Econ exaM 2

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The graph shows two points A and B on the consumption​ function, C, of a small country Tynika. Marginal Propensity to Consume ​(MPC) is

.5 (find slope of line)

If the MPS is​ .22, the MPC is

.78

If consumption is​ $30,000 when income is​ $35,000, and consumption increases to​ $36,000 when income increases to​ $43,000, the MPC is

0.75.

​$Billions Durable goods 800 Nonresidential investment 400 Federal purchases of goods 300 Exports 400 State and local purchases of goods 200 Residential investment 50 Services 500 Imports 250 Change in business inventories −25 Nondurable goods 700 Personal consumption expenditures in billions of dollars are The value for net exports in billions of dollars is

2,000, 150

If Logan received a​ $2,500 bonus and his MPS is​ 0.20, his consumption rises by​ $________ and his saving rises by​ $________.

2,000; 500

In the economy of Macroland 60.3 percent of the population is​ employed, while the unemployment rate is 6.0 percent. Calculate the labor force participation rate . Labor Force Participation Rate​ =

64.1

In the economy of Macroland 60.3 percent of the population is​ employed, while the unemployment rate is 6 percent. Calculate the labor force participation rate

64.1 (100-6)=94 (60.3/.94)=64.1

The relationship between interest rate​ (r) and planned investment​ (I) is given by the following investment function. I​ = 1500−40r Determine the value of planned investment when the interest rate is 77 percent​ (r = 77​).

I​ = 1,220

ssume there are no taxes. The equation for the consumption function is given to​ be: C​ = 100100 ​+ 0.780.78​Y, where Y represents aggregate income. Determine the equation for the saving​ function:

S​ = - 100 ​+ . 22Y

Higher interest rates are likely to

decrease consumer spending and increase consumer saving.

If a private company builds a toll road to connect Nashville and Memphis, it will _______________ this years's GDP

increase

On​ average, nations in Europe pay higher unemployment benefits for longer periods of time than does the United States. The increased size and duration of unemployment benefits can be expected to

increase frictional unemployment.

Suppose​ Jerry's MPC decreases. At income Y1​, ​Jerry's

consumption will be less than his income.

Disposable income

increases when income increases

An increase in the overall price level is

inflation

In 2016 final sales equal​ $350 billion and the change in business inventories is minus−​$60 billion. GDP in 2016

is​ $290 billion.

All else​ equal, increasing interest rates will likely decrease the level of planned investment spending. This change in planned investment spending occurs because higher interest rates mean that​

it is more expensive to borrow money to pay for projects

If the minimum legal working age is lowered from 16 to 14​, the labor force participation rate

may​ increase, decrease, or not change

If the minimum legal working age is loweredlowered from 16 to 14​, the labor force participation rate​

may​ increase, decrease, or not change.

Estimates for the​ ________ rate of unemployment that routinely occurs in the United States range from 4 to 6 percent.

natural

If company A successfully launches a hostile take over of Company B in which it purchases all the assets of Company B it will _________ the current year's GDP

not change

Cheryl graduated from college a month ago and is now without work. She accepted a job that will start next month. ​Today, Cheryl is

not in the labor force

Your college bookstore receives a shipment of new economics texts for​ $60,000. This transaction is

not included in GDP​ calculation, since books bought by the bookstore are intermediate goods.

Which of the following is not a component of gross domestic​ product?

purchases by consumers of used goods

Which of the following is an example of an intermediate​ good?

the pizza sauce you purchase to make pizzas to sell for a​ fund-raiser for an organization you belong to

Which of the following would not be counted in​ 2016's GDP?

the value of a 2008 boat you purchase from a boat dealer in 2016

Which of the following is not included in​ 2016's GDP?

the value of a motor that is used in the production of a lawn mower

If the economy is in the midst of a prolonged recessionrecession​, the labor force participation rate​

will decrease

If the economy is in the midst of a prolonged recession​, the labor force participation rate​

will decrease

If the federal minimum wage is​ abolished, the labor force participation rate​ ____________.

will decrease

If the federal minimum wage is​ abolished, the labor force participation rate​

will decrease.

If the federal government decreases the duration of unemployment benefits from a high of 99 weeks to a maximum of 26 ​weeks, the labor force participation rate​

will increase

If the federal government decreasesdecreases the duration of unemployment benefits from a highhigh of 9999 weeks to a maximummaximum of 2626 ​weeks, the labor force participation rate​

will increase

If the federal government increases the minimum age requirement for collecting Social Security​ benefits, the labor force participation rate​

will increase

If the federal government increasesincreases the minimum age requirement for collecting Social Security​ benefits, the labor force participation rate​ ____________.

will increase

If you save​ $80 when you experience a​ $400 rise in your​ income

your MPC is 0.80

The population of a small island nation age 16 or older is​ 50,000. The size of the labor force is​ 40,000. The number of people employed is​ 35,000. The unemployment rate for this nation is

​12.5%. (35,000-40,000)/40,000

The population of a small island nation age 16 or older is​ 50,000. The size of the labor force is​ 40,000. The number of people employed is​ 35,000. The labor force participation rate for this nation is

​80.0% (40/50)

The relationship between net investment and GDP is given​ by,

GDP - consumption - government - exports + imports - depreciation

The equation for GDP using the expenditure approach is

GDP​ = C​ + I​ + G​ + EX− IM.

At​ equilibrium, the part of consumption that is dependent on income equals

$1,000 billion

The Canadian economy can be characterized by Equation 9.2. EQUATION​ 9.2: C​ = 500​ + .5Yd Taxes​ = 600 Equilibrium Output​ = $4,000 Refer to Equation 9.2. At​ equilibrium, the sum of investment and government purchases in Canada is

$1,800

The aggregate consumption function is C​ = 800​ + .8Yd. If income is​ $2,000 and net taxes are​ $500, consumption equals

$2,000

The following national income accounting data for the year 2009 are available for a country. All data are in billion dollars. Category Value Personal Consumption Expenditure ​$8,400.00 Residential Investment 720.00 Nonresidential Investment 1,080.00 Government Purchases 2,400.00 Changes in Business Inventories 30.00 Net Exports −600.00 For this​ country, GDP ​= billion and Final Sales​ =

12,030. 12,000

The population of a small island nation age 16 or older is​ 50,000. The size of the labor force is​ 40,000. The number of people employed is​ 35,000. The unemployment rate for this nation is

12.5%

In a simple​ economy, suppose that all income is either compensation of employees or profits. Suppose also that there are no indirect taxes. All data are in billions of dollars. Consumption 8,500.00 Gross investment 3,200.00 Depreciation 1,462.00 Profits 2,192.25 Exports 850.00 Compensation of employees 10,961.25 Government purchases 3,000.00 Direct taxes 1,150.00 Saving 3,503.00 Imports 935.00 Using the expenditure approach, GDP is _________ billion Using the income approach, GDP is _________ billion

14,615.00, 14,615.00

Labor force participation rate ​75% Total population 16 years of age and older 200 million Unemployment rate ​10%

15 million.

The equation for a consumption function in a simple​ economy, where there are no​ taxes, is given by C​ = 200 ​0.72​Y, where Y denotes aggregate income. Autonomous consumption is... MPC is...

200, .72

Suppose that in the year​ 2015, Oceanaire, Inc. planned to produce 500,000 units of its lightweight scuba tanks. Of the 500,000 it planned to​ produce, a total of 35,000 units would be added to the inventory at its new plant in Arizona. Also assume that these units have been selling at a price of $250 each and that the price has been constant over time. Suppose further that this year the firm built a new plant for $6 million and acquired $ 2.5 million worth of equipment. It had no other investment​ projects, and to avoid​ complications, assume no depreciation. Now suppose that at the end of the​ year, Oceanaire had produced 500,000 units but had only sold 450,000 units and that inventories now contained 50,000 units more than they had at the beginning of the year. At $250 ​each, that means that the firm added $12,500,000 in new inventory. This year Oceanaire actually invested... Oceanaire planned to invest... Oceanaire should produce...

21,000 17,250 less output next year since it needs to reduce its unplanned investment.

If the natural rate of unemployment (frix + structural) is 4.04.0​% and the economy has a 7.07.0​% rate of​ unemployment, then what is the cyclical rate of​ unemployment?

3

If the natural rate of unemployment is 4.0​% and the economy has a 7.0​% rate of​ unemployment, then what is the cyclical rate of​ unemployment?

3.0 percent

If​ Lily's consumption function is of the form ​[C​ = 100​ + 0.8​Y]​, her saving equals zero at an income level of

500

In​ March, 2006 the labor department of the country of Jobland determined that the size of the labor force was 100100 million out of which 9292 million were employed. In May​ 2006, the labor department determined that 1.01.0 million people became​ "discouraged workers" in April. Jobland unemployment rate in March​ Jobland unemployment rate in April​

8, 7.1

In​ March, 2006 the labor department of the country of Jobland determined that the size of the labor force was 100100 million out of which 9292 million were employed. In May​ 2006, the labor department determined that 1.01.0 million people became​ "discouraged workers" in April. Assuming that no new jobs were created between March and​ April, calculate the unemployment rate for March and April. Jobland unemployment rate in March​ = Jobland unemployment rate in April​ =

8, 7.1

Employed ​14,000 people Unemployed ​3,000 people Not in the Labor Force ​4,000 people The​ labor-force participation rate is

80.9%

Employed ​14,000 people Unemployed ​3,000 people Not in the Labor Force ​4,000 people The employment rate is

82.4%

Aggregate Income​ ($ billion) 0 Aggregate Consumption​ ($ billion) 80 The equation for the aggregate consumption function is

C​ = 80​ + 0.9Y.

After government is added to the incomeminus−expenditure ​model, the formula for the aggregate consumption function is

C​ = a​ + b​(Y− T​)

If government purchases increased by ​$100 billion but GDP remained the​ same, which of the following could have occurred if everything else remains​ unchanged?

Gross private domestic investment decreased by ​$100 billion

Which of the following best describes the relationship between aggregate expenditure and real GDP ​?

If aggregate expenditure falls short of real​ GDP, inventories will accumulate and real GDP and aggregate income will fall in future.

In this​ economy, 0.5 represents the

MPS. and MPC.

If you earn additional​ $500 in disposable income one week for painting your neighbors​ house,

The total of your consumption and saving will increase by​ $500.

Anissa makes custom bird houses in her garage and she buys all her supplies from a local lumber yard. Last year she purchased ​$4,500 worth of supplies and produced 2,500 bird houses. She sold all 2,500 bird houses to a local craft store for ​$20 each. The craft store sold all the bird houses to customers for ​$40 each. For the total bird house​ production, calculate the value added of Anissa and of the craft store.

The value added of Anissa is ​$45,500 The value added of the craft store is $50,000

Frictional unemployment is generally a​ short-run condition in the labor market and structural unemployment is generally a​ long-run condition.

True

Labor Force 150.0 million (year 2000) 168.0 million (year 2010) Employment 127.5 million (year 2000) 139.0 million (year 2010)

Unemployment Rate for 2000​ =15% Unemployment Rate for 2010​ = 17.3%

Consider the following model of a very simple economy. Household saving and investment behavior depend in part on wealth​ (accumulated savings and​ inheritance). In the late 1990s many were concerned with very large increases in stock values​ (a form of​ wealth) and its possible effect on saving and investment. The following consumption function incorporates wealth​ (W) as a determinant of consumption. We have the following information on consumption​ (C) and investment​ (I): bullet• C​ = 45 ​+ 0.75Y ​+ 0.10W bullet• I​ = 100 bullet• W​ = 800 We are ignoring the fact that saving adds to the stock of wealth. Calculate the values of equilibrium​ Y, C, and saving​ (S). ​(Enter your responses as integers.​) Suppose that wealth increases by 6060 percent. Calculate the values of equilibrium​ Y, C, and S

Y=900 I=800 S=100 New Y​ = ​$1,092 New C​ = ​$992 New S​ = ​$100 As a result of the wealth​ accumulation, GDP increases

When the government sector is included in the incomeminus−expenditure ​model, the equation for aggregate income is

Y​ = C​ + I​ + G

Suppose you purchase a new car for ​$40,000 during this year and a pizza for ​$15.00. Assume that a car may be used over a period of 55 ​years, while a pizza is used up immediately. But both of these goods are counted as consumption in GDP calculation in the year in which you make the transaction. This is considered to be an​ "error" in national income​ accounting, because One likely way that the GDP accounting of the car may be improved is by counting

a car is a durable good that provides service over many years, ​$8000 or 20.00 percent of the​ car's price for each of the next 5 ​year's GDP calculation as a valuation of the service provided by the car.

Which of the following is an example of a final good or​ service?

a computer purchased by Federal Express to track shipments

In​ 2016, the city of Canfield collected​ $500,000 in taxes and spent​ $450,000. In​ 2016, the city of Canfield had a

budget surplus of​ $50,000

The small island nation of Kaboom is a simple economy with no​ government, no​ taxes, and no imports or exports. Kaboomers​ (citizens of​ Kaboom) are creatures of habit. They have a rule that everyone saves exactly 40 percent of income. Assume that planned investment is fixed and remains at 225 million Kaboomian dollars. Further assume that autonomous consumption​ (independent of​ Y) is​ zero, so consumption​ (C) is MPC times Upper YMPC×Y. The following data are estimates for the island of​ Kaboom: bullet• Real GNP​ (Y): 422 million Kaboomian dollars bullet• Planned investment spending ​(I)​:225 million Kaboomian dollars You are asked by the business editor of the Explosive Times​, the local​ newspaper, to predict the economic events of the next few months. Based on the data​ given, you predict inventories will _______ and the level of real GNP will________ Things will stop changing when________ aboom's economy will reach equilibrium when its real GNP​ =_______ Kaboomian dollars

decrease, increase, saving equals investment, 563 million

Since GNP exceeds GDP​, it can be concluded that foreign production by U.S. firms _________ U.S. production by foreign firms. For countries having a significant fraction of domestic production occurring in​ foreign-owned facilities, the GDP will likely ________ GNP

exceeds, exceed

The spending and taxing policies used by the government to influence the economy refer to

fiscal policy

The portion of unemployment that is due to the normal turnover in the labor market is called

frictional unemployment.

Net investment equals

gross investment minus depreciation.

Assuming there is no foreign trade in the​ economy, equilibrium is achieved when government purchases equal

saving plus net taxes minus investment.

Jerry's ________ equals​ ________ at income level Y1.

saving; zero

Tony has just graduated from college and has now applied for a full time position where he is currently working part−time. This causes the unemployment rate to​ ________ and the labor minus−force participation rate to​ ________.

stay the​ same; stay the same

A textile firm closes a plant in Massachusetts and transfers production to a plant in South​ Carolina, where the firm can take advantage of cheaper labor. The plant supervisor at the Massachusetts plant is given the opportunity to move to South Carolina to become the plant supervisor at that plant. He turns down this opportunity because of family obligations. While he is searching for a new job he would be classified as

structurally unemployed.

The number of people unemployed equals

the labor force minus the number of people employed.

If the labor market becomes more efficient so that the unemployed are more quickly matched with​ jobs, then

the natural rate of unemployment will decrease.


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