ECO 201 exam 2

Over the past 70 years, prices in the U.S. have risen on average about

4 percent per year.

Which of the following statements is correct?

All items that are included in M1 are included also in M2.

For purposes of calculating the CPI, the housing category of consumer spending includes the cost of

All of the above are correct.

Which of the following is included in the investment component of GDP?

All of the above are included in the investment component of GDP.

How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)?

GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens earned in the U.S.

When box office receipts are corrected for inflation, the most popular movie of all time is

Gone With the Wind.

The Bureau of Labor Statistics is part of the U.S. Department of

Labor.

Which of the following statements about GDP is correct?

Nominal GDP values production at current prices, whereas real GDP values production at constant prices.

A tax on an imported good is called a a. quota. b. tariff. c. supply tax. d. trade tax.

Tariff

Tom was laid off and is expecting to be recalled. He has not looked for work since being laid off. Bill is not employed and not laid off. Who is counted as unemployed in the U.S. labor force statistics?

Tom and Bill if he has looked for work during the previous 4 weeks.

A quota is

a limit on the quantity of imports.

The consumer price index is

a useful measure, but not a perfect measure, of the cost of living.

The problem with the protection-as-a-bargaining-chip argument for trade restrictions is a. if it fails the country faces a choice between two bad options. b. if it fails total surplus will increase. c. if it works consumer surplus will decline. d. if it works producer surplus falls.

a. if it fails the country faces a choice between two bad options.

Much of macroeconomics attempts to explain

a. long-run growth and short-run fluctuations in real GDP.

National income is defined as

a. the total income earned by a nation's permanent residents in the production of goods and services.

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP.

Interest rates adjusted for the effects of inflation

are real variables; inflation is a nominal variable.

Expenditures on a nation's domestic production

b. are equal to its domestic production.

Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as a. confirmation that specialization in absolute advantage works. b. confirmation of the virtues of free trade. c. confirmation that free trade agreements are not necessary. d. confirmation of the infant-industry argument.

b. confirmation of the virtues of free trade.

For purposes of calculating the CPI, the food & beverages category of consumer spending includes the cost of

both food away from home and alcoholic beverages.

When conducting an open-market purchase, the Fed

buys government bonds, and in so doing increases the money supply.

The inflation rate is calculated

by determining the percentage increase in the price index from the preceding period.

According to the circular-flow diagram GDP

can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production.

Which of the following lists is included in what economists call "money"?

cash

When prisoners use cigarettes or some other good as money, cigarettes become

commodity money and function as a unit of account.

In the national income accounts, depreciation is called

consumption of fixed capital.

The goal of the consumer price index is to measure changes in the

cost of living.

A tariff is a a. tax on an exported good. b. limit on how much of a good can be exported. c. limit on how much of a good can be imported. d. tax on an imported good.

d. tax on an imported good.

When prices are falling, economists say that there is

deflation.

Which of the following is included in both M1 and M2?

demand deposits

The interest rate that the Fed charges banks that borrow reserves from it is the

discount rate.

The unemployment rate is computed as the number of unemployed

divided by the labor force, all times 100.

Some goods can be produced at low cost only if they are produced in large quantities. This phenomenon is called

economies of scale.

If total spending rises from one year to the next, then

either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.

The National Labor Relations Board

enforces workers' rights to unionize.

Net exports equal

exports minus imports.

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called

frictional unemployment.

By far the largest category of goods and services in the CPI basket is

housing.

Money demand refers to

how much wealth people want to hold in liquid form.

If the CPI rises, the number of dollars needed to buy a representative basket of goods

increases, and so the value of money falls.

The term economists use to describe a situation in which the economy's overall price level is rising is

inflation

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

inflation.

When inflation falls, people

make less frequent trips to the bank and firms make less frequent price changes.

When inflation rises, people

make more frequent trips to the bank and firms make more frequent price changes.

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

medium of exchange

The consumer price index is used to

monitor changes in the cost of living over time.

Meredith recently graduated from college but has not yet started working. To be counted as unemployed she

must have looked for work no more than 4 weeks ago.

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

neither interest income nor capital gains.

In the U.S., taxes on capital gains are computed using

nominal gains. This is one way by which higher inflation discourages saving.

When economists talk about growth in the economy, they measure that growth as the

percentage change in real GDP from one period to another.

The inflation rate is defined as the

percentage change in the price level from the previous period.

When a minimum-wage law forces the wage to remain above the level that balances supply and demand, it

raises the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level.

When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study

real GDP

The North American Free Trade Agreement

reduced trade restrictions among Canada, Mexico and the United States.

When a country takes a multilateral approach to free trade, it

reduces its trade restrictions while other countries do the same.

When a country takes a unilateral approach to free trade, it

removes trade restrictions on its own.

Who of the following is counted as unemployed by the BLS?

someone on temporary layoff

Which of the following is included in the investment component of GDP?

spending on new business equipment such as power tools but not spending on stocks and bonds

Which government entity computes U.S. GDP every three months?

the Department of Commerce

Which entity within the U.S. government is responsible for computing and reporting the CPI?

the Department of Labor

The agency responsible for regulating the money supply in the United States is

the Federal Reserve.

Changes in the producer price index are often thought to be useful in predicting changes in

the consumer price index.

The interest rate the Fed charges on loans it makes to banks is called

the discount rate.

Which of the following is not a commonly-advanced argument for trade restrictions?

the efficiency argument

When a union raises the wage above the equilibrium level,

the quantity of labor supplied and unemployment both rise.

Mario was laid off two months ago. He has not searched for other work because he is expecting to be recalled to work. In the U.S. labor force statistics Mario is counted as

unemployed and in the labor force.

GDP is defined as the

value of all final goods and services produced within a country in a given period of time.

With the value of money on the vertical axis, the money supply curve is

vertical because we assume the central bank controls the money supply.

The measure of the money stock called M1 includes

wealth held by people in their checking accounts.

The price of a good that prevails in a world market is called the

world price.