shift the PPC from AB to CD.

D. shift the PPC from Ab to CD

1. Which of the following contributes the most to the improvement of the labor productivity in the U.S.? A. the reallocation of labor force from agriculture to manufacturing industry. B. the improvements in labor quality. C. the increases in the quantity of capital. D. the technological advance.

D. the technological advance

1. When the economy sees an increase in its inventory of goods in a year, A. gross investment exceeds net investment. B. this amount should not be included in calculating that year's GDP. C. this amount should be subtracted from that year's GDP. D. this amount should be included in calculating that year's GDP.

D. this amount should be included in calculating that year's GDP

Equation: GDP=

GDP = C+Ig+G+Xn

Equation: % Change

from x1 to x2 = x2-x1/x1 x100