Macroeconomics Study Guide- (Ch. 3,6,7,8)

Expenditures Approach

Government Purchases (G) Exp. for goods and services Exp. for publicly owned capital (Ig) Net Exports (Xn) Xn= exports (X)-imports (M) GDP=C+Ig+G+Xn

Expenditures approach to Net Investment

Gross Investment - Depreciation= Net Investment

Money spent on the purchase of a new house is included in the GDP as a part of:

Gross domestic private investment

Critics of growth policies focus on the following arguments, EXCEPT:

Growth may have given us the good life, but we cannot better it anymore

GDP estimates account for which of the following items?

Household spending for health and home insurance

The movement of workers from lower productivity jobs to higher productivity jobs would be an example of a(n):

Improved resource allocation

Increased optimism about the future will lead to:

More current investment and more future consumption

Nation A's real GDP was $520 billion in 2013 and $550 billion in 2014. Its population was 150 million in 2013 and 155 million in 2014. On the other hand, Nation B's real GDP was $200 billion in 2013 and $210 billion in 2014; and its population was 53 million in 2013 and 55 million in 2014. Which of the following statements is true?

Nation A's real GDP growth in 2014 is higher than Nation B's

If inflows to the capital stock are greater than outflows, then:

Net investment is positive

Refer to the graph above. Which of the following statements is correct on the basis of the information shown?

Nominal GDP must be inflated in each year before 2000 to determine real GDP

Real GDP or total output in any year is equal to:

Number of worker-hours multiplied by labor productivity

An example of intermediate goods would be:

Paper and ink bought by a publishing company

(The following national income data are in billions of dollars.) Refer to the above data. National income in this economy is:

$1,019 billion

(The following national income data are in billions of dollars.) Refer to the above data. This nation's GDP is:

$305 billion

The table below shows the quantity of labor (measured in hours) and the productivity of labor (measured in real GDP per hour) in a hypothetical economy in three different years. Refer to the above table. In Year 2, the economy's real GDP was:

$420,000

Answer the question based on the following data, using year 1 as the base year. All dollars are in billions Refer to the above data. Real GDP increased from year 3 to year 4 by approximately:

$68 billion

(GDP figures are in billions of dollars.) Refer to the above table. What is the GDP price index in Year 1?

108.3

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Refer to the above data. If year 2 is the base year, the price index for year 3 is:

133 4/3=1.3*100=133

Consider two scenarios for a nation's economic growth. Scenario A has real GDP growing at an average annual rate of 3.5%; scenario B has an average annual growth of 4.5%. The nation's real GDP would double in about:

20 years under scenario A, versus 16 years under scenario B

If the annual growth in a nation's productivity is 2.8 percent rather than 1.5 percent, then the nation's standard of living will double in about:

25 years instead of 47 years

GDP tends to overstate economic well-being because it takes into account:

Total spending to deal with the adverse health effects of some products

GDP is:

GDP = C + Ig + G + Xn GDP: 250(C) + (75)(Ig) + 90(G) + (24-22)(Xn) = 417 ANSWER: 417

If the secular trend of labor productivity rises from 2 percent per year to 4 percent, the number of years that it will take for the standard of living to double will decline by about:

70 / 2 = 35 years 70 / 4 = 17.5 years So reduction is 35 - 17.5 = 17.5 years

Which would be considered an investment according to economists?

A fishing-company owner buys new fishing gear

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

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

If prices of goods and services are inflexible, then:

A positive demand shock would lead to increased real GDP in the short run

The term equilibrium refers to the point where:

A. quantity supplied equals quantity demanded. B. buyers and sellers "agree" on the quantity of a good they are willing to exchange at a given price. C. the supply curve and demand curve intersect. D. All of these statements are true ANSWER: D

Which of the following changes could cause the demand curve to shift from D1 to D2?

An increase in consumers' incomes

Income or Allocations Approach to GDP

GDP= Wages+Rents+Interets+Profits+Statistical adjustments

A business buys $5,000 worth of inputs from other firms in order to produce a product. The business makes 100 units of the product and each of them sells for $65. The value added by the business to these products is:

C. $1,500

Value added equation

Calculated as the difference between the sales value of the materials and the value of the good at the previous production stage value Sales Value - Value of good at previous production stage value

Expenditures or Output approach to GDP

Consumption by Household+Investment by business+Government purchases+Expenditures by Foreigners -Noninvestment transactions excluded (stocks, bonds, resale) -Creation of new capital assets

Refer to the graphs above. Which of the following best represents a positive demand shock when prices are flexible?

The shift from D2 to D3 in graph B

Refer to the above diagram. If the production possibilities of an economy are shown by curve AB but the economy is operating at point 4, the reasons are most likely to be because of:

Demand and efficiency factors

In an economy that is experiencing a shrinking production capacity:

Depreciation exceeds gross investment

In the expenditures approach of national income accounting, C, I g , and G include expenditures for:

Domestically produced as well as imported goods and services

Which of the following statements is true?

Economic investment refers to the creation and expansion of business enterprises

The value of corporate stocks and bonds traded in a given year is:

Excluded from the calculation of GDP because they make no contribution to current production of goods and services

Which of the following is included in GDP?

Fees received by stockbrokers

If prices of goods and services quickly adjust to demand shocks, then:

Firms would find it easier to produce at their optimal output rates

Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a negative demand shock?

Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will increase

Price Index Equation

Price index= (Nominal GDP/Real GDP)*100

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

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

Refer to the above table. If output increases by 8% from Year 5 to Year 6, then in that period:

Real GDP will rise faster than nominal GDP

According to labor and productivity, real GDP is calculated

Real GDP=hours of work x labor productivity

3 factors that determine growth

Supply factor Demand factor Efficiency factor

The "underground economy" is mostly made up of:

Tax-evasion activities

The factor accounting for the largest increase in the productivity of labor in the United States has been:

Technological advance

Refer to the above graph. If the production possibilities curve of an economy shifts from AB to CD, it is most likely caused by which of the following factors?

Technological progress

The Great Recession of 2007-09 illustrated the situation where a negative demand shock occurred and:

The economy's overall price level was "sticky"

An antigrowth view would be that there may be a significant tradeoff between productivity and:

The quality of life

Refer to the above graph. If the production possibilities curve for an economy is at CD but the economy is operating at point X, the reasons are most likely to be because of:

Unemployment and inefficient allocation of resources

Real gross domestic product is a measure of the:

Value of final output produced within a country in one year, adjusted for changing prices

Suppose a family's income increases by 5% at the same time that inflation is 6%. Then the family's living standard:

Will decrease

Inflation is troublesome to consumers because of the following effects, except:

Workers' wages may be rising faster than the overall price level

A drought causes most fruit crops to fail, decreasing the amount of available fruit. The fruitcake market would see:

a decrease in the supply of fruitcake.

The term "shortage" refers to:

a situation in which the quantity supplied is less than the quantity demanded

If producers incorrectly set the price of their product too high:

a surplus will result and excess goods in inventory will signal the producers to lower their prices

The law of demand can be stated as:

all else equal, quantity demanded rises as price falls.

Apple just announced it will be coming out with the newest model iPhone in the next six months. One could reasonably expect demand for the current model of iPhone to:

decrease due to a change in expectations of future prices.

Consider the market for ride-on lawn mowers and the recent increases in the price of oil. The recent increase in the price of oil makes it more expensive to manufacture ride-on lawn mowers. An increase in the price of oil also makes it more expensive to run a ride-on mower. If the price of oil increases, the demand for ride-on mowers will ______ and the supply will _______

decrease; decrease

A perfectly competitive market is one in which:

fully informed, price-taking buyers and sellers easily trade a standardized good or service

The most likely complementary good for hot dogs would be:

ketchup

Some non-price determinants of supply are:

prices of related goods, technology, prices of inputs, expectations, and the number of sellers.

This table shows the demand and supply schedule of a good. According to the table shown, at a price of $2.00:

quantity demanded is less than quantity supplied and a surplus exists.

The supply curve:

represents the relationship between price and quantity supplied with everything else held constant.

A non-price determinant of supply refers to:

something that affects supply other than the price.

A recent epidemic of mad cow disease caused the government to mandate that thousands of cows be completely destroyed. This will likely cause:

the supply of leather shoes to decrease.

The supply curve is a __________ line that reflects the _______ relationship between price and quantity supplied

upward-sloping; direct