Econ 201. Midterm 3 review
In the circular flow of expenditure and income, why must the total Value of production in an economy equal the total value of income
Every penny spent on a good or service must end up as someone's income.
The role of the entrepreneur becomes much more important in the new growth theory— the endogenous growth model— than in the traditional economic growth model because
In the new growth theory, entrepreneurs play a key role in the development and adoption of new and sometimes untried technologies
Which of the following is not a cost created by high inflation
Inflation causes the real wage to fall which means that firms have to pay more for workers
Which of the following are not counted as final goods and used in the gdp calculation
intermediate goods
In calculating the CPI, the
market basket does not include large equipment purchased by firms
In an economy with rising prices, compared to the base year
nominal GDP is larger than real GDP in years after the base year.
Disposable personal income is equal to personal income minus
personal tax payments
Which phase of the business cycle is characterized by increasing levels of unemployment
recessions
The type of inflation that is a greater problem to society is
unanticipated inflation, since it causes greater redistribution of income between those making payments and those awaiting payments in the future.
The natural rate of unemployment is the
unemployment rate that results when the economy produces the potential level of real GDP
If the CPI was 207 in 2007 and 225 in 2011, what pay raise would someone who earned $50,000 in income in 2007 have to receive in order to keep her purchasing power constant in 2011?
$4,348
Your father and $34,000 per year in 1984. To the nearest dollar what is the equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104
$70,288
Suppose you are available for work but have not looked for a job for at least the last four weeks because you believe that no jobs are available. You would then be counted as
A discouraged worker
Economic growth is important to an economy because it typically translates to
A higher standard of living for the country's population
Which of these persons is officially unemployed
A non-working individual who has looked for a job in the past week
Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?
A. When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
As the value of a country's GDP increases, the country is likely to: A. devote more resources to pollution reduction. B. devote fewer resources to pollution reduction. C. include the value of pollution in calculating GDP. D. exclude the value of pollution in calculating GDP.
A. devote more resources to pollution reduction.
Which of the following is included in the economists definition of investment
A. the purchase of new machines, factories, or houses.
As the economy nearest the end of expansion which of the following typically occurs
All
If a firm increases its use of capital while holding constant the number of workers employed, the firm is said to experience
An increase in the physical capital
In general, __ have much lower unemployment rates than other individuals with other levy of education
College graduates
Suppose the economy enters into a recession and that, as a result Rusty Z Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers Rustys previous employer rehires him what is the best classification for his time as an unemployed truck mechanic
Cyclically unemployed
Purchases of which types of goods are business cycle is more likely to affect
Durable goods
Which of these government policies can help economic growth
Ensuring political stability and relatively little corruption
The economic growth model predicts that poor countries will grow __ than richer countries
Faster
The net growth theory states that
Firms will add to an economy's stock of knowledge capital by engaging in research and development or by contributing to technological change
When an individual investor or another firm requires more than 10% ownership in a foreign firm it is known as
Foreign direct investment
The "normal or natural" underlying level of unemployment in the economy is the
Full employment rate of unemployment
When a significant fraction of the domestic production takes place in foreign-owned facilities, a country's difference between GDP
Gdp will be much larger than GNP
Property rights have been determined to be a major factor that helps countries sustain economic growth. Government can change laws and policies in order to give individuals and firms more freedom. By doing so government can help promote growth because greater property rights
Give entrepreneurs more incentives to take risks that create new products, ideas, and more technology
Increase in the minimum wage will
Increased unemployment among teenagers
Even the individuals are in inches on financial investment such as bonds mutual funds and certificates of deposit they may still hold wealth and checking accounts because
Individuals need money that is available to be spent on goods and services
When low income countries begin to experience economic growth, they often do so at rates much higher than current growth rates of industrial nations. Which of the following does not provide an explanation of this phenomenon
Industrial countries have higher rate of growth and physical capital and developing countries are not able to invest in large quantities of capital
Which of these is a function that the financial system provides for savers and borrowers
Matching savers and borrowers
The Consumer Price Index
Measured the cost of an unchanging basket of goods and services
Which of these factors does not contribute to economic growth
Nationalization of foreign investments
When creative destruction occurs
New products and new technologies may be created that improve worker productivity, ultimately increasing the growth rate of the economy in the long run
Technological progress is affected by
Private property rights New software developments Entrepreneurship Investment in capital
Which of these government policies can help economic growth?
Promoting the existence of an efficient financial system
Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant
Real GDP
GDP per capita is computed by dividing a country's
Real GDP by its population
The total national income actually received by a country's residents is
Smaller than the value of gdp
According to BLS, in what category of unemployment would that person belong?
Structurally unemployed
Which market basket specifically targets intermediate goods?
The basket used by the producer price index
If technological change increases the profitability of new investment to firms, which of these will occur?
The demand for loanable funds will increase.
Why do economist believe that setting a goal of 0% unemployment is not feasible or desirable Creating a goal of 0% unemployment for an economy is not feasible nor is it desirable because
The economy needs some short term unemployment in order to allow for better matching of jobs with workers that possess the proper skill set
The financial system— either financial markets or financial intermediaries— provides savers and borrows with all of the following except
The financial system provides security to savers by warranting that their phones are fully insured against loss
When the economy is at full employment, unemployment is equal to
The natural rate of unemployment
The natural rate of unemployment is
The sum of structural unemployment and frictional unemployment
The point where economic activity bottoms out in a full business cycle is known as
The trough
Which of these groups is included in the labor force
The unemployed
Real gdp is
The value of goods and services evaluated at base year prices
Have poor countries been catching up to rich countries
There has been catch-up by some poor but industrialized countries
The buying and selling of goods and services that is hidden from the government in order to avoid taxes and / or regulations Is known as the
Underground economy
Long run growth in gdp is determined by
capital, labor productivity, and technology
An increase in the real interest rate will
cause a movement along the demand curve for loanable funds
What are the four major components of expenditures in gdp
consumption, investment, government purchases, and net exports
At full employment,
cyclical unemployment is zero
The best measure of the income households actually have available to spend is
disposable personal income
A period of real economic growth, where production and employment are both moving higher is known as:
expansion
When a firm buys or builds facilities in a foreign country it is known as
foreign direct investment
When the economy is at full employment, which types of unemployment remain?
frictional and structural
The short term unemployment that arises from workers, in the process of changing jobs, is called
frictional unemployment
In the circular flow model, who supplies factors of production in exchange for income
households
The flow of funds from __ into the financial system makes it possible for government and firms to borrow
households
Of the eight categories in the CPI market basket, which three categories make up more than 75% of the basket
housing, transportation, and food
Unanticipated deflation
hurts net debtors
If inflation is anticipated,
it costs less to society than if unanticipated
The economic growth model predicts that the
level of per capita GDP in poor countries will increase faster than rich countries and the poor nations will catch up with the rich nations.
The ease with which a financial security can be exchanged for money is referred to as
liquidity
Inflation can affect the distribution of income because
people with incomes rising faster than the rate of inflation enjoy an increasing purchasing power, while people with incomes rising more slowly than the rate of inflation are hurt by a decreasing purchasing power.
Because the focus of long-run economic growth is on the standard of living of the average person, we measure the standard of living in terms of
real GDP per captia
The defining characteristic of long-run economic growth is
rising productivity
Economic growth will
slow down or stop if more capital per hour is used because of diminishing returns to capital
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called
structural unemployment
Which of these will ensure an economy experiences sustained economic growth
technological change
Which of these will ensure that an economy experiences sustained economic growth
technological change
Capital can be differentiated between physical capital and human capital. Human capital is
the knowledge and skills workers acquire from education and training or from their life experiences
Gross domestic product is best defined as the
the market value of all final goods and services produced in a country during a period of time
If the government begins running a budget deficit, what impact will the deficit have on the loanable funds market
the supply of loanable funds will decrease.
Which of these determines the supply of loanable funds
the willingness of households and governments to save
Suppose the CPI in 2008 was 215.3 and the CPI in 2009 was 214.6, what was the inflation rate between 2008 and 2009?
-0.3 percent
An alternating period of economic contraction and economic expansion measured over time with real gdp is known as the
business cycle
Which of these factors will cause the quantity of goods and services that can be produced by one worker, or in one hour of work, to
A technological change
Which of these statements about interest rates and inflation is true
If there is zero inflation, the nominal interest rate is equal to the real interest rate.
Crowding out occurs when
governments must borrow funds which causes interest rates to rise and thus private investment is reduced.
The only way that the standard of living of the average person in a country can increase is by
increasing production faster than population growth
If the inflation rate is anticipated,
inflation may not be a major problem
Which of these is not a shortcoming of gdp as a measure of welfare
It only counts final goods and services and not intermediate goods.
Define creative destruction
It refers to the process of new technologies advancing living standards while destroying many existing firms
The___ the interest rate, the more investment projects firms can profitably undertake, and the ___ the quantity of loanable funds they will demand.
Lower , greater
The unemployment rate in the United States is usually __ than the employment rates in most other high income countries partly because the United States has___ Requirements for the unemployed to receive government payments
Lower ;more stringent
What is the relationship between investment and real interest rates, all other things being equal?
Lower interest rates stimulate investment.
The new growth theory differs from the growth theory developed by Robert Solow since
the Solow growth theory focuses on technological change and the quantity of capital available to workers whereas the new growth theory states that accumulation of knowledge capital is a key determinant of economic growth.
In determining whether or not to borrow funds, firms compare the rate of return they expect to make on an investment with the
the interest rate they must pay to borrow the necessary funds
Gross domestic product is best defined as
the market value of all final goods and services produced in a country during a period of time, typically one year
To obtain prices of a representative group of goods and services, the Bureau of Labor Statistics (BLS) conducts a monthly survey of ___ households nationwide on their spending habits. The results of this survey are used to construct a market basket of ____ types of goods and services purchased by the typical urban family of four
14,000; 211
Which of these demographic groups typically suffers from higher unemployment rates
African Americans
A federal government budget deficit will
decrease the supply of loanable funds and increase the equilibrium interest rate
Recessions cause the inflation rate to _________, and the unemployment rate to _________.
decrease, increase
Which of these do we subtract from GDP to obtain national income
depreciation
In measuring changes in the standard of living of a country, economists rely heavily on comparisons over time of real GDP per capita because
despite its well-known flaws, it is the best means we have of comparing the performance of an economy over time
Which of these is a financial intermediary
bank
Some economies are able to maintain high growth rates despite diminishing returns to capital by using
better or enhanced technology, along with accumulating capital; these economies are growing because technology, unlike capital, is subject to increasing returns.
What happens if we measure GDP by adding up the value of every good and service produced in the economy
GDP is overestimated because of double counting.
Which of these is a function that the financial system provides for savers and borrowers
Providing increased liquidity for savers
Which equation represents the relationship between GDP and the four major expenditure components
Y=C+I+G+NX
Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2021
Yes. GDP for 2021 includes the market value of final goods and services. This includes real estate services
What advice for finding a job would you give someone who lost his or her job because of machine learning
You should tell the worker that he or she needs to learn new skills or move to another city to find a job
Which is the largest component of gdp
consumption
The cycle of short-term ups and downs in the economy is called:
The business cycle
To calculate personal income from national income, which of the following must be done by the BEA
add government transfer payments
How does the bureau of economic analysis of the u.s department of commerce measure GDP
By adding the value in dollar terms of all the final goods and services produced domestically.
If Americans still worked 60 hour weeks, as they did in 1890, A. both GDP and the well-being of the typical person would be much higher than they are. B. both GDP and the well-being of the typical person would be lower than they are. C. GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher. D. GDP would be lower than it is, but the well-being of the typical person would be higher.
C. GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher.
Which of these factors inhibit technological progress and growth
Closed economies
Which of the following statements about compounding is correct
Compounding magnifies even small differences in interest rates or growth rates over long periods time
Which of the following goods and services would be excluded from personal consumption expenditures in the bureau of economic analysis (BEA) statistics
a new house
Which of the following is the best example of human capital?
a worker gets a college degree
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
all of the above
How does real GDP deal with the problem inflation causes with nominal GDP?
all of the above
The producer price index tracks the prices firms receive for goods and services at
all stages of production
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy.
Labor productivity can be increased through investments in
Human capital
Suppose a house is built and sold in the year 2010. If the house is resold in the year 2021, is the value of the house included in gross domestic product (GDP) for 2021
No. GDP for 2021 includes only production that occurs during 2021
Economic variables that are calculated in current year prices are referred to as__ variables, while variables that have been corrected to account for the effects of inflation are __ variables.
Nominal, real
The role of technological progress in determining economic growth can be described by which statement?
Per capita output will rise when we discover new and more effective uses of capital and labor.
