ECO202 Exam 1- MyEconLab Questions

Indicate whether the following statement is true or false and why. ​"A wage rising slower than the rate of inflation is actually​ falling."

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

The high point of economic activity is called...

a peak.

The period between the high point of economic activity and the following low point is called...

a recession.

The low point of economic activity is called...

a trough.

Increases in real GDP would overstate the increase in the well-being of a country over time if, over that time period, the ...

average hours worked per week increased

The most important determinant of consumption spending is...

current personal disposable income

In the circular flow model, the value of total income for an economy _____________ the value of total production

equals

Since nominal incomes increase with inflation...

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

When aggregate expenditure is greater than​ GDP, inventories will​ __________ and GDP and total employment will​ __________.

fall; increase

An increase in the growth rate of GDP in the BRIC nations​ (Brazil, Russia,​ India, and​ China) will

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

How would an increase in interest rates affect investments

real investment spending declines

What are the four major categories of expenditure?

Consumption, investment, government purchases and net exports

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

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

A person who is in between jobs but actively engaged in a job search is considered to be... A. Frictionally Unemployed B. Structurally Unemployed C. Cyclically Unemployed

A. Frictionally Unemployed

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

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

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

A. Increase the unemployment rate by lowering the opportunity cost of job search

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 unemployment rate whereas the establishment survey interviews businesses and measures the employment rate. B. The household survey interviews households and measures the employment rate whereas the establishment survey interviews​ self-employed people and measures the unemployment rate. C. The household survey interviews retired individuals and measures the unemployment rate whereas the establishment survey interviews working population and measures the employment rate. 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.

A. The household survey interviews household and measures the unemployment rate whereas the establishment survey interviews businesses and measure the employment rate

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 231 percent of the cost of the market basket in the base period. B. cost of the market basket in December 2012 was 131 percent of the cost of the market basket in the base period. C. inflation rate in December 2012 for the last twelve months was 131 percent. D. inflation rate in December 2012 for the last twelve months was 231 percent.

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

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. less than 7 percent. C. equal to 0 percent. D. equal to 7 percent.

A. greater than 7 percent

Suppose that nominal GDP in 2016 was less than real GDP in 2016. Given this information, we know for certain that... A. the price level in 2016 was less than the price level in the base year B. real GDP in 2016 was less than real GDP in the base year. C. real GDP in 2016 was greater than real GDP in the base year. D. the price level in 2016 was greater than the price level in the base year.

A. the price level in 2016 was less than the price level in the base year

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

An increase in foreign real GDP

Experts in​ hand-drawn animation who remain unemployed due to the film​ industry's switch to​ computer-generated animation are considered to be... A. Frictionally Unemployed B. Structurally Unemployed C. Cyclically Unemployed

B. Structurally Unemployed

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

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

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. ​change; underminus−estimates B. ​change; overminus−estimates C. do not​ change; overminus−estimates D. do not​ change; underminus−estimates

B. change; over-estimates

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

B. does not affect the employment-population ratio

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

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

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

B. the nominal interest rate will increase

When a company reduces production and employment during economic​ recessions, those employees who lose their jobs are generally considered to be... A. Frictionally Unemployed B. Structurally Unemployed C. Cyclically Unemployed

C. Cyclically Unemployed

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 futures profitability in the United States.

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

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

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 falls and the inflation rate falls during recessions. C. The unemployment rate increases and the inflation rate falls during recessions. D. The unemployment rate increases and the inflation rate increases during expansions.

C. The unemployment rate increases and the inflation rate falls during a recession

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

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

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. ​also; understate B. ​not; understate C. ​not; overstate D. ​also; overstate

C. not; overstate

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. is not affected by the existence of such workers. C. understates the true degree of joblessness in the economy. D. overstates the true degree of joblessness in the economy.

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

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

D. Consumer price Index

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

D. People on active military service are included as unemployed. *When there are workers that drop out of the labor forceworkers that drop out of the labor force​, the official BLS measure of the unemployment rate understatesunderstates the true degree of unemployment.*

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

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

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

D. real GDP per person

Why might the unemployment rate continue to rise during the early stages of a​ recovery?

Employment growth may be slow relative to the growth in the labor force and some firms continue to operate well below their capacity even after a recession has ended.

What are the four main determinants of investment?

Expectations of future profitability, interest rates, taxes and cash flow

Formula for inflation rate:

Inflation Rate (Current Year)=(CPI Current year-CPI Previous year)/(CPI Previous year) X 100

When planned aggregate expenditure is less than real​ GDP, what happens to​ firms' inventories?

Inventories accumulate if production is not scaled back.

Sarah is a fullminus−time student who is not looking for work. What kind of unemployment is Sarah​ experiencing?

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

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?

The student is confusing saving with investment.

What is the meaning of the​ 45° line in the​ 45°-line diagram? In the​ 45°-line diagram, the​ 45° line shows....

all of the points where aggregate expenditure equals real GDP

The period between the low point of economic activity and the following high point is called...

an expansion.

The difference between a nominal variable and a real variable is that...

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

The employment-population ratio measures the...

percentage of the working age population that is employed

The payment of government unemployment insurance reduces the severity of recessions by...

preventing a huge drop in income and spending for the unemployed

When the economy is at full employment, unemployment is equal to...

the natural rate of unemployment

The real interest rate equals...

the nominal interest rate minus the inflation rate.

The two key factors that cause labor productivity to increase over time are...

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

The natural rate of unemployment is...

the sum of structural unemployment and frictional unemployment

Gross Domestic Product is calculated by summing up...

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

What is the formula for the labor force participation rate:

total # of labor force/ total # of working-age population * 100

What is the formula for the unemployment rate:

total # of unemployed/ total # of labor force * 100

Nominal incomes generally increase with inflation because...

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

If an economy experiences​ deflation, the real interest rate...

will be greater than the nominal interest rate.