Econ Exam 2
Which theory emphasizes the significance of new discoveries that can be used by many people at the same time? A. new growth theory B. neoclassical growth theory C. classical growth theory D. None of the above answers are correct.
A. New growth Theory
Price indexes can overstate inflation because they A. omit some quality improvements. B. do not contain the prices of any used goods. C. do not contain the prices of services. D. do not contain the prices of foreign goods
A. Omit some quality improvements
The bias in the CPI typically A. overstates inflation. B. understates inflation. C. cannot be measured or estimated. D. about half the time overstates and about half the time understates the inflation rate.
A. Overstates Inflation
An assumption of classical growth theory is that when ________ the population growth rate ________. A. real GDP per person exceeds the subsistence level; increase B. the real wage rate falls; increases C. saving declines; decreases D. people become more skilled; decreases
A. Real GDP per person exceeds the subsistence level; Increase
Which of the following is consistent with classical growth theory? A. Real GDP per person will never permanently increase. B. Competition destroys innovation and decreases profit. C. As real GDP increases, there will be a decrease in the rate of population growth. D. Real GDP per person will increase because technological change induces investment.
A. Real GDP per person will never permanently increase
An increase in the working-age population results in a A. rightward shift of the supply of labor curve and an increase in potential GDP. B. rightward shift of the demand for labor curve and no change in potential GDP. C. leftward shift of the supply of labor curve and a decrease in potential GDP. D. rightward shift of demand for labor curve and an increase in potential GDP.
A. Rightward shift of the supply of labor curve and an increase in potential GDP
The neoclassical growth theory says, in part, that A. technological change leads to economic growth. B. the differences in nation's growth rates will persist indefinitely. C. a population explosion driven by economic growth will end economic growth. D. technology does not play a role in economic growth.
A. Technological change leads to economic growth
Hyperinflation is defined as A. very high inflation rates. B. declining inflation rates. C. rising but low inflation rates. D. very low inflation rates.
A. Very high inflation rates
An example of "investment" in computing real GDP using the expenditure approach is the purchase of A. a new set of tools by an auto mechanic, for use in repairing cars. B. a 100 year old house by a married couple. C. 100 shares of IBM stock. D. computer chips by Dell to put in their personal computers
A. a new set of tools by an auto mechanic, for use in repairing cars
The consumer price index (CPI) A. compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period. B. measures the increase in the prices of the goods included in GDP. C. compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2. D. is the ratio of the average price of a typical basket of goods to the cost of producing those goods.
A. compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.
Unemployment caused by the fluctuation of the business cycle is called ________ unemployment. A. cyclical B. recession-related C. frictional D. structural
A. cyclical
The three types of unemployment are A. frictional, structural, and cyclical. B. voluntary, part-time, and cyclical. C. frictional, part-time, and involuntary. D. voluntary, involuntary, and structural.
A. frictional, structural, and cyclical
As currently calculated, the CPI tends to overstate the true inflation rate because A. it fails to correctly measure quality changes for some products. B. the market basket selected is inappropriate. C. we cannot know what the true inflation rate is. D. the market basket fails to weigh housing costs sufficiently.
A. it fails to correctly measure quality changes for some products
According to the law of diminishing returns, an additional unit of A. labor produces less output than the previous unit. B. labor produces more output than the previous unit. C. capital produces more output than an additional unit of labor. D. labor decreases output.
A. labor produces less output than the previous unit
If new capital or technology increases labor productivity, the supply of labor ________ and the demand for labor ________. A. stays the same; increases B. decreases; stays the same C. increases; increases D. increases; decreases
A. stays the same; increases
The term "capital," as used in macroeconomics, refers to A. the plant, equipment, buildings, and inventories of raw materials and semi-finished goods. B. financial wealth. C. investment. D. the sum of investment and government purchases of goods.
A. the plant, equipment, buildings, and inventories of raw materials and semi-finished goods
Question -- Given the following:Given the following: population- 4,500,000Less than 16 years old-500,000unemployed but actively seeking work-100,000philosophers---(non working)50,000house-husbands/housewives (non employed)-20,000discouraged workers-10,000people in institutions-30,000full time students (non working)-100,000full time workers-3,000,000part time workers-690,000 Given the information in the questions above, what is the unemployment rate? A. 7.1% B. 2.6% C. 2.7% D. 9.2% E. none of the above
B. 2.6%
If the CPI basket of goods cost $200 in the reference base period and $450 in a later year, the CPI in the later year equals A. 450. B. 225. C. 250. D. 300.
B. 225
Question Year---- Nominal Income-- Price Index 1990---- 9800-------- 99 1991---- 10000-------- 95 1992---- 15000------- 100 1993---- 17000------- 110 1994---- 23000------- 115 1995---- 33000------- 123 Calculate the change in inflation, nominal income, and real income from 1990 to 1995. I would recommend working out the entire problem as illustrated in class. Using a spreadsheet can be helpful as well. A. 75%, 37%, 22% B. 24%, 237%, 171% C. 33%,17%,-12% D. 235%, 233%, -275% E. None of the above
B. 24%, 237%, 171%
If the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the unemployment rate is A. 7.1 percent. B. 9.1 percent. C. 10 percent. D. 6.6 percent.
B. 9.1 percent
The decreasing slope of a production function reflects A. increasing aggregate demand. B. diminishing returns. C.decreasing costs. D. rising unemployment.
B. Diminishing returns
Which type of price index theory uses current year's quantities? A. Boskin's Index B. Paasche C. Laspeyres D. Fisher's Mean
B. Paasche
U.S. investment is financed from A. private borrowing, government budget deficits, and lending to the rest of the world. B. private saving, government budget surpluses, and borrowing from the rest of the world. C. private saving and borrowing from the rest of the world only. D. private saving, government budget deficits, and borrowing from the rest of the world.
B. Private saving, government budget surpluses, and borrowing from the rest of the world
Which theory of economic growth concludes that growth can continue indefinitely? A. the classical theory B. the new theory C. the neoclassical theory D. all of the theories
B. The new Theory
The Consumer Price Index is a measure of the average of the prices paid by ________ for a fixed basket of consumer goods and services. A. consumers living in cities with a population greater than 100,000 B. urban consumers C. urban wage earners and clerical workers D. all consumers
B. Urban Consumers
Discouraged workers ________ counted as officially unemployed because they ________ A. are not; are not qualified to work B. are not; are not actively seeking work C. are; are still in the labor force D. are; are not working
B. are not; are not actively seeking work
When a student finishes college and begins looking for work A. frictional and cyclical unemployment increase. B. frictional unemployment increases. C. structural unemployment increases. D. cyclical unemployment increases.
B. frictional unemployment increases
We are interested in long-term growth primarily because it brings A. higher price levels. B. higher standards of living. C. lower price levels. D. trade wars with our trading partners.
B. higher standards of living
According to the classical growth theory of Thomas Malthus A. the population growth rate is fixed. B. increases in real GDP per person are only temporary. C. labor productivity increases continuously. D. technological advances lead to permanent increases in real GDP per person.
B. increases in real DGP per person are only temporary
If the population increases in our growth model, then potential GDP ________ and employment ________. A. decreases; decreases B. increases; increases C. increases; decreases D. decreases; increases
B. increases; increases
The biases in the CPI include the A. substitution, new goods, and old goods biases. B. new goods, quality change, and substitution biases. C. old goods, new goods, and quality change biases. D. old goods, unemployment, and inflation biases.
B. new goods, quality change, and substitution biases
Which growth theory models growth as a perpetual motion machine? A. all growth theories model growth as a perpetual motion machine B. new growth theory C. neoclassical growth theory D. classical growth theory
B. new growth theory
Marginally attached workers fall into which of the following population categories? A. unemployed B. not in the labor force C. labor force D. employed
B. not in the labor force
Full employment occurs A. only if unemployment is equal to structural unemployment plus cyclical unemployment. B. only if the unemployment rate is equal to the natural rate of unemployment. C. only if the unemployment rate is zero. D. None of the above answers are correct.
B. only if the unemployment rate is equal to the natural rate of unemployment
In the labor market, an increase in labor productivity ________ the real wage rate and ________ the level of employment. A. lowers; decreases B. raises; increases C. raises; decreases D. lowers; increases
B. raises; increases
Labor productivity is A. real GDP per hour of labor times the number of people. B. real GDP per hour of labor or real GDP per worker. C. the rate of change in real GDP per hour of labor. D. real GDP per hour of labor times the hours of work.
B. real GDP per hour of labor or real GDP per worker
Ms. Krupsky has shorthand and typing skills and still finds herself unemployed. In today's economy, Ms. Krupsky is an example of what type of unemployment? A. frictional unemployment B. structural unemployment C. cyclical unemployment D. None of the above answers is correct
B. structural unemployment
When the automobile replaced horse-drawn carriages as the principal means of transportation, firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby increasing A. frictional and cyclical unemployment. B. structural unemployment. C. cyclical unemployment. D. frictional unemployment.
B. structural unemployment
Substitution bias in the CPI refers to the fact that the CPI A. substitutes quality changes whenever they occur without taking account of the cost of the quality changes. B. takes no account of the substitution of goods by consumers when relative prices change. C. takes into account the substitution of goods by consumers when relative prices change. D. substitutes relative prices for absolute prices of goods.
B. takes takes no account of the substitution of goods by consumers when relative prices change
Other things remaining the same, the greater the expected profit, A. the flatter is the investment demand curve. B. the greater the amount of investment. C. the steeper is the investment demand curve. D. the less the amount of investment.
B. the greater the amount of investment
The employment-to-population ratio is defined as A. total employment divided by the labor force then multiplied by 100. B. total employment divided by the working-age population then multiplied by 100. C. total employment divided by labor hours then multiplied by 100. D. the labor force divided by the working-age population then multiplied by 100.
B. total employment by the working-age population then multiplied by 100
The ________ is calculated as the number of people ________ divided by the labor force multiplied by 100. A, employment rate; employed B. unemployment rate; unemployed C. employment-to-population ratio; in the working age population D. employment-to-population ratio; unemployed
B. unemployment rate; unemployed
Question -- Given the following:Given the following: population- 4,500,000Less than 16 years old-500,000unemployed but actively seeking work-100,000philosophers---(non-working)50,000househusbands/housewives (non-employed)-20,000discouraged workers-10,000people in institutions-30,000full time students (non-working)-100,000full time workers-3,000,000part time workers-690,000 Given the information in the question above, what is the employment-to-population ratio? A. 76.1% B. 89.0% C. 92.9% D. 97.8% E. none of the above
C. 92.9%
According to new growth theory, technological change is driven by A. foreign firms' attempts to increase their sales in the domestic market. B. random chance. C. firms' attempts to increase their profit. D. government policies.
C. Firms' attempts to increase their profit
Factors that influence labor productivity include ________. A.physical capital, the real wage rate, and technology B. the labor demand curve C. physical capital, human capital, and technology D. the inflation rate, the real wage rate, and the exchange rate
C. Physical capital, human capital, and technology
All of the following contribute to labor productivity growth EXCEPT: A. physical capital growth. B. human capital growth. C. population growth. D. technological advancements.
C. Population Growth
Labor growth depends mainly on ________ and labor productivity growth depends mainly on ________. A. growth in real GDP per person; technological advances B. population growth; increases in real GDP C. population growth; technological advances D. growth in real GDP per person; growth rate of capital
C. Population Growth; technological advances
Real Gross Domestic Product is A. the productivity of labor. B. the most that can be produced when the economy's resources are fully employed. C. the value of total production linked back to the prices of a single year. D. the amount of people unemployed divided by the total labor force.
C. The value of total production linked back to the prices of a single year
Cyclical unemployment occurs when A. individuals with skills no longer valued in the labor market cannot find employment. B. individuals enter into the labor market making the rounds of potential employers. C. a business cycle recession decreases employment. D. individuals give up the search for employment.
C. a business cycle recession decreases employment
Deflation represents: A. a recession. B. an increase in the unemployment rate. C. a reduction in the aggregate price level. D. a reduction in output.
C. a reduction in the aggregate price level
Because of a bank merger, Ms. Davis lost her position as Vice President and had to seek work with other banks. Ms. Davis has the skills necessary to find a new job, thus she is best considered as A. structurally unemployed. B. naturally unemployed. C. frictionally unemployed. D. cyclically unemployed.
C. frictionally unemployed
Unpredictable changes in the value of money, which brings about gains and losses, are a consequence of unpredictable changes in A. unemployment rate. B. productivity. C. inflation. D. real GDP.
C. inflation
Frictional unemployment comes about because of A. a general economic slowdown. B. friction between labor and management. C. normal labor market turnover. D. a mismatch between skills and available jobs.
C. normal labor market turnover
During a recession, the ________. A. number of discouraged workers decreases B. employment-to-population ratio increases C. number of marginally attached workers increases D. unemployment rate decreases
C. number of marginally attached workers increases
The currently used method for calculating the CPI A. accounts for people increasing consumption of a good that falls in relative price. B. has no effect on government expenditures. C. probably overstates inflation by about 1 percentage point. D. None of the above answers are correct.
C. probably overstates inflation by about 1 percentage point
Structural unemployment is the result of A. normal labor market turnover. B. irresponsible workers with poor work habits. C. technological change, absolute job skills, or foreign competition. D. a slowdown in the rate of economic expansion.
C. technological change, absolute job skills, or foreign competition
The labor force is defined as A. people with full time jobs. B. all people capable of work. C. workers with jobs and unemployed workers. D. All of the above answers are correct.
C. workers with jobs and unemployed workers
Over the last 100 years, the average U.S. growth rate in real GDP per person was about A. 12.5 percent per year. B. 1 percent per year. C. 6 percent per year. D. 2 percent per year.
D. 2% per year
Question -- Given the following:Given the following: population- 4,500,000Less than 16 years old-500,000unemployed but actively seeking work-100,000philosophers---(non-working)50,000househusbands/housewives (non-employed)-20,000discouraged workers-10,000people in institutions-30,000full time students (non-working)-100,000full time workers-3,000,000part time workers-690,000 What is the labor force participation rate? A. 92.9% B. 87.0% C. 76.1% D. 95.5% E. none of the above
D. 95.5%
The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the ________. A. neoclassical growth theory B. new growth theory C. modern theory of population growth D. classical growth theory
D. Classical Growth Theory
Workers who pursue an education directly increase their A. physical capital. B. saving. C. financial capital. D. human capital.
D. Human Capital
Which of the following ideas apply to the neoclassical growth theory?I.The rate of technological change influences the rate of economic growth.II.Technological change promotes saving and investment.III.Convergence of economic growth rates across countries A. I only B. III only C. I and II D. I, II and III
D. I, II and III
Which of the following policy actions could speed productivity growth?I.Tax incentives to encourage savingII.Encouraging international tradeIII.Directing public funds toward financing basic research A. II only B. I and III C. I only D. I, II, and III
D. I, II, and III
Activities that encourage faster growth are A. developing trade barriers to protect national industries. B. taxes on saving that serve to encourage more spending and less saving. C. high levels of consumption and low levels of savings. D. investment in new capital and human capital.
D. Investment in new capital and human capital
Labor growth depends mainly on ________ and labor productivity growth depends on ________. A. growth in real GDP per person; growth rate of capital B. growth in real GDP per person; technological advances C. population growth; increases in real GDP D. population growth; technological advances
D. Population Growth; Technological advances
Labor productivity, real GDP per labor hour, increases if A. new technologies are continuously discovered. B. there is an increase in the accumulation of human capital. C. saving and investment cause an increase in the quantity of capital per worker. D. All of the answers are correct.
D. all of the answers are correct
According to the new growth theory A. the concept of a labor market is not necessary. B. the labor demand curve does not shift rightward over time. C. the rate of technological progress is determined by chance. D. knowledge is not subject to diminishing returns.
D. knowledge is not subject to diminishing returns
The labor force participation rate is calculated as the A. labor force divided by the number of persons employed then multiplied by 100. B. labor force divided by the unemployment rate then multiplied by 100. C. number of persons unemployed divided by the labor force then multiplied by 100. D. labor force divided by the working age population then multiplied by 100.
D. labor force divided by the working age population than multiplied by 100
Because of the biases in calculating the CPI, actual inflation is A. more than the measured inflation rate by about 1 percent per month. B. more than the measured inflation rate by about 1 percent per year. C. accurately measured. D. less than the measured inflation rate by about 1 percent per year
D. less than the measured inflation rate by about 1 percent per year
The country of Kemper is on its aggregate production function at point W in the above figure. The government of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will A. move to point such as Y. B. remain at point W. C. move to point such as X. D. move to point such as Z.
D. move to point such as Z
The biases in the CPI include the A. substitution, new goods, and old goods biases. B. old goods, unemployment, and inflation biases. C. old goods, new goods, and quality change biases. D. new goods, quality change, and substitution biases.
D. new goods, quality change, and substitution biases
The unemployment rate measures the percentage of A. people who want full-time jobs, but can't find them. B. the working age population that can't find a full-time job. C. the working-age population who can't find a job. D. people in the labor force who can't find a job.
D. people in the labor force who can't find a job
Suppose the Consumer Price Index is 143.6. What does that number mean? A. Prices rose 143.6 percent over the reference base period, on average. B. On average, goods cost $143.60. C. On average, goods cost $243.60. D. Prices rose 43.6 percent over the reference base period, on average.
D. price rose 43.6 percent over the reference base period, on average
Neoclassical growth theory attributes economic growth to A. fiscal policy. B. the law of diminishing returns. C. increasing population growth. D. technological change.
D. technological change
Which of the following statements is INCORRECT? A. The labor-force participation rate is the labor force divided by the working-age population then times 100. B. The labor force is equal to the number of people employed plus the number of people unemployed. C. The unemployment rate is the number of persons who are unemployed divided by the labor force then times 100. D. The working age population includes everyone over the age of 16.
D. the working age population includes everyone over the age of 16
Suppose the CPI last year is 121 and the CPI this year is 137. The correct method to calculate the inflation rate is A. 137 × 121 = 258. B. (137/121) × 100 = 113.2. C. (137 - 121)/100 = 0.16. D. [(137 - 121)/121] × 100 = 13.2.
D. {(137-121)/121] x 100 = 13.2
Human capital is A. a measure of the labor productivity of workers. B. the investment made in industries that make capital goods. C. the saving done by human beings. D. people's knowledge and skills
Peoples knowledge and skills
Which type of price index theory averages the base year and current year's quantities? A. Fisher's Mean B. Paasche C. Laspeyres D. Boskin's Index
A. Fisher's Mean
Which type of price index theory uses base year's quantities? A. Laspeyres B. Paasche C. Fisher's Mean D. Boskin's Index
A. Laspeyres
Using the Rule of 70, if the country of Flowerdom's current growth rate of real GDP per person was 7 percent a year, how long would it take the country's real GDP per person to double? A. 2 years B. 10 years C. 49 years D. 1 year
B. 10 Years
In a country with a working-age population of 130 million, 90 million workers are employed and 10 million workers are unemployed. What is the unemployment rate? A. 5.0 percent B. 10.0 percent C. 7.7 percent D. 7.1 percent
B. 10.0%
Suppose there are currently 100 people unemployed, 1500 people employed, and 2000 people in the working age population. The labor force participation rate equals 100 times A. 100/1600. B. 1600/2000. C. 100/1500. D. 1500/2000.
B. 1600/2000
Looking at inflation rates in the United States since the 1970s we see that A. the inflation rate increased with the increased growth of the 1990s. B. the 1970s experienced the highest inflation rates. C. the highest inflation rates were the double digits during the 1990s. D. inflation fell the most during the 1970s productivity slowdown.
B. 1970s experienced the highest inflation rates