ECON 202 EXAM #1

CPI calculation formula

CPI: new year price/ base year price x 100

which is an example of structural unemployment?

Doea lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year. structural since

Given the data, compute the value of GDP

GDP= C + I + G + (X-M) C: $1000 I: $500 + 300 + 100 = $900 G: $700 X-M: 500-600= -100 $1000 + 900 + 700 -100 = $2500

A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2016 found a job paying $35,000. The CPI was 2.40 in 2016. The 1972 graduate's job paid ___ in nominal terms and ___ in real terms than the 2016 graduate job

less; more The 1972 graduates job paid less in nominal terms - 7,200 is less than 35,000 The 1972 graduates job paid more in real terms (real wage: wage/CPI) - 7,200/0.148 = 17,225 - 35,000/2.40 = 14,583

based on the accompanying labor market diagram, if the minimum wage is increased from $10-$12 per hour, the number of unemployed workers will increase by ______ workers

look at lines $10: 107, 85 $12: 115, 80 $10 $12 107 115 -85 -80 = 22 = 35 35-22 = 13

The marginal cost of the 3rd unit of the activity is

marginal cost = total cost/units 60/3 = $20

Gross domestic product (GDP) equals the ____ of final ____ produced within a country during a given period of time

market value; goods and services

An increase in interest rates by the Federal Reserve is an example of ____ policy

monetary

The Federal Reserve makes decisions regarding ___ policy while Congress makes decisions regarding ____ policy

monetary, fiscal

real interest rate

nominal interest rate - inflation rate

The two types of bias that tend to cause the CPI to overstate the "true" rate of inflation are the ____ bias and the ____ bias.

substitution; quantity adjustment failing to account for substitution overstates inflation

a CPI that equals 1.34 in 2019 (when 2020 is the base year) means that

the average level of prices is 34 percent higher in 2019 than in the base year

standard of living

the degree to which people have access to goods and services that make their lives easier, healthier, safer, and more enjoyable

As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called:

the substitution effect of a price change

Fisher effect

the tendency for nominal interest rates to be high when inflation is high and low when inflation is low

real wage

the wage rate divided by the price level wage/cpi

Kendall is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for $10. Kendall's opportunity cost of going to the movies is

$25 - she's losing $10 since she was willing to do it for $10, $15+$10 is $25

CPI for base year is always

1 (100)

The opportunity cost of producing one bushel of corn is

1,000/500 = 2 bushels of wheat -of (blank), (blank) goes on bottom of fraction

In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs, but wanted jobs. What is the unemployment rate in this town?

13.7 percent -out of labor force: 27 -employed: 63 -unemployed: 10 LF: 63+10= 73 UR: 10/73 x 100 = 13.69 = 13.7% - Labor force = unemployed people + employed people - Unemployment rate = # unemployed / # labor force x 100

A consumer expenditure survey reports the following information on consumer protein spending (Price, Quantity) 2019 2020 Fish: $4.50 5 $7 6 Chicken: $3 12 $4.90 12 Beef: $3.60 7 $5 12 Using 2019 as the base year, by how much does a "cost of protein" index increase between 2019 and 2020?

2019 Fish: $4.50 x 5 = 22.5 Chicken: $3 x 12 = 36 Beef: $3.60 z 7 = 25.5 TOTAL: $83.7 2020 (take new P x old Q) F: $7 x 5 = 35 C: $4.90 x 12 = 58.8 B: $5 x 7 = 35 TOTAL: $128.8 New/Old x 100 $128.8/83.7 = 1.539 = 53.9 %

Kate's opportunity cost of making a pie is

3/4 of a cake - divide time to make a pie (60) by cake (80) to get .75 (3/4)

Hyperinflation

A very rapid rise in the price level; an extremely high rate of inflation.

If Aaliyah can produce 3 pairs of shoes per hour, while Bahjat can produce 2, then ___ has a(n) _____ advantage in producing shoes

Aaliyah, absolute She has the absolute advantage in shoe production. Not comparative since only measuring shoe production

Who among the following would be classified as out of the labor force?

Amanda Pie, a full time homemaker

Given the following data for the economy, compute the value of GDP.

GDP= C + I + G + (X-M) C: $70 (Consumption Expenditures) I: $15 + 9 -7 = 17 (Construction of new homes, Business fixed investment, change in inventories) G: $10 (Government purchases of goods, GOV PAYMENTS DO NOT COUNT HERE) X-M: $5-12= $-7 $70+17+10-7= $90

Which of the following transactions would be included in the GDP of the United States?

Honda produces cars in Ohio (GDP is within borders)

Based on their comparative advantage, Kate should specialize in making ____ while Julia should specialize in making ____

Kate: pies Julia: cakes

Madison is lending Martinez $1000 for one year. The CPI is 1.60 at the time the loan is made. They expect it to be 1.76 in one year. If Madison and Martinez agree that Madison should earn a 3 percent real return for the year, the nominal interest rate on this loan should be _____ percent

N CPI R Y1 $1000 1.60 $625 Y2 $1643.76 1.76 $625

Nominal and Real prices

Nominal prices are market prices Real prices adjust for inflation

The CPI in 1974 equaled 0.49. The CPI in 1975 equaled 0.54. The rate of inflation between 1974 and 1975 was _____ percent

Percent change in CPI calculated as: (current price index - historical price index)/ historical price index (100) in this case: 0.54-0.49/0.49 = 0.102 x 100 (to get percent) = 10.2

If the government imposed a price ceiling of $40, what would happen to this market?

The price ceiling would have no effect - the equilibrium is 35

The accompanying table provides information about the production at the XYZ-TV Company How many workers will XYZ-TV hire if the going wage for TV workers if $60,000

They will hire 0 - The first worker would have a wage of $35,000, therefore it would not work since the wage is way higher

economic growth

a steady, long-term increase in real GDP

If the government imposes a price ceiling of $1 on a cup of coffee, then there would be (current price is $2/cup)

an excess demand for coffee (when a price lowers, more buyers enter the market)

The phenomenon known as _____ occurs when inflation causes people to pay an increasing percentage of their income in taxes even when their real incomes have not changed

bracket creep

Fiscal policy refers to

decisions to determine the government's budget.

nominal wage is real wage x price index

ex: Year 1: $12.00 x 1.00 = $12.00 Year 2: $12.24 x 1.05 = $12.85

It is efficient for this farmer to

grow 500 bushels of wheat and 250 bushels of corn

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent. The nominal price of gasoline _____, and the real price of gasoline _____.

increased; increased

Macroeconomists are concerned with each of the following issues except

why do the prices of computers increase more slowly than the price of gasoline? (this is micro)