Midterm 2

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Suppose the unemployment rate is 10% and an economist breaks the unemployment rate into the following components: frictional (3%) and structural (3%). Based on these estimates the cyclical inflation rate is

4%

If an economy's GDP will double in 15 years, then its growth rate must be about

4.7%

Which of these would cause an increase in a country's aggregate demand

A rise in the country's stock market increases the value of stock held by people

Which statement is TRUE within the circular flow of economic activity

Business firms are sellers of products and buyers of production factors

A country with a large population and high level of poverty cannot be a world leader in economic growth

False

Discouraged workers are counted in the labor force

False

The Bureau of Economic Analysis reports year-over-year growth to remove the effects of inflation from the previous year

False

macroeconomics was developed to explain

Great Depression

If an economy is operating above full employment, what is likely to happen in the long run?

Input prices and wages rise; SRAS shifts to the left

Jennifer received news that she is getting a %5 raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, how will it impact her purchasing power

Jennifer's purchasing power will decline by 2%

The rule of 70 would be most accurate for estimating the doubling time in which situation?

The growth rate is steady at 4%

If a business increases its inventories, the change is treated as an investment

True

If an index of well-being were included in the national income and product accounts, information on life expectancy, the stock of human capital, income distributions, poverty rates and unemployment rates might be collected

True

In 2014, we could accurately say that the Leading Economic Index successfully predicted the past seven recessions

True

the largest component of gdp is

consumption expenditure

Inflation is a

general rise in prices

What is free trade?

international trade left to its natural course without tariffs, quotas, or other restrictions.

An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n)

jobless recovery

The costs of cyclical unemployment can be minimized by

keeping the economy on a steady, low-inflationary growth path

Increased taxes will shift the aggregate demand curve to the ______ and ______ output demanded

left; decrease

High family debt

reduces the tendency to consume.

How to determine savings rate

smaller share of total spending

How do you calculate unemployment rate

unemployed/labor force x 100

Company DEF produces gizmos. One particular batch cost $50,000 to produce. Because market conditions were bad at the time of sale, they were sold at a loss for $40,000. The value of the gizmos included in the GDP is:

$40,000

Last year, Megan's salary was $65,000. The CPI increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be?

$68,578

The economy is LEAST likely to be heading into a recession when the National Activity Index equals -0.33. 0.55. -0.98. 0.81.

.81

There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is the size of Marketstan's labor force?

10 million

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the deflator in 2014 is

125

For which growth rate would the Rule of 70 be MOST accurate?

30%

if the growth rate in an economy is 2% its GDP will double in about

35 years

Most of the recessions over the past half-century have lasted between

6 and 18 months

What is the rule of 70 formula?

70/growth rate

As a country's economy grows and real GDP per capita rises, citizens often do not feel proportionally better off. Why?

As incomes rise, households may use the extra income to buy services and goods that they used to produce for themselves; thus, even though GDP is higher, how much they actually consume is not higher.

______ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises

Demand pull

Suppose the National Activity Index of the Federal Reserve Bank of Chicago increased from -0.29 in May to -0.13 in June. What is the BEST interpretation of this finding?

Economic activity improved slightly from May to June, but the rate of economic growth is below its historical trend

According to economists, agriculture is the factor responsible for most of the economic growth in recent years

False

Annualized GDP growth rate is always lower than the year-over-year growth rate

False

Disinflation is a decline in overall prices throughout the economy

False

In the national income and product accounts "disposable personal income" and "personal income" are synonymous

False

Jasmine works in her family's boutique 16 hours a week and is considered an unpaid family member. Since she is not paid for her services, she is not in the labor force

False

Net domestic product measures

GDP minus depreciation

What would cause a country's aggregate demand to decrease?

The country's CPI rises

An example of a natural resource is an untapped vein of platinum

True

Compounding means that growth builds on prior growth

True

Demand pull inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output

True

How do you tell which country will grow more rapidly

look at per capita

Rising input prices increase short-run aggregate supply

False

The aggregate demand curve has the price level on the vertical axis and real output on the horizontal axis

True

If the U.S. aggregate price level rises

U.S. Imports rise

Long-run growth is most likely to be achieved by promoting

development of new technologies

If the cost of a typical market basket is 400 in 2018, 410 in 2019, and 415 in 2020, then during this period, the economy is undergoing: A) inflation B) disinflation C) deflation D) hyperinflation

disinflation

Unemployment tends to be highest during the _____ stage of the business cycle, while there is a greater risk of high demand leading to inflation during the _____ stage of the business cycle.

trough; peak

How do trends in bond interest rates help predict changes in the business cycle?

when long term rates are lower than short-term rates, a recession is likely

Policymakers look at _____________ to compare growth rates over an entire year without seasonal ups and downs.

year-over-year GDP growth rates

The nation of Workovia has a population of 15 million, of whom 10 million are in the labor force and 9 million are working. Workovia's unemployment rate is:

10%

What are the determinants of short-run aggregate supply?

Consumption, investment, government spending, and net exports

Developing countries tend to place a higher valuer on environmental quality than developed countries do

False

New entrants into the labor force constitutes the largest segment of the unemployed

False

Suppose the economy is at full employment and companies suddenly increase their level of investment. A short-run increase in output will be followed by a reduction in output, resulting in an overall dense output

False

The brand of care you buy is a topic of interest for macroeconomics

False

The consumer price index measures the average change in prices paid by urban consumers and urban wage earners for a market basket of goods and services, covering roughly 87% of the population

False

The economy is not likely to be heading into a recession when the National Activity Index equals -0.95

False

The goal of unemployment policy is to eliminate frictional unemployment

False

The nominal value of wages explains how much the consumer can pay for goods and services.

False

Over the past 150 years, the U.S. economy has endured a recession on average about every

Four to five years

What are some of the important economic variables affected by the business cycle?

GDP, interest rates, total employment, and consumer spending

What is the Index of Economic Freedom?

It is an annual publication by the Heritage foundation, a US based think tank. Incorporates information about freedoms in 100 categories

Which statement about the rule of 70 is TRUE

It is fairly accurate for small growth rates.

The study of macroeconomics as a specific discipline can be attributed to

John Maynard Keynes

Whose analysis serves as the foundation of modern macroeconomics?

John Maynard Keynes

What do households supply?

Labor and non-labor resources

During periods of inflation which events occur

Mortgage leaders seek inflation adjustments, workers seek escalator clauses, people on a fixed income have decreased standards of living

Which statement about counterfeiting is NOT true

Most banks will replace a fake bill and report it to the nearest U.S. secret service office

Which of these is NOT a criticism of the dating of business cycles by the National Bureau of Economic Research (NBER)?

NBER is sometimes manipulated by the federal government

If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will become _____.

SRAS1; P1

If a country's currency appreciates, what impact will it have on aggregate demand or aggregate supply?

Short-run aggregate supply will rise due to lower prices on imported inputs

Which assumption is not a problem related to using the consumer price index to accurately state the rate of inflation

The CPI does not deal with producer prices

Which statement explains why the size and the direction of the gap between long- and short-term interest rates predict stages in the business cycle?

The time period with higher rates is likely to have higher economic activity that the time period with lower rates.

In which situation is a country LEAST likely to produce on its production possibilities curve The average education level is of the fourth grade The land is dry and has low productivity There are legal disputes over the ownership of 15% of the factory buildings in the country There are large legal penalties for breaking a country

There are legal disputes over the ownership of 15% of the factory buildings in the country

An example of physical capital is a communications network used to track shipments

True

An inflation rate of 400% per year would be categorized as hyperinflation

True

Breck is in a training program to become a radiology tech. When he is certified, the amount of human capital in the economy will increase

True

Compensation of employees in the income approach to calculation GDP includes many benefits, such as employers; contributions to unemployment compensation

True

Frictional unemployment refers primarily to workers between jobs

True

Gross private domestic investment is about 20% of GDP

True

Gross private domestic investment is an important factor in shaping the turning points of the business cycle, especially at the troughs

True

Physical Resources are not useful without ideas about how to turn them into goods and services people want

True

Shortcomings of the national income and product accounts include ignoring non-market transactions such as the value of your labor within your own home (e.g. the value of you cooking your own dinner)

True

Structural unemployment can be reduced by retraining workers for new industries

True

The field of macroeconomics was considered an extension of microeconomics prior to the Great Depression

True

The misery index is the sum of the unemployment rate and the inflation rate

True

The unemployment rate does not explicitly include underemployed and discouraged workers

True

which of these is not a source of productivity growth

a decrease in the capital to labor ration

Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium?

a depreciation in the value of Macroalnd's currency

What would cause the level to decrease and employment to increase

a shift to the right of the short-run aggregate supply curve

According to Keynes, what determines the level of employment and income?

aggregate expenditures

what determines employment and income?

aggregate expenditures

Which one of these would not lead to higher prices strong consumer demand higher gas prices an increase in the supply of money an increase in the supply of food

an increase in the supply of food

The diagram that illustrates how households and businesses interact through product and resource markets is called

circular flow diagram

With everything else held constant, if society increased the efficiency of matching people to jobs that need their skills, the natural rate of unemployment would likely

decrease

The Great Depression was primarily the result of

decrease aggregate demand

Suppose the government raises income taxes, so consumers have less disposable income. This policy action will cause a(n)

decrease in aggregate demand

Which event will shift the aggregate demand curve the right? catastrophic hurricane hits the northeastern US increase in household debt decrease in taxes decrease in military spending

decrease in taxes

which term describes a situation in which there is a reduction in the rate of inflation from 4% to 3% per year

disinflation

Suppose an economy has historically grown at a rate of 2.25%. The economy is currently growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.

expansion

The expenditures approach to calculating GDP sums consumer spending, gross private domestic investment, government spending, and

exports minus imports

the primary reason the U.S. standard of living is relatively _____ is that U.S. workers produce _______ than workers throughout most of the rest of the world

high; more

According to the classical model, which development does NOT contribute to economic growth

higher interest rates

When the price of a given product declines, consumers' spendable income rises because it takes less income to purchase the same quantity. This is called the ______ effect.

income

If the cost of a typical market basket is 400 in 2018, 450 in 2019, and 550 in 2020, then during this period the economy is undergoing:

inflation

A legal system that enforces property right is important to economic growth because

legal protection of ideas and technologies gives people who innovate the ability to protect their work

The sum of all income, including wages, salaries and benefits, profits, rental income, and interest, is called ______ income

national

The ______ let(s) economic judge our nation's economic performance, compare U.S. income and output to that of other nations, and track the economy's condition over the course of the business cycle

national income and product accounts

which statement does not describe an adjustment to national income to obtain GDP

net exports are added to national income

Who is considered to be in the labor force?

people employed and people unemployed

Which is a determinant of aggregate supply? interest rates productivity price of substitutes household expectations

productivity

A simple circular flow diagram shows that that factors of production are

purchased by businesses

On-the-job training can lead to an increase in the

quality of the labor force

high taxes and/or heavy regulation

raise costs of production so that the aggregate supply curve shifts to the left.

Economic growth is most commonly measured by

real GDP per capita

Which phase of the business cycle occurs immediately before a trough?

reccession

Decreased interest rates will shift the aggregate demand curve to the ______ and ______ output demanded

right; increase

Increased consumer confidence will shift the aggregate demand curve to the _____ and _______ output demanded

right; increase

A stable financial system is important for all of these reasons except keeping the purchasing power of the currency stable stabilizing the tax rate facilaitating transactions permitting credit institutions to arise

stabilizing the tax rate

What isn't included in the CPI?

stocks, bonds, and life insurance

What is the primary explanation for the rapid growth of the U.S. economy over the past century?

technological progress

Which event has significantly influenced the development of macroeconomic ideas?

the Great Depression

if both consumers and businesses are pessimistic about the future of the economy

the aggregate demand curve shifts to the left

what are aggregate expenditures?

the current value of all the finished goods and services in the economy

Suppose the National Activity Index of the Federal Reserve Bank of Chicago drops to -0.83 this month after being above +0.36 for the previous three months. This movement in the index indicates that

the economy has probably moved into a recession

What is the catch-up effect?

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

The biggest group missing from the reported unemployment rate is:

those working part time for economic reasons

Suppose an economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.

trough

During a typical economic recovery

unemployment decreases

Business cycles

vary in duration and magnitude

When does hyperinflation occur?

when prices have risen by more than 50% per month


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