Econ 1301 exam 2

In the treatment of U.S. exports and imports, national income accountants

add exports, but subtract imports, in calculating GDP.

Who gains from inflation?

Borrowers

What is a final good?

Consumed rather than used for the production of another good. Ex. Car

b. A recession causes a local factory to lay off 30 workers.

Cyclical unemployment

e. Which of the following statements is true? Deflation means that the inflation rate is falling, whereas with inflation overall prices are rising. Deflation means that the inflation rate is falling, whereas with inflation the inflation rate is rising. Deflation means that the price level is falling, whereas with inflation overall prices are rising. Deflation means that the price level is falling, whereas with inflation the inflation rate is rising.

Deflation means that the price level is falling, whereas with inflation overall prices are rising. Correct

c. Thousands of bus and truck drivers permanently lose their jobs to self-driving vehicles.

Structural unemployment

d. Hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India.

Structural unemployment

What is the efficiency factor?

The level of economic efficiency and full employment needed to reach full production potential

What is the demand factor?

The level of purchases needed to maintain full employment.

Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is

not in the labor force.

The more reliable measure for comparing changes in the standard of living over a series of years is

real GDP.

Which of the following formulas is correct? Percentage change in

real income approximates percentage change in nominal income minus percentage change in price level.

Net exports might be a negative amount if

Americans spend more on imports than foreign countries spend on American exports.

An increase in your nominal income and a decrease in your real income might occur simultaneously if

your nominal income increases less than the cost of living increases.

What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

Prices are sticky in the short run

Which of the following statements is true?

Real GDP is nominal GDP divided by the price index

Inflation initiated by increases in wages or other resource prices is labeled

cost-push inflation.

Real GDP measures

current output at base year prices.

Other things equal, appreciation of the dollar

decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.

In national income accounting, the personal consumption expenditures category includes purchases of

automobiles for personal use but not houses.

According to the Bureau of Labor Statistics, to be officially unemployed a person must

be in the labor force.

The immediate-short-run aggregate supply curve represents circumstances where

both input and output prices are fixed.

Recurring upswings and downswings in an economy's real GDP over time are called

business cycles

Given the annual rate of economic growth, the "rule of 70" allows one to

calculate the number of years required for real GDP to double.

A nation's gross domestic product (GDP)

can be found by summing C + Ig + G + Xn.

The Consumer Price Index (CPI) is determined each month by

comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in a base year. Correct

Government purchases include government spending on

government consumption goods and public capital goods.

The phase of the business cycle in which real GDP declines is called

a recession.

If nominal GDP rises,

real GDP may either rise or fall.

GDP excludes

the market value of unpaid work in the home.

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. The per-unit cost of production in this economy is

$0.10.

Suppose that this year a small country has a GDP of $100 billion. Also assume that Ig = $30 billion, C = $60 billion, and Xn = − $10 billion. What is the value of G?

$20 billion

If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, actual GDP is

$385 billion.

If foreigners spend $7 billion on U.S. exports in a given year and Americans spend $5 billion on imports from abroad in the same year, what is the value of U.S. net exports?

+ $2 billion

Suppose that a country has 9 million people working full-time. It also has 1 million people who are actively seeking work but are currently unemployed, along with 2 million discouraged workers who have given up looking for work and are currently unemployed.

10 percent

What annual growth rate is needed for a country to double its output in each of the following cases? 7 years, 35 y, 70 y, 140 y

10%, 2%, 1%, 0.5%

Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The table contains information about the hypothetical economy of Scoob. All figures are in millions. The labor force in Scoob is

102 million.

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is

11%

Suppose the CPI was 140 last year and is 161 this year. a. What is this year's inflation rate? b. In contrast, suppose that the CPI was 140 last year and is 136 this year. What is this year's inflation rate? c. What term do economists use to describe this second outcome?

15% -2.9% deflatiojn

Unemployed7 Total Population145 Employed95 Discouraged Workers3 The unemployment rate in Scoob is

6.9 percent.

What is an interme

A good that is used in the production of a final good

. Social Security payments received by a retired factory worker:

Excluded

c. Unpaid services of a family member who painted the family home:

Excluded

e. A monthly allowance that a college student receives from home:

Excluded

f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim:

Excluded

h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay:

Excluded

j. The purchase of 100 shares of Alphabet (the parent company of Google) stock:

Excluded

Tim just graduated from college and is looking for a job.

Frictional unemployment

a. Interest received on an AT&T corporate bond

Included

d. Income of a dentist from the dental services she provided:

Included

g. The publication and sale of a new college textbook

Included

i. A $2 billion increase in business inventories:

Included

Place the phases of the business cycle in order, starting with the highest level of GDP: recession, trough, peak, expansion.

Peak, recession, trough, expansion

Which of the following transactions would be included in GDP?

Peter buys a newly constructed house.

Even though the United States has an unemployment compensation program that provides income for those out of work, should we still worry about unemployment?

Yes, because the unemployment compensation program merely gives the unemployed enough funds for basic needs.

Which one of the following would not shift the aggregate demand curve?

a change in the price level

Which of the following is a private transfer payment?

a check for $250 sent by a parent to a daughter at college

Which of the following is a final good or service?

a haircut purchased by a father for his 12-year-old son

A large negative GDP gap implies

a high rate of unemployment.

The GDP price index is

a measure of the price of a specified collection of goods and services compared to the price of a highly similar collection of goods and services in a reference year.

Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to

a price level that is inflexible downward.

Consider the following data for a particular country. Year Population (Millions) Real GDP (Trillions of $) 1 300 18 2 375 27 a. What is the growth rate of real GDP from year 1 to year 2? b. What is the growth rate of real GDP per capita from year 1 to year 2?

a. 50% b. 20%

a. A widespread fear by consumers of an impending economic depression. b. A new national tax on producers based on the value added between the costs of the inputs and the revenue received from their output. c. A reduction in interest rates. d. A major increase in spending for health care by the federal government. e. The general expectation of coming rapid inflation. f. The complete disintegration of OPEC, causing oil prices to fall by one-half. g. A 10 percent across-the-board reduction in personal income tax rates. h. A sizable increase in labor productivity (with no change in nominal wages). i. A 12 percent increase in nominal wages (with no change in productivity). j. An increase in exports that exceeds an increase in imports (not due to tariffs).

a. Consumer fear causes the AD curve to shift left (decrease), which moves output down and the price level down (assuming no ratchet effect). b. The tax increases producers' costs, which causes the AS curve to shift left, which moves output down and the price level up. c. A reduction in interest rates increases the demand for investment, which causes the AD curve to shift right, which moves output and the price level up. d. An increase in government spending causes the AD curve to shift right, which moves output and the price level up (any real improvements in health care resulting from the spending would eventually increase productivity and shift AS right). e. An expectation of coming rapid inflation would likely cause consumers and businesses to make purchases now before prices increase. This causes the AD curve to shift right, which moves output and the price level up. f. The reduction in oil prices reduces producers' costs, which causes the AS curve to shift right, which moves output up and the price level down. g. The tax reduction gives consumers more disposable income, which causes the AD curve to shift right, which moves output and the price level up. h. Increased labor productivity means producers can produce more output with the same amount of labor. This reduces producers' costs, which causes the AS curve to shift right, which moves output up and the price level down. i. Increased wages (without a productivity increase) increase producers' costs, which causes the AS curve to shift left, which moves output down and the price level up. j. An increase in net exports means there is higher net demand from foreign consumers for domestic goods, so the AD curve shifts right (increased net exports), which moves output and the price level up.

a. Consumers become more pessimistic about the economy. b. Technological changes enable workers to be more productive. c. Manufacturing firms expect steel prices to decrease significantly. d. Employers are required to provide paid sick leave to part-time as well as full-time employees. e. Government spending increases. f. A hurricane destroys manufacturing plants. g. A stock market crash reduces people's wealth. h. The spread of democracy around the world increases consumer confidence in the United States. i. The United States enters into an arms race with China, resulting in a significant increase in military spending. j. A revolution in Iran results in a significant reduction in the world's supply of oil. k. A new computer chip is developed that is faster and cheaper than previous chips.

a. Demand decreases. b. Supply increases. c. Supply increases. d. Supply decreases. e. Demand increases. f. Supply decreases. g. Demand decreases. h. Demand increases. i. Demand increases. j. Supply decreases. k. Supply increases.

Identify the following arguments about economic growth as either anti-growth or pro-growth. a. Growth means worker burnout and frantic schedules: b. Rising incomes allow people to buy more education, medical care, and recreation: c. Earth has only finite amounts of natural resources: d. Even the richest countries still have poverty, homelessness, and discrimination: e. Richer countries spend more money protecting the environment: f. Natural resource prices have fallen rather than increased over time:

a.Anti-growth b.Pro-growth c.Anti-growth d.Anti-growth e.Pro-growth f.Pro-growth

At the current price level, producers supply $375 billion of final goods and services while consumers purchase $355 billion of final goods and services. The price level is:

above equilibrium.

The GDP gap measures the difference between

actual GDP and potential GDP.

Which of the following would most likely shift the aggregate demand curve to the right?

an increase in stock prices that increases consumer wealth

a leftward shift of the aggregate supply curve might be caused by

an increase in the prices of imported resources.

Economic growth can be portrayed as

an outward shift of the production possibilities curve.

The phrase "too much money chasing too few goods" best describes

demand-pull inflation.

Gross domestic product does not include the value of the stocks and bonds bought and sold because these transactions are considered

economic investment and should not be counted as production of final goods and services

Economic growth is best defined as an increase in

either real GDP or real GDP per capita.

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

expansion

The determinants of aggregate demand

explain shifts in the aggregate demand curve.

The losers from inflation are those with

fixed incomes in nominal terms

Net exports are a country's export of

goods and services less its imports of goods and services

Final goods and services refers to

goods and services purchased by ultimate users, rather than for resale or further processing.

In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are

not counted.

The immediate-short-run aggregate supply curve is

horizontal.

a. Economists include only final goods and services when measuring GDP because

if intermediate goods were counted, then multiple counting would occur. Correct

Graphically, cost-push inflation is shown as a

leftward shift of the AS curve.

d. The nominal interest rate

minus the inflation rate is the real interest rate.

The sale of a used automobile would not be included in GDP of the current year because it is a

nonproduction transaction.

Productivity measures

real output per unit of input.

Inflation

reduces the purchasing power of the dollar.

If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, its real GDP per capita will

remain constant.

Refer to the graph. Growth of production capacity is shown by the

shift from AB to CD.

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called

structural unemployment.

b. The Bureau of Labor Statistics (BLS) calculates the inflation rate from one year to the next by

subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the previous year. Correct

The largest contributor to increases in the productivity of American labor is

technological advance.

a leftward shift of the aggregate demand curve would be consistent with what event?

the Great Recession of 2007-2009

What are the four supply factors of economic growth?

the level of technology the quality and quantity of natural resources the stock of capital goods the quality and quantity of human resources

Nominal GDP is

the market or money value of all final goods and services produced by the economy in a given year, whereas real GDP is adjusted for inflation

Which of the following do national income accountants consider to be investment?

the purchase of a new house

The phase of the business cycle in which real GDP is at a minimum is called

the trough.

When measuring GDP, economists don't include the value of the used furniture bought and sold because

this value was already counted in GDP in some previous year.

Per-unit production cost is

total input cost divided by units of output.

The shape of the immediate-short-run aggregate supply curve implies that

total output depends on the volume of spending.

Which of the following is not seen by economists as an underlying cause of business cycle fluctuations?

unexpected financial bubbles that eventually burst shocks to the money supply by the nation's central bank supply shocks caused by major innovations