Macroeconomics Study Set 1

(Ch.7 Pt 2) Other Labor Market Indicators

- People tend to leave the labor-force in bad times and re-enter in good times. -Total employment figures

(Ch.7 Pt 2) What is a leading indicator?

-Helps us predict what's coming, and they usually change before the economy as a whole does. -ex: average weekly hours for manufacturing, building permits, etc.

(Ch.7 Pt 1) What are some shortcomings of unemployment insurance?

-Incentives to quickly find another job are reduced. -May increase the amount of time people are unemployed.

(Ch.7 Pt 1) Length of frictional unemployment

-Internet has decreased time and costs of job searching -Government regulations to hire or fire

(Ch.7 Pt 2) How are underemployed workers a shortcoming of the unemployment rate?

-Part-time workers who want full-time jobs. -Workers who are very overqualified at their job. -Considered employed.

(Ch.7 Pt 2) How are discouraged workers a shortcoming of the unemployment rate?

-People who want a job but give up looking for work. -Are not included in the labor force and are not considered unemployed.

(Ch.7 Pt 1) What can structurally unemployed people do?

-Retrain -Reeducate -Relocate -Accept lower pay -Accept less desirable work

(Ch.8) Why do we care about inflation?

-Uncertainty (ab price changes creates problems for firms and workers) -Long-term wages difficult to agree upon -Consumers may change buying patterns due to uncertainty

(Ch.7 Pt 2) How is the unemployment timeline a shortcoming of the unemployment rate?

-Unemployment lags behind economic activity. -Recovery happens, people re-enter the labor force, and the unemployment rate can actually increase.

(Ch.7 Pt 2) What is a lagging indicator?

-Usually changes after the economy as a whole changes, so it doesn't have much predictive power. ex: average duration of unemployment, change in the price index, etc.

(Ch.6 Pt 2) What are 3 uses of GDP data?

1. Living Standards: GDP per capita 2. Measuring growth

(Ch.6 Pt 2) What are the shortcomings of using GDP as a measurement for production?

1. Non-market goods -goods and services produced but not sold. -i.e. uncompensated household activities (washing dishes, mowing lawns, etc.). 2. Underground economy -Both legal and illegal -Legal: tips, babysitting, etc. -Illegal: drug dealing, prostitution, etc. 3. Environmental quality -GDP in 2 countries can be equal while well-being is not equal. 4. Leisure -We limit GDP to measuring economic production, knowing that it is not a perfect measure of well-being. {Other shortcomings of GDP include: life expectancy, education levels, access to health care, and crime rates}

(Ch.7 Pt 1) What are the 3 types of unemployment?

1. Structural 2. Frictional 3. Cyclical

(Ch.7 Pt 1) Which of the following is an example of structural unemployment? A. Alfred the VCR repairman is unemployed because there are very few people that still own VCRs B. Bernie the construction worker is unemployed because no one is building houses right now C. Carl the restaurant chef is unemployed because he and his wife recently moved to a new city

A. Alfred the VCR repairman is unemployed because there are very few people that still own VCRs.

(Ch.6 Pt 1) Which of the following would be included in the calculation of GDP? A. Government purchase of a new submarine B. Social Security payment to a retired military officer C. The purchase of a used home built 10 years ago D. Contributions to a charity organization E. Work performed by a barber who cuts the hair of his or her own children

A. Government purchase of a new submarine (?) C. The purchase of a used home built 10 years ago

(Ch.6 Pt 2) Price Level

An index to measure the prices of goods and services in an economy.

(Ch.6 Pt 2) GDP is intended to measure changes in ____________

Answer: Production {We want to be sure to hold prices constant over time to be able to differentiate between changes in quantities and changes in prices.}

(Ch.7 Pt 1) What is a possible unintended consequence of unemployment insurance? A. It hurts the unemployed by giving them benefits B. It may increase the length of unemployment since it decreases the cost of being unemployed C.It angers hard-working people D.It lasts as long as you want it to, so you can get paid and never have to work

B. It may increase the length of unemployment since it decreases the cost of being unemployed.

(Ch.6 Pt 2) Which of the following would not be included in GDP? A. Bob hires a construction company to build his home B. Michael pays the neighbor kid to mow his yard C. Alex buys some cheese and dough to bake a pizza at home D. Elyse buys some shoes

B. Michael pays the neighborhood kid to mow his yard.

(Ch.6 Pt 1) Which of the following would be counted as investment when calculating GDP? A. The purchase of a used computer by an auto manufacturer B. The purchase of a share of IBM stock by an employee C. The construction of a new warehouse D. The construction of roads by the government E. The profit earned when selling shares of stock

B. The construction of a new warehouse (?) A. The purchase of a used computer by an auto manufacturer

(Ch.7 Pt 1) Which of the following is an example of frictional unemployment? A. Alfred the VCR repairman is unemployed because there are very few people that still own VCRs B. Bernie the construction worker is unemployed because no one is building houses right now C. Carl the restaurant chef is unemployed because he and his wife recently moved to a new city

C. Carl the restaurant chef is unemployed because he and his wife recently moved to a new city.

(Ch.6 Pt 1) GDP also measures A. a nation's exports B. a nation's debt C. a nation's income D. a nation's consumption

C. a nation's income Output = GDP = Income

(Ch.8) How do we measure inflation?

Consumer Price Index(CPI): - A measure of the price level based on the consumption pattern of a typical consumer - Similar to GDP deflator but limited to consumption and considers both domestic goods and imports. *CPI tracks the price of a "typical" basket of goods over time, with the bundle of goods held constant.

(Ch.7 Pt 1) What is cyclical unemployment?

Cyclical unemployment is unemployment resulting from the business cycle/ economic downturns. -most severe and concerning.

(Ch.7 Pt 2) If a discouraged worker re-enters the labor force and begins searching for jobs but doesn't find one, the unemployment rate will: A. Go down because our economy is on the right track with more people wanting to work B. Stay the same because the number of people with jobs didn't change C. Stay the same because the worker isn't counted in the labor force until he finds a job again D. Increase because the percentage of labor force participants with jobs decreased

D. Increase because the percentage of labor force participants with jobs decreased.

(Ch.6 Pt 1) What is the difference between durable and non-durable goods?

Durable goods are products that are meant to last for a long period of time (such as cars, electronic appliances, furniture, etc.), while non-durable goods are products that are meant to last for a short period of time (such as food, medicine, etc.). Consumers typically take time to decide while purchasing a durable good, and do not take much time deciding while purchasing a non-durable good.

(Ch.6 Pt 1) Given the following data, what was the value of net exports (NX) in 2015? -Consumption: 12.8 tn -Exports: ? -GDP: 18 tn -Government Expenditures: 3.8 tn -Investment: 2.3 tn -Imports: 3 tn -Net Exports: ?

Exports= 2.1 tn Net Exports= -0.9 tn

(Ch.7 Pt 1) What is frictional unemployment?

Frictional unemployment is unemployment resulting from the time it takes to match available workers with employers. -occurs in the healthiest economies because imperfect info always exists. -i.e. recent college graduate, spouse of a person who moves for a job, etc.

(Ch.6 Pt 2) Nominal GDP

GDP measured in current prices. {Calculated by aggregating the market value (price times quantity) of goods and services produced in a country during a given period of time.}

(Ch.6 Pt 2) Real GDP

GDP measured with prices held constant over time (adjusted for inflation) {A particular year is designated as the base year, and then the prices of goods and services in the base year are used to calculate the market value of goods & services.}

(Ch.6 Pt 2) How do you calculate growth as a percentage?

Growth %= ((Ending - Beginning)/Beginning) x100

(Ch.7 Pt 2) How do you calculate labor force participation?

LFP= (labor force/civilians older than 16 and non institutionalized pop.) x100

(Ch.7 Pt 1) Determine if they are unemployed. A. A 15-yea-old offers to pet-sit, but no one hires her. B. A college graduate spends the summer after graduation during Europe before starting a job search. C. A part-time teacher works only two days a week, even though he would like a full-time job. D. An automobile worker becomes discouraged about prospect for future employment and decides to stop looking for work.

None are considered unemployed.

(Ch.6 Pt 2) Price Level: GDP Deflator

Price level index that includes prices of final goods and services in GDP * The GDP deflator "deflates" all the price inflation out of nominal GDP, so we can see the real GDP.

(Ch.6 Pt 2) How is Real GDP different from Nominal GDP?

Real GDP is found by adjusting Nominal GDP for inflation.

(Ch.6 Pt 2) How do you calculate Real GDP?

Real GDP(t)= (Nominal GDP(t)/ Price Level(t)) x100 t=year 100=base year price level

(Ch.6 Pt 1) Where are social security payments accounted for in GDP?

Social Security is not accounted for in GDP. Government Expenditures (G) excludes all transfer payments which includes Social Security, Welfare, Food Stamps, etc.

(Ch.7 Pt 1) What is structural unemployment?

Structural unemployment is unemployment resulting from a mismatch between skills, location, and expectations of labor supplied and labor demanded. -creative destruction (new technology or products). -industry shift in the long run

(Ch.7 Pt 1) What is full employment output (Y*)?

The output by an economy with no cyclical unemployment. -actual output denoted by (Y).

(Ch.7 Pt 1) What is the natural rate of unemployment (u*)?

The typical rate of unemployment in a healthy economy. -actual employment rate is denoted by (u).

(Ch.7 Pt 1) The unemployment rate is a good indicator of the economy's _________.

health

(Ch.8) How do you calculate price index?

price index= (basket price/ basket price in base yr) x 100

(Ch.7 Pt 1) How do you calculate unemployment rate?

u= # unemployed / labor force *filter out groups that aren't looking for a job i.e. retirees, stay-at-home parents, people in jail, military personnel, children, and many full-time students.

(Ch.6 Pt 1) Which of the following purchases is included in the calculation of GDP? A. A used economics textbook from the bookstore B. New harvesting equipment for a farm C. 1,000 shares in stock in a computer firm D. A car produced in a foreign country E. Government bonds issued by a foreign country.

(?) B. New harvesting equipment for a farm

(Ch.6 Pt 1) Which of the following would be an example of an intermediate good or service? A. a calculator purchased by a college student for taking exams B. Gasoline purchased by an insurance agent to visit clients at their homes C. A house purchased by a family with 4 children D. A car purchased by a student's parents and given to the student E. Tuition paid by a student at a state university

(?) B. Gasoline purchased by an insurance agent to visit clients at their homes