ECON 1010 Review Chapters 6-11

The consumer price index (CPI) can be used to measure inflation. There are potential problems with this process though that can result in inflation being overstated or understated. Place each statement according to whether it would cause inflation to be overstated, understated, or would give an accurate representation of inflation. a. Pat, a confirmed chocoholic, notices that a favorite candy bar shrank in size, but its price stayed the same. b. Sam loves bagels, but bagels are becoming more expensive. Sam replaces bagels with muffins in the breakfast routine because muffins remain relatively cheap. c. Mary and Bob replace their old minivan with a new one. The new van costs 15% more than the old van, but the new model has many updated features like a camera to assist with backing up, GPS, and better fuel economy. d. Chris is an avid runner, loyal to one particular brand of running shoe. She buys a new pair of the same shoe every few months. The price of the shoes has doubled in the last 15 years.

Causes inflation to be understated Causes inflation to be overstated Causes inflation to be overstated Does not cause inflation to be understated or overstated

Donny, of Donny's Doughnuts, bakes and sells 100 dozen doughnuts a day using one mixer and one fryer. His rival, Sunshine, of Sunshine's Doughnuts, produces 180 dozen doughnuts a day using two mixers and two fryers. Both shops use the exact same technology to make doughnuts and have the same number of workers and the same size building. Donny and Sunshine both increase their capital equipment by one mixer and one fryer. Which shop will benefit the most from its expansion? How much should Donny realistically expect his production to increase with the new equipment? How much should Sunshine realistically expect her production to increase with the new equipment?

Donny, because his workers currently have less available capital to work with. about 80 dozen about 50 dozen

Household behavior with respect to changes in income can be described by the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). These variables can be used to predict the eventual changes in equilibrium output after the change in income has occurred. The _____________________ the larger the resulting change in output for a given change in expenditure.

greater the MPC

The Phillips Curve and Inflation — End of Chapter Problem Flll in the blanks to complete the following passages describing the three sources of inflation. a. Cost-push inflation arises when __________________ . For example, it may occur when __________________ . b. Demand-pull inflation arises when __________________ . For example, it may occur when __________________ c. Inflation expectations may act as a self-fulfilling prophecy when __________________ and __________________ .

higher input prices compel sellers to raise product prices / an unforeseen event limits the availability of a resource commonly used in production Increased consumer purchases incentives sellers to raise prices/ consumer purchases outpace existing product supply, pushing output beyond potential people become accustomed to a given inflation rate/people predict future based on past

The potential output of an economy depends on three factors: human capital, physical capital, and technology. For each item below, indicate whether it affects human capital, physical capital, or technology. a. An improvement in adult literacy b. An increase in the college student population c. The development of smaller mp3 players d. The acquisition of computers by companies e. New distribution techniques

human human tech physical tech

All else equal, which scenario would exhibit a country with the most economic growth?

Froland, a country known to be able to resolve most trials and legal issues within a year

Sort the pros and the cons of Employment Insurance (EI).

Pros: Increases job search efficiency and wage outcome smooths income changes reduces burden of unemployment Cons: Creates incentive to delay looking for a job Increases frictional unemployment.

Use the line mover tool in the simple Keynesian model to illustrate how a $500 million ($0.5 billion) increase in investment spending impacts the economy. Then, use the point to identify the new equilibrium. Note that in this simple Keynesian model the line AE equals Y is the reference line. The reference line shows where aggregate expenditure (AE) equals aggregate income (Y). The aggregate expenditure line is C plus I, where C represents consumption and I represents investment.

C+I goes up, put dot where they cross

Suppose disposable income increases by $2,000. As a result, consumption increases by $1,500. The increase in savings resulting directly from this change in income is

$500

Suppose that the least amount of goods and services that Scott will consume in a year is $40,000. Scott tends to save $0.30 of every dollar of disposable income that he makes. Use the given line to graph Scott's consumption function for disposable income levels between $0 and $200,000. Move each endpoint to the appropriate spot on the graph.

(0,40) and (200,180)

The table describes hypothetical employment statistics for a country in a given year. Labor force Full-time/voluntary Involuntary Discouraged workers 192 million 180 million 12 million 10 million Based on the information, what is the unemployment rate? Enter your answer as percentage rounded to one decimal place.

0%

In the economy of Spendsalot, the marginal propensity to save, MPS, is 0.6. What is the marginal propensity to consume, MPC, for Spendsalot? Which value does MPC determine?

0.4 the slope of pre‑tax consumption as a function of GDP

Suppose disposable income increases by $5,000. As a result, consumption increases by $4,300. The marginal propensity to save (MPS) is The marginal propensity to consume (MPC) is

1- (consumption/income) = 0.14 0.86

After a financial crisis hits the country of Barbaria, 8 million people become unemployed. If 55 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.

12.70%

After the financial crisis that hits the country of Cinfuria in 2012, a total of 8 million people are unemployed. If 55 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.

12.70%

Suppose that Kim K decides to spend $30,000 on an American‑made purse instead of donating it to Haitian earthquake relief. Assume that the multiplier is 1.7 How much will GDP rise when Kim K buys her purse according to the multiplier effect? Buying the purse increases America's GDP _______________________ donating the money to Haitian earthquake relief. Suppose she instead donated to tornado relief in Joplin, MO. Buying the purse increases GDP _______________________ spending on tornado relief.

30,000 * 1.7 = 51,000 more/the same

The average rate of growth for slow-growth countries is around 2% per year, and for fast-growth, greater than 5% per year. Suppose the growth rate of the economy is 2%. The size of the economy roughly doubles every If instead the growth rate is 7%, the doubling time for the economy is Economic growth is important to understand because

35 years 10 years it is closely tied to standard of living.

Consider the labour statistics for the country of Menap, which consists of five districts and a capital region with varying degrees of poverty. Round your answers to two decimal places. District Unemployed (in millions) Employed (in millions) 1 16 35 2 25 48 3 12 32 4 26 52 5 14 37 Capital 21 52 What is the labour force in Menap? What is the unemployment rate in Menap?

370 million (total on both sides) 30.81

The overall population for Region A is 123 million people. The labor force contains 46 million people, 26 million people are employed, and 20 million are unemployed. What is the unemployment rate? Round your answer to two decimals.

43.48%

Country A and Country B start with the same GDP per capita of $50,000. Country A's GDP per capita grows at a constant rate of 2.8% and Country B's GDP per capita grows at a constant rate of 1.4%. Compute the difference in GDP per capita for these two countries after 100 years, in thousands of dollars.

590,000

The table shows the cost of a fixed basket of goods that a typical urban consumer would buy in the economy of Kindleberger. The base period for the consumer price index (CPI) is the year 2000. Please specify answers to two decimal places. Year Cost of a basket of goods 2000 $6,150.00 2011 $5,500.00 2012 $8,725.00 What is the CPI for 2000? What is the CPI for 2011? What is the CPI for 2012?

6150/6150*100 = 100 5500/6150*100 = 89.43 8725/6150*100 = 141.87

The Thompson family has a disposable income of $70,000 annually. Currently, the Thompson family spends 80% of new disposable income on consumption. Assume that their marginal propensity to consume is 0.8 and that their autonomous consumption spending is equal to $10,000. What is the amount of the Thompson family's annual consumer spending?

70,000 * 0.8 = 56,000 + 10,000 = 66,000

Using the rule of 70, how many years will it take an investment to double if the return is 7%? Round your answer to two decimal places.

70/7 = 10

Answer the following questions about the multiplier. a. How much will GDP change after a $545 billion increase in government purchases, if the multiplier is 1.5? b. How much will GDP change after a $400 billion decrease in government purchases, if the multiplier is 1.25? c. If a $300 billion increase in government purchases leads to a $450 billion increase in GDP, what is the value of the multiplier? d. Given a multiplier of 2, if a $200 billion increase in government purchases leads GDP to rise to $1 trillion, what was the initial value of GDP?

817.5 -500 1.5 600

Which statement best identifies the multiplier effect in the macroeconomy?

A change in aggregate expenditure can affect Real GDP by more than the amount of the change.

Use the Rule of 70 to answer the questions on economic growth. Round answers to two places after the decimal. If annual real GDP per capita growth in South Africa averages 1.8%, how long will it take the country to double its real GDP per capita? If Ireland took 15 years to double its real GDP per capita, what was its average annual GDP per capita growth rate during this period? If annual real GDP per capita growth in Tanzania averages 0.8% per year, how long will it take the country to quadruple its real GDP per capita? If China took 40 years to increase its real GDP per capita eightfold, what was its average economic growth during this period?

A. 70 / 1.8 = 38.88 years B. 70 / 15 = 4.66% C. 140 / 0.8 = 175 years(140 because 70 * 2) D. 70 / 40 = 1.751.75 * 3 = 5.25% (2 ^ 3 = 8 meaning eightfold)

Which provisions provide incentives for innovation?

research and development tax credit provisions copyright laws patent systems

Select the term that best describes the employment status of each person. Anna Conda is in the Amazon on a vacation from her part‑time job as a herpetologist at the Toronto Zoo. Bill Loney does not have a job nor does he intend to look for one. Brighton Early is a student. He has no job outside of the home but spends five hours each week on yard work. He is happy with his situation and is not looking for more work. Bonnie Ann Clyde has not had any work for six months despite filling out at least eight job applications each day.

Employed Out of the Labor Force Out of the Labor Force Unemployed

Suppose the civilian noninstitutionalized working-age population is 35.9 million in in a hypothetical economy. Of these, 4.6 million are working part-time and 15.71 million are working full-time. Assume the Bureau of Labor Statistics (BLS) definitions are used for calculating unemployment data. Among those not working, the most recent job-search activity for 3.20 million happened less than two weeks ago, while 1.72 million most recently looked for work between two and four weeks ago. An additional 0.86 million most recently looked for work five weeks ago, and the remaining 9.81million who do not have jobs have not looked for work in the past six weeks. Round your answers to two decimal places. What is the size of the total labor force? How many people are unemployed? What is the labor force participation rate? What is the unemployment rate?

Employed = 4.6+15.71 = 20.31 Unemployed = 3.2+1.72 = 4.92 20.31 + 4.92 = 25.23 4.92 25.23/35.9 = 70.28 4.92/25.23 = 19.50

Which choice best characterizes the debate over employment insurance?

Employment insurance increases the unemployment rate experienced in the economy. It is difficult to determine whether the economy would be better or worse off without employment insurance.

Consider each person's situation to determine who would be counted among the "unemployed." 1. Laura works 20 hours in a paid position for her local animal shelter. She would like to work more but cannot find a job that offers her more hours. 2. Erik volunteers 10 hours a week at his children's school and does no other work. He sends his resume to 10 potential employers daily. 3. Pete had a knee replacement two weeks ago and will not work at his workplace for the next three months. 4. James quit his job to stay at home with his children and has not worked in 15 years, nor has he looked for work. Who meets the definition of "unemployed"?

Erik

In the context of inflation, which best describes substitution bias?

Evaluating the price of a basket of goods over time does not account for changes that consumers make when the price of a particular good increases.

Determine if each statement is true or false. Borrowers gain when inflation is lower than expected. Loan contracts specify the real interest rate. Lenders gain when inflation is lower than expected. Loan contracts specify the nominal interest rate. In 1980, nominal interest rates increased whereas real interest rates decreased.

False False True True False

Complete the sentences about structural and frictional unemployment. ______________ unemployment includes those involved in job search. ______________ unemployment can be caused by minimum wages. ______________ unemployment includes cyclical unemployment. ______________ unemployment is affected by the pace of technological progress. ______________ unemployment can be caused by efficiency wages. ______________ unemployment occurs as a result of labor surplus in a given market. ______________ unemployment can be a result of new people entering the labor force. ______________ unemployment typically declines in times of high economic growth. ______________ unemployment can be caused by labor unions.

Fictional Structural Neither Structural Structural Structural Fictional Neither Structural

In Vintland, incandescent lightbulbs are being replaced with fluorescent lightbulbs, which have fewer negative effects and many more significant benefits. However, the energy efficiency of fluorescent lightbulbs has driven down the price of lightbulbs so significantly that incandescent lightbulbs can no longer compete. After six months, everybody has switched to the cheaper and better fluorescent lightbulbs. Assume that Vintland consumes the same quantity of lightbulbs now as they did six months ago. Please select the choice that best describes the short‑run effects of this industrial change on Vintland's GDP and its standard of living.

GDP decreases and standard of living increases.

A household consumption function is shown on the graph. Move the curve to the appropriate place to illustrate a decrease in the consumption function. Then, answer a question about the consequences of a decrease in the consumption function. Which statement is not a (general) consequence of a decrease in the consumption function?

Graph down Unexpected changes in income will now result in a smaller change in the level of consumption.

Consider the aggregate expenditure model. Suppose there is an increase in real GDP in the economy. Classify each economic variable as to whether it increases, decreases, or remains unchanged when real GDP increases.

Increases: aggregate expenditures, consumption, imports Decreases: net exports Does not change: govt spending, potential GDP, MPC, exports, investment

Which of the statements clearly demonstrates that total factor productivity is increasing? Assume the aggregate production function is upward sloping and exhibits diminishing returns.

Physical capital per worker and human capital per worker decrease, but real GDP per worker remains unchanged.

Please match each scenario to the inflation term it best exemplifies. Inflation Deflation Disinflation Hyperinflation

Inflation: Barry Cade notices that the price of many items that he uses on a regular basis has a steadily been increasing over the past ten years Deflation: Barb Dwyer notices that during economic downturns such as recessions, the prices tend to decrease at least for the duration of these economic events. Disinflation: Bill Board notices that his rent for this year has increased, but not as much as it had increased last year. Hyperinflation: Anne Teak notices that her government has taken to printing money in trillion dollar bills in order to make everyday transactions easier.

Why is the effectiveness and stability of a country's financial system essential to economic growth?

It allows firms to finance technological advancements, which lead to economic growth.

Why is increased technological knowledge for a nation important for growth?

It allows the nation to be more productive in goods and services that it produces.

Please use the labels to complete the equation for the multiplier where MPC is the marginal propensity to consume, Y is real GDP, and AE is aggregate expenditure.

Multiplier = ∆Y / ∆ AEo = 1/ 1-MPC

In 2000, a small nation has real GDP of $20,000 and a population of 150. By 2010, real GDP has grown to $30,000, and improved nutrition has allowed the population to increase to 220. Which statement must be true for this nation? As the nation's leading expert in economics, you have been asked to present a series of economic policies you believe would be helpful to the nation. Because of budget constraints, the legislature also wants you to rank your suggestions. Which suggestion would be last on your list of policy proposals?

Per capita GDP is higher in 2010 than it was in 2000. strict population control measures

The recent recessions in the US have been referred to as jobless recoveries. What factors allow for, or contribute to, a jobless recovery?

Technology allows fewer workers to be equally productive. Temporary employees are easier to hire and fire as needed.

The simple Keynesian model makes three simplifying assumptions. What is one of these assumptions?

The aggregate supply curve is positively sloped.

What does productivity, or labor productivity, measure?

The amount of goods or services that can be produced by one worker in one hour of work

Use the table to answer the questions. u=unemployment rate, u*=natural rate of unemployment, Y=output, Y*=full employment output Year u u* 2007 7.5% 5.5% 2008 5.5% 5.5% 2009 4.9% 5.5% Given the information in the table, select the answer that best describes the condition of this economy in 2007. What is the value of cyclical unemployment in 2009?

The economy is in a recession. -0.6%

Which of these causes inflation?

The government printing too much money

Which is true if a nation is currently experiencing full employment?

The rate of cyclical unemployment is 0% .

Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of the economic council to determine the increase in government spending necessary to bring the economy to full employment. Assume there is a GDP gap of 1 trillion yen and the marginal propensity to consume (MPC) is 0.60. What advice should the head of the economic council give the Prime Minister?

The recessionary gap is equal to 400 billion yen . (1/1-.6) * 1 tril

Choose the answer that best defines the marginal propensity to save (MPS).

The share of each additional dollar of income earned that is devoted to saving rather than consumption

Ruritania's Ministry of Economics has considered various plans to stimulate economic growth in the kingdom. Which proposal would have the best chance of success? Which source of productivity growth does the best proposal directly influence?

To increase the general level of skills in the labor force, provide more on-the-job training for workers who have not completed secondary education. Human Capital

Which of the equations represents the macroeconomic equilibrium condition in the aggregate expenditure (AE) model?

Y=C+I+G+ (X-M))

Which of the equations represents the macroeconomic equilibrium condition in the aggregate expenditure (AE) model?

Y=C+I+G+NX

Select the correct definition of inflation.

a general and ongoing rise in the average level of prices in an economy

Kentucky Fried Chicken, better known as KFC, holds one of the most desired recipes in the world for their signature, 11‑spice blend used in their fried chicken. In fact, it is so valuable, the recipe is kept in a vault and only two people in the world know the full contents of the recipe. The KFC fried chicken recipe is an example of

a trade secret

Consider each event described below will increase investment demand, decrease investment demand, or leave investment demand unchanged. a. Congress increases business taxes to avoid the much discussed "fiscal cliff." Investment demand will b. The tech industry develops the personal computer, which has a significant impact on productivity. Investment demand will c. Businesses become increasingly pessimistic about the economy. Investment demand will d. After a major hurricane, the resulting floods destroy much of the existing capital stock in many parts of the eastern United States. Investment demand will e. The practice of fracking, which is a technique used to extract oil and natural gas, increases, causing the costs of using many types of machinery to fall. Investment demand will

a. decrease b. increase c. decrease d. increase e. increase

Classify the statements about investment spending as true or false. a. Predictable levels of profit cause investment spending to be relatively volatile. b. Investment spending rises and falls as the pattern of innovation changes. c. The predictable lifespan of many capital goods explains why investment spending is so stable. d. Investment spending is more volatile when firms have changing views about how promising the business climate appears. e. Investment spending typically fluctuates less than consumption spending.

a. false b. true c. false d. true e. false

Productivity can increase with improved resource allocation. Which of the options is not a source of improved resource allocation?

an increase in protectionist policies, such as tariffs on imported goods

Which example is not a factor that contributes to growth in labour productivity?

an increase in the labour force participation rate

What is inflation? Which of the examples provides the best evidence that inflation has occurred?

an increase in the overall price level A person whose salary has increased is able to purchase fewer goods and services.

To convert the money spent on the basket to a useable figure, economists arbitrarily choose the _____________, or starting point from which we measure changes in prices. To simplify the task of interpreting the price levels for more realistic and complex baskets of goods, economists typically report the price level in each period as an _____________, rather than as the dollar amount for buying the basket of goods.

base year index number

Identify what type of unemployment each of the individuals faces. James is an architect who has been laid off owing to a slump in the demand for property. He feels he will have to wait until the economy picks up before he can get a new job. James is facing Eric is an experienced project manager who lost his job at a tech start-up because the company's product failed to become popular. He is confident he can get a new job and has already rejected a number of offers. Eric is facing Craig lost his job several months ago. He is having a hard time finding a job that pays him more than unemployment insurance does. Craig is facing Sarah is a recent economics graduate who is entering a difficult labor market, due to a severe recession. She is continuing to look for work but is having a hard time getting interviews. Sarah is facing Hamid has just graduated as a lawyer from an esteemed law school. He is confident of getting a job and has already refused a few lower‑paying jobs. Hamid is facing

cyclical frictional structural cyclical frictional

Match the definition with the correct type of unemployment. Not all of the terms will be used. Unemployment caused by recessions Unemployment that normally occurs due to turnover as workers switch jobs The unemployment rate that exists when the economy is operating at potential

cyclical unemployment frictional unemployment natural unemployment

Complete the sentences on the role of government in promoting economic growth. a. The government's direct role in the production of physical capital is primarily focused on b. The government's direct role in creating human capital is primarily focused on c. Governments play an indirect role in private savings and investment through

developing infrastructure improving the education system regulating the financial system.

Complete the statements and then calculate the change in consumption. The consumption function shows the relationship between consumption spending and The slope of the consumption function is the Changes in consumption can be predicted by multiplying the change in _____________________ by the _____________________ If the MPC=0.80 and disposable income increases by $1000, then consumption will increase by what amount? Assume that there is no multiplier effect.

disposable income marginal propensity to consume disposable income / marginal propensity to consume 800

The consumption function describes the relationship between consumption spending and The slope of the consumption function is equal to

disposable income. the marginal propensity to consume.

Select the term that best describes the employment status of people in the scenarios. Anna Conda is currently on a hiking vacation in the Amazon jungle from her part‑time job as a herpetologist at the San Diego Zoo. Bill Loney does not have a job nor does he intend to look for one. Brighton Early is a student. He has no job outside of the home but spends five hours each week mowing the lawn and maintaining his yard. He is happy with his situation and is not looking for more work. Bonnie Ann Clyde has not had any work at all for six months despite the fact that she has been filling out at least eight job applications each day.

employed out out unemployed

Institutions can promote economic growth by increasing saving and investment, promoting the development of new technologies, and ensuring that resources flow to their most productive uses. Identify whether each institution encourages growth or restricts growth. a. A competitive market system _____________economic growth. b. Free trade _____________ economic growth. c. Protectionist trade policies _____________ economic growth. d. Heavy government regulation _____________ economic growth. e. Patents and copyrights _____________ economic growth. f. Command‑based systems _____________ economic growth.

encourage encourage restricts restricts encourage restricts

As the marginal propensity to consume (MPC) increases, the spending multiplier If the marginal propensity to consume is 0.60, then, assuming there are no taxes or imports, what is the multiplier? Round to the nearest tenth. Given the calculated multiplier, what is the total impact on spending when there is a $1,000 increase in government spending?

increases 2.5 2500

Match each scenario to the appropriate inflation term. a. Over the past few months, Izzy Seltzer has noticed an overall increase in what he pays for the goods and services that he uses almost daily. b. For the past month, Dee Major has noticed that she has more money left over after her weekly shopping even though she is buying the exact same items. c. Bob Dwyer has seen a pattern emerge over the past few days. Each day, the prices of many goods are literally doubling overnight, to his great surprise. d. In general, prices have an upward trend. e. For the most part, the price level is gradually decreasing. f. On average, prices have risen by 100% this week.

inflation deflation hyperinflation inflation deflation hyperinflation

Which term refers to a nation's transportation and communications networks, power generating facilities, educational institutions, and legal, economic, and financial systems? Which statement is not true?

infrastructure Countries with relatively large public sector shares in the economy have the highest growth rates in GDP per capita.

Which of the following are examples of the investment component of GDP? Floatin' Away Kayak Co. buys equipment to use in its factory. This ______________ an example of investment spending. The government purchases new military equipment. This______________ an example of investment spending. All the Econs Consulting charges a foreign client $50,000 for services it has already provided. This ______________ an example of investment spending. Underfoot Sneaker Co. stores shoes that are produced in the current time period but not sold in inventory. This ______________ an example of investment spending. Adrienne buys a computer for personal use. This ______________ an example of investment spending.

is is not is not is is not

The interest rate effect

is the change in consumer and investment spending due to changes in interest rates resulting from changes in the aggregate price level.

Which best describes technological knowledge?

knowledge used to produce goods and services

Consider the data in the table. Year Nominal GDP GDP deflator Real GDP 2009 $1020 54 ? 2010 $1250 64 ? 2011 $1450 89 ? Rank the years from highest to lowest in terms of real GDP (gross domestic product).

nominal/deflator = real 2010 2009 2011

An economy can increase its capital stock by Because of diminishing returns, an increase in the savings rate

reducing consumption spending. will have a proportionally smaller impact on productivity in well‑developed economies than in poor economies with very little capital to start with.

The United States Bureau of Labor Statistics (BLS) categorizes individuals in the United States into three broad groups based on their employment status. Categorize each individual as employed, unemployed, or not in the labor force according to BLS standards. a. Brian is a 31‑year‑old who would like a job, is available to work, and most recently sought work six weeks ago. b. Sarah is a 76‑year‑old retiree who has no intention of returning to work. c. Bruce is a 61‑year‑old who has been without a job for two years, is available for work, and most recently sought work last week. d. James is a 35‑year‑old who most recently sought work two years ago. e. Chung is a 23‑year‑old single parent working only 10 hours a week, but seeking more hours.

not in the labor force not in the labor force unemployed not in the labor force employed

The people described are out of work. Determine the appropriate classification for each person. After several months of searching for a job, LaDainian has decided to stop looking. He instead spends his time golfing and spending time with his family. LaDainian is _______________ Terrell does not have a job. For many years, Terrell's skills were highly desired and he had no trouble finding work. Terrell still has many of these same skills but he is finding that employers now desire different attributes in employees. Terrell is _______________ Abby is a stellar employee. However, her employer has gone out of business due to a recession and Abby has no job as a result. Abby will surely be able to find a job in the future but remains looking for a job currently. Abby is _______________ Deron does not currently have a job. Many firms would like to hire him, in Dallas and Brooklyn in particular, but Deron remains out of work as he evaluates potential jobs in search for a proper match. Deron is _______________

not in the labor force structurally unemployed cyclically unemployed frictionally unemployed

If an economy experiences deflation, then the

overall price level is declining.

Select the best terms to complete the passage. Inflation is often measured by evaluating changes in the cost of a fixed basket of goods and services. This method ________________ inflation because it does not account for changes in spending patterns that result from relative price changes. This problem is known as ________________ Another problem with this technique is that it fails to recognize changes in the caliber of goods over time. As an example, consider cable television service. Although the cost has remained relatively constant over time, the development of high‑definition programing and more channels implies a substantial difference in caliber. This problem is known as ________________

overestimates substitution bias quality/new goods bias

Worker productivity is one of the most important factors that help determine the performance of an economy. Which definition best describes productivity?

per capita GDP

Economic growth is most accurately measured by changes in which variable? For living standards to rise, what must occur?

real GDP Output must grow faster than the population.

Which of the choices is most directly related to cyclical unemployment?

recessions

Snowdonia is a small country which produces wrought iron and cheesecakes and is experiencing fixed capacity growth in year 1. Which part of the business cycle is Snowdonia in? Fixed capacity growth is demonstrated on the graph as a movement from point ___________ to point ___________ Long‑run growth in Snowdonia would be illustrated on the graph as a movement from point ___________ to point ___________

recovery C to A A to B

Please match each scenario to the type of unemployment. Anna Prentice has worked for years fixing broken typewriters. She is laid off from her job as fewer and fewer people use typewriters. She is looking for work but cannot find a job in her area of specialty. Which term describes Anna's type of unemployment? Beau Tye decides to quit his job as a waiter in Pensacola, Florida, in order to pursue his dream of becoming an actor in Hollywood. Acting jobs exist, but he has not yet found one. Which term describes Beau's type of unemployment? Brock Lee used to work at Munch n' Munchies Restaurant serving fun family fare. Business at Munch n' Munchies has been slow because the major employer in town has laid off a large number of people. There simply was not enough work to keep Brock Lee on the payroll at Munch n' Munchies. Which term describes Brock's type of unemployment?

structural frictional cyclical

Three countries are attempting to increase their real GDP by increasing government spending. The bottom row of the corresponding table shows the amount by which each country plans to increase government spending. Use this table to answer the questions. Country A Country B Country C initial GDP $10 billion $20 billion $30 billion highest marginal tax rate40% 30% 25% (MPS) 0.2 0.28 0.33 increased spending $1 million $1.5 million $1.65 million What variable in the table can be used to determine the mulitiplier? In which country is the multiplier the highest? In which country will real GDP increase the most as a result of increased government spending?

the MPS A B

Which of the factors would decrease the rate of frictional unemployment? When the economy is doing well, a significant share of unemployment is frictional.

the advent of the Internet, which makes finding available jobs easier true

If an economy experiences deflation, then

the aggregate price level is declining.

Consider the interaction between labor and capital within the production process and answer the following questions. How do economists refer to the amount of capital employed per worker? What would likely happen if the amount of capital employed per worker grew?

the capital‑labor ratio Wages would rise because workers would become more productive.

The labour force is comprised of

the number of people counted as employed and the number of people counted as unemployed.

Match each creation with the type of legal protection that covers it. A recipe for really good baked beans told only to the family dog is a A hit song should have a A new fish tank cleaning device needs a A particularly catchy name for a product should have a Video game code hidden in an underground vault is a A new play called The Secret Sauce needs a A compelling new cartoon character should have a

trade secret copyright patent trademark trade secret copyright copyright

Consider the effects of an increase in two different types of income: permanent income and transitory income. In general, an increase in _________________ income will result in a lower corresponding increase in consumption. Changes in this type of income will have a comparatively _________________ multiplier effect. If the government wants to maximize the impact of a tax decrease on consumer spending, it should

transitory/smaller pass a permanent tax cut

Classify each statement as either true or false. New technological developments can help us adapt to depleting sources of natural resources. Research and development funds from the government to private industry never pay off for the country as a whole; they only increase the profits of rich corporations. In order for fledgling industries in poor nations to thrive, they must receive protection from foreign trade. Countries with few natural resources will always be poor. As long as real GDP (gross domestic product) grows at a slower rate than the population, per capita real GDP increases.

true false false false false

Classify each statement as either true or false. A negative rate of inflation implies that deflation has taken place. While theoretically possible, deflation has never been observed in the United States. Deflation means that the overall price level is increasing at a decreasing rate. Deflation means that the overall price level is decreasing.

true false false true

Classify the items about marginal propensity to consume (MPC), the multiplier, and economic stability as true or false. The Keynesian cross model is another name for the Income-Expenditure model. A lower multiplier leads to a more stable economy. In general, people consume more than they save. MPC+MPS=1 The Keynesian cross was developed by John Maynard Keynes. If the MPC is 0.65, the multiplier is 1.54. Macroeconomic policy has a larger effect when the multiplier is higher. If investment spending increases by $240 billion, the first round of GDP increase attributed to increased investment is equal to MPC×$240 billion.

true true true false false true false