ECO 202 Exam 1

When a company reduces production and employment during economic​ recessions, those employees who lose their jobs are generally considered to be __________.

cyclically unemployed

A person who is in between jobs but actively engaged in a job search is considered to be __________.

frictionally unemployed

Labor Force Participation Rate formula

labor force / working-age population x 100

Inflation Rate formula

(CPI (current-year) - CPI (previous-year)) / CPI (previous-year) x 100

During the late nineteenth century in the United​ States, many farmers borrowed heavily to buy land. During most of the period between 1870 and the​ mid-1890s, the United States experienced mild deflation. Many farmers engaged in political protests during these​ years, and deflation LOADING... was often a subject of their protests. Why would farmers have felt burdened by deflation during this​ period? A. During deflationary​ periods, the real interest rate exceeds the nominal interest​ rate, and the real cost of borrowing increases. B. During deflationary​ periods, the real interest rate exceeds the nominal interest​ rate, and the real cost of borrowing falls. C. During deflationary​ periods, the nominal interest rate exceeds the real interest​ rate, and the real cost of borrowing increases. D. During deflationary​ periods, the nominal interest rate exceeds the real interest​ rate, and the real cost of borrowing falls.

A. During deflationary​ periods, the real interest rate exceeds the nominal interest​ rate, and the real cost of borrowing increases.

What are the four main determinants of​ investment? A. Expectations of future​ profitability, interest​ rates, taxes and cash flow. B. Expectations of future​ profitability, interest​ rates, exchange rate and cash flow. C. Disposable​ income, interest​ rates, taxes and cash flow. D. Expectations of future​ profitability, interest​ rates, disposable income and cash flow.

A. Expectations of future​ profitability, interest​ rates, taxes and cash flow.

The high point of economic activity is called A. a peak. B. a trough. C. a high. D. a zenith.

A. a peak.

A decrease in the interest rate would cause the A. aggregate expenditure line to shift​ upward, increasing equilibrium real GDP. B. aggregate expenditure line to shift​ downward, increasing equilibrium real GDP. C. aggregate expenditure line to shift​ upward, decreasing equilibrium real GDP. D. aggregate expenditure line to shift​ downward, decreasing equilibrium real GDP

A. aggregate expenditure line to shift​ upward, increasing equilibrium real GDP.

Which of the following price indices comes closest to measuring the cost of living of the typical​ household? A. consumer price index .B. household price index C. GDP deflator D. producer price index

A. consumer price index

The most important determinant of consumption spending is A. current personal disposable income. B. the interest rate. C. expected future income. D. household wealth.

A. current personal disposable income.

Suppose you borrow​ $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5​ percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation A. greater than 7 percent. B. equal to 0 percent. C. equal to 7 percent. D. less than 7 percent.

A. greater than 7 percent.

The difference between a nominal variable and a real variable is that A. nominal variables are calculated in​ current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation. B. nominal variables are economic variables that are adjusted for​ inflation, whereas real variables are valued in​ today's dollars. C. real variables are divided by the price index and multiplied by 100 to obtain nominal variables. D. real variables are calculated in​ current-year prices and the nominal variables are measured in dollars of the base year to adjust for the effects of inflation.

A. nominal variables are calculated in​ current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.

All of the following are problems in measuring the unemployment rate except that A. people on active military service are included as unemployed. B. ​part-time workers are included as employed. C. lack of verification of​ people's responses in the household survey. D. discouraged workers are not included in the labor force.

A. people on active military service are included as unemployed.

The real interest rate equals A. the nominal interest rate minus the inflation rate. B. the nominal interest rate divided by the CPI for a given year. C. the nominal interest rate plus the inflation rate. D. the inflation rate minus the nominal interest rate

A. the nominal interest rate minus the inflation rate.

The two key factors that cause labor productivity to increase over time are A. the quantity of capital per hour worked and the level of technology. B. the quantity of labor per hour worked and the level of technology. C. the decline in unionization and slacking of labor laws. D. better environmental standards and stricter labor laws.

A. the quantity of capital per hour worked and the level of technology.

Nominal incomes generally increase with inflation because A. when inflation is​ anticipated, average nominal incomes also increase by the same percentage as the rate of inflation. B. when inflation is​ unanticipated, average nominal incomes also increase by the same percentage as inflation. C. even anticipated inflation causes average nominal incomes to fall as prices increase. D. when inflation is​ anticipated, real incomes also increase by the same percentage as inflation.

A. when inflation is​ anticipated, average nominal incomes also increase by the same percentage as the rate of inflation.

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure​ inflation, but​ ______ quality increases. This causes the CPI to​ ______ the cost of the market basket. A. ​not; overstate B. ​also; overstate C. ​also; understate D. ​not; understate

A. ​not; overstate

Gross Domestic Product is calculated by summing up A. the total market value of final goods and services produced in the economy during a period of time. B. the total market value of goods and services in the economy. C. the total quantity of goods and services in the economy. D. the total quantity of goods and services produced in the economy during a period of time.

A. the total market value of final goods and services produced in the economy during a period of time.

An economics student raises the following​ objection: ​"The textbook said that a higher interest rate lowers​ investment, but this​ doesn't make sense. I know that if I can get a higher interest​ rate, I am certainly going to invest more in my savings​ account." The problem with the​ student's argument is which of the​ following? A. Savings accounts do not earn interest. B. The student is confusing saving with investment. C. Investment is not related to the interest rate. D. Higher interest rates are bad for savers.

B. The student is confusing saving with investment.

Which of the following is true about the consumer price​ index? A. It filters out the part of price increases that occurs because of quality improvements in products. B. It assumes that consumers purchase the same amount of each product in the market basket each month. C. It frequently updates the price changes of new products added to the market​ basket, as these have a tendency to fall. D. It accounts for people switching to goods whose prices have fallen.

B. It assumes that consumers purchase the same amount of each product in the market basket each month.

How would an increase in interest rates affect​ investment? A. Real investment spending may​ increase, decrease or remain the same depending on the rate of inflation. B. Real investment spending declines. C. Real investment spending remains unchanged. D. Real investment spending increases.

B. Real investment spending declines.

Which of the following describes the effect of the business cycle on the inflation rate and the unemployment​ rate? A. The unemployment rate increases and the inflation rate falls during expansions. B. The unemployment rate increases and the inflation rate falls during recessions. C. The unemployment rate falls and the inflation rate falls during recessions. D. The unemployment rate increases and the inflation rate increases during expansions.

B. The unemployment rate increases and the inflation rate falls during recessions.

What is the meaning of the​ 45° line in the​ 45°-line diagram? In the​ 45°-line diagram, the​ 45° line shows A. real consumption spending for varying levels of real GDP. B. all the points where aggregate expenditure equals real GDP. C. the equality of real consumption spending and real GDP. D. real aggregate expenditure for varying levels of real GDP.

B. all the points where aggregate expenditure equals real GDP.

The period between the low point of economic activity and the following high point is called A. an acceleration. B. an expansion. C. inflation. D. stagflation.

B. an expansion.

The​ employment-population ratio measures the A. portion of the total population that is employed. B. percentage of the working age population that is employed. C. percentage of the working age population that is in the labor force. D. percentage of the working age population that is not employed.

B. percentage of the working age population that is employed.

Suppose that nominal GDP in 2018 was less than real GDP in 2018. Given this​ information, we know for certain that A. real GDP in 2018 was greater than real GDP in the base year. B. the price level in 2018 was less than the price level in the base year. .C. real GDP in 2018 was less than real GDP in the base year. D. the price level in 2018 was greater than the price level in the base year.

B. the price level in 2018 was less than the price level in the base year.

The natural rate of unemployment is A. the sum of seasonal unemployment and cyclical unemployment. B. the sum of structural unemployment and frictional unemployment. C. the sum of cyclical unemployment and frictional unemployment. D. the sum of structural unemployment and cyclical unemployment.

B. the sum of structural unemployment and frictional unemployment.

If an economy experiences​ deflation, the real interest rate A. will be equal to the deflation​ rate, so long as the nominal interest rate is positive. B. will be greater than the nominal interest rate. C. will be less than the nominal interest rate. D. will be negative when the nominal interest rate is positive.

B. will be greater than the nominal interest rate.

Which of the following would shift the aggregate expenditure line​ upward? A. An increase in interest rates B. A decrease in government purchases C. An increase in foreign real GDP D. A decrease in expected future income

C. An increase in foreign real GDP

Which of the following is not a main determinant of net​ exports? A. The exchange rate between the dollar and other currencies. B. The growth rate of GDP in the United States relative to the growth rates of GDP in other countries. C. Expectations of future profitability in the United States. D. The price level in the United States relative to price levels in other countries.

C. Expectations of future profitability in the United States.

Which of the following is a true statement about real and nominal​ GDP? A. Nominal GDP is a better measure than real GDP in comparing changes in the production of goods and service year after year. B. If nominal GDP increases from one year to the​ next, we know that production of goods and services has risen. C. If real GDP increases from one year to the​ next, we know that production of goods and services has risen. D. Increases in average prices do not affect the calculation of nominal GDP.

C. If real GDP increases from one year to the​ next, we know that production of goods and services has risen.

Which one of the following is not a determinant of consumption​ spending? A. Current disposable income. B. Household wealth. C. The growth rate in the United States relative to the growth rates in other countries. D. The interest rate.

C. The growth rate in the United States relative to the growth rates in other countries.

Which one of the following depicts an accurate description of the household survey and the establishment​ survey? A. The household survey interviews households and measures the employment rate whereas the establishment survey interviews​ self-employed people and measures the unemployment rate. B. The household survey interviews retired individuals and measures the unemployment rate whereas the establishment survey interviews working population and measures the employment rate. C. The household survey interviews households and collects data that is used to measure the unemployment rate whereas the establishment survey interviews businesses and measures total employment in the economy. D. The household survey conducts surveys of small companies and measures the employment and the unemployment rate whereas the establishment survey interviews big establishments and measures the unemployment rate

C. The household survey interviews households and collects data that is used to measure the unemployment rate whereas the establishment survey interviews businesses and measures total employment in the economy.

Indicate whether the following statement is true or false and why. ​"A wage rising slower than the rate of inflation is actually​ falling." A. True. If wages are increasing slower than the average price of goods and​ services, purchasing power increases. B. False. A higher wage increases purchasing power regardless of inflation. C. True. If wages are increasing slower than the average price of goods and​ services, purchasing power falls. D. False. A higher wage decreases purchasing power regardless of inflation.

C. True. If wages are increasing slower than the average price of goods and​ services, purchasing power falls.

The low point of economic activity is called A. a low. B. a peak. C. a trough. D. a bottom.

C. a trough.

The Consumer Price Index in December 2012 equaled 231. With a base period of​ 1982-84, the CPI of 231 means that the A. cost of the market basket in December 2012 was 131 percent of the cost of the market basket in the base period. B. inflation rate in December 2012 for the last twelve months was 131 percent. C. cost of the market basket in December 2012 was 231 percent of the cost of the market basket in the base period. D. inflation rate in December 2012 for the last twelve months was 231 percent.

C. cost of the market basket in December 2012 was 231 percent of the cost of the market basket in the base period.

How would an increase in the growth rate of GDP in the BRIC nations​ (Brazil, Russia,​ India, and​ China) affect U.S. net​ exports? An increase in the growth rate of GDP in the BRIC nations​ (Brazil, Russia,​ India, and​ China) will A. increase U.S. net exports by decreasing imports from these countries. B. decrease U.S. net exports by increasing exports to these countries. C. increase U.S. net exports by increasing exports to these countries. D. have no effect on U.S. net exports.

C. increase U.S. net exports by increasing exports to these countries.

Government unemployment insurance tends to A. increase the unemployment rate by increasing the opportunity cost of job search. B. decrease the unemployment rate by lowering the opportunity cost of job search. C. increase the unemployment rate by lowering the opportunity cost of job search. D. have no direct effect on the unemployment rate.

C. increase the unemployment rate by lowering the opportunity cost of job search.

The payment of government unemployment insurance reduces the severity of recessions by A. prolonging the job search period for unemployed workers. B. giving extra income to everyone and thus increasing consumption spending. C. preventing a huge drop in income and spending for the unemployed. D. adding to the level of frictional and structural unemployment.

C. preventing a huge drop in income and spending for the unemployed.

On the graph of the consumption​ function, the horizontal axis measures​ _______, while the vertical axis measures​ _______. A. real consumption​ spending; real national income B. real disposable​ income; real national income C. real national income or real​ GDP; real consumption spending D. real​ GDP; real aggregate expenditure

C. real national income or real​ GDP; real consumption spending

If inflation is expected to​ increase, A. the real interest rate will increase. B. the nominal interest rate will remain the same. C. the nominal interest rate will increase. D. the nominal interest rate will decrease.

C. the nominal interest rate will increase.

If the inflation rate is 6 percent and the nominal interest rate is 4​ percent, then the real interest rate is A. 10​ percent, which is the sum of the nominal interest rate and the inflation rate. B. 2​ percent, which is the inflation rate minus the nominal interest rate. C. ​-2 percent, which is the nominal interest rate minus the inflation rate. D. 1.5​ percent, which is the ratio of the nominal interest rate to the inflation rate.

C. ​-2 percent, which is the nominal interest rate minus the inflation rate.

What are the four major categories of​ expenditure? A. Final​ goods, intermediate​ goods, production, and income. B. ​Labor, capital, natural​ resources, and entrepreneurship. C. ​Consumption, investment, government​ purchases, and net exports. D. ​Wages, interest,​ rent, and profit.

C. ​Consumption, investment, government​ purchases, and net exports.

The substitution bias in the consumer price index refers to the idea that consumers​ ______ the quantity of products they buy in response to​ price, and the CPI does not reflect this and​ ________ the cost of the market basket. A. do not​ change; over-estimates B. do not​ change; under-estimates C. ​change; over-estimates D. ​change; under-estimates

C. ​change; over-estimates

In the circular flow​ model, the value of total income for an economy​ ________ the value of total production. A. is greater than B. may be greater than or less than C. equals D. is less than

C. equals

Which of the following is the best measure of the standard of living of the typical person in a​ country? A. real GDP B. the unemployment rate C. the inflation rate D. real GDP per person

D. real GDP per person

At point A​, the unintended change in inventories can be shown on the graph​ by: A. the vertical distance between point A and the GDP axis. B. the horizontal distance between point A and the 45degrees line. C. the horizontal distance between point A and point B. D. the vertical distance between point A and the 45degrees line.

D. the vertical distance between point A and the 45degrees line.

Why might the unemployment rate continue to rise during the early stages of a​ recovery? A. Employment growth may be slow relative to the growth in the labor force. B. The number of discouraged workers may continue to increase. C. Some firms continue to operate well below their capacity even after a recession has ended. D. Because both​ (a) and​ (c) are true

D. Because both​ (a) and​ (c) are true

When planned aggregate expenditure is less than real​ GDP, as in the diagram to the​ right, what happens to​ firms' inventories? A. Inventories accumulate as firms increase production. B. Inventories fall as firms increase output. C. Inventories fall if production is not scaled back. D. Inventories accumulate if production is not scaled back.

D. Inventories accumulate if production is not scaled back.

Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarah​ experiencing? A. structural B. cyclical C. frictional D. Sarah is not experiencing unemployment of any​ kind, because she is not currently part of the labor force.

D. Sarah is not experiencing unemployment of any​ kind, because she is not currently part of the labor force.

The period between the high point of economic activity and the following low point is called A. inflation. B. an expansion. C. stagflation. D. a recession.

D. a recession.

Increases in real GDP would overstate the increase in the well-being of a country over time​ if, over that time​ period, the A. price level increased. B. amount of pollution decreased. C. crime rate decreased. D. average hours worked per week increased

D. average hours worked per week increased

When an unemployed person drops out of the labor​ force, it A. does not affect the unemployment rate. B. affects the​ employment-population ratio. C. does not affect the labor force participation rate. D. does not affect the​ employment-population ratio.

D. does not affect the​ employment-population ratio.

Since nominal incomes increase with​ inflation, A. unexpected inflation does not affect the purchasing power of the average consumer. B. expected inflation increases the purchasing power of the average consumer. C. expected inflation reduces the purchasing power of the average consumer. D. expected inflation does not affect the purchasing power of the average consumer.

D. expected inflation does not affect the purchasing power of the average consumer.

A rise in stock prices and housing prices A. increases household wealth which in turn increases consumption and leads to an upward movement along the consumption function. B. reduces consumption due to increase in prices and causes the consumption function to shift downward. C. does not affect consumption because they do not have any direct impact on disposable income. D. increases household wealth which in turn increases consumption and leads to an upward shift of the consumption function.

D. increases household wealth which in turn increases consumption and leads to an upward shift of the consumption function.

Many economists prefer A. the establishment survey because it can predict future stock prices of the companies it surveys. B. the household survey because it provides a large sample of the population and so is more inclusive. C. the household survey because it gives data on unemployed and​ self-employed individuals. D. the establishment survey because it is determined by actual payroll records rather than unverified answers.

D. the establishment survey because it is determined by actual payroll records rather than unverified answers.

When the economy is at full​ employment, unemployment is equal to A. zero. .B. cyclical unemployment minus seasonal unemployment. C. normal rate of unemployment minus abnormal rate of unemployment. D. the natural rate of unemployment.

D. the natural rate of unemployment.

When an unemployed person drops out of the labor​ force, the unemployment rate A. becomes more reliable as all the potential erroneous data are removed. B. overstates the true degree of joblessness in the economy. C. is not affected by the existence of such workers. D. understates the true degree of joblessness in the economy.

D. understates the true degree of joblessness in the economy.

When aggregate expenditure is greater than​ GDP, inventories will​ __________ and GDP and total employment will​ __________. A. ​rise; decrease B. ​rise; increase C. ​fall; decrease D. ​fall; increase

D. ​fall; increase

Real Average Hourly Wage formula

Nominal Average Hourly Earnings / CPI x 100

Real GDP formula

Prices (base-year) x Quantity (current-year)

Nominal GDP formula

Prices (current-year) x Quantity (current-year)

Experts in​ hand-drawn animation who remain unemployed due to the film​ industry's switch to​ computer-generated animation are considered to be __________.

structurally unemployed

When there are workers that drop out of the labor force​, the official BLS measure of the unemployment rate _____ the true degree of unemployment

understates

Unemployment Rate formula

unemployed / labor force