Econ Exam 2 Study

Alex earns $450 per week working for Breanna's Brewing Company.

Market for Factors of Production

Becky earns $725 per week working for Maction.

Market for Factors of Production

One alternative is the U-4 measure of labor underutilization, which is calculated as follows:

= 100 × (Unemployed + Discouraged / Labor Force + Discouraged)

Identify each person in the table as structurally, frictionally, or cyclically unemployed. Crystal is a real estate agent. House sales in her area have declined because the region has been going through a recession. She has no clients and is currently looking for a new full-time job.

Cyclical

hen a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the _______ component of GDP while also _______ net exports by the same amount. Therefore, the purchase of wood from Brazil causes no overall change in US GDP.

Investment; Decreasing

Purchasing Power =

Initial Deposit / Price

Between 2020 and 2021, the UPI increased by ___ UPI in 2020: 100 UPI in 2021: 110 Inflation between 2020 and 2021 = 100 × (UPI in 2021 − UPI in 2020) / UPI in 2020

10%

Labor Force Participation Rate =

100 x (labor force/adult population)

When a government spends less than it collects in tax revenues, it runs a government _______ .

Budget Surplus

GDP deflator

a measure of the price level calculated by dividing nominal GDP by real GDP and multiplying by 100 Calculating the GDP Deflator 2020: $1,500/$1,500 × 100 = 100 2021: $1,210/$1,375 × 100 = 88 2022: $1,175/$1,175 × 100 = 100

Physical capital per worker

is equal to the ratio of physical capital to labor: = Physical Capital in 2037 / Labor in 2037

Alex spends $250 to purchase software from Maction.

Market for Goods and Services

Public saving:

the amount of tax revenue that the government has left over after paying for its spending Public Saving = T−G

Private saving:

the income that remains after households pay taxes and make consumption expenditures Private Saving = Y−C−T

Catch-Up Effect

when higher productivity growth in countries with less capital per person helps those countries grow faster and catch up to the per-capita incomes of countries with more capital per person.

Net Exports:

Exports - Imports

The GDP deflator for this year is calculated by dividing the

(Value of all goods and services produced in the economy this year using this year's prices) / (Value of all goods and services produced in the economy this year using the base year's prices) x 100

When Interest rates fall, the level of investment spending ____.

Increases

Winnings Adjusting for Inflation =

Nominal Winnings × (Current Year Index/Original Year Index)

Unemployment Rate =

100 x (number of unemployed workers/labor force)

Percentage Change in Purchasing Power =

100 × (New Quantity of Tickets−Original Quantity of Tickets / Original Quantity of Tickets)

The inflation rate in 2022 was Inflation Rate in 2022 = 100 × (GDP Deflator in 2022 − GDP Deflator in 2021) / GDP Deflator in 2021

13.6%

Each Scenario is either Saving or Investment. Which ones are Savings: A. Edison buys a government bond. B. Maria purchases shares of stock in Warm Breeze, a cloud computing company. C. Hilary borrows money to build an addition to a lab owned by her engineering firm. D. Kevin purchases a new townhouse in Hartford.

A & B

Which of the following policies would lead to greater productivity in the weaving industry? Check all that apply. A. Encouraging saving by allowing workers to set aside a portion of their earnings in tax-free retirement accounts B. Sharply increasing the interest rate on student loans to people pursuing advanced degrees in weaving C. Imposing a tax on looms D. Offering free public education to every worker in the country

A & D

Which of the following statements are true? (Equilibrium at $8) Check all that apply. A. If the minimum wage is set at $6.00, the market will still be able to reach equilibrium. B. In the absence of price controls, a shortage puts downward pressure on wages until they fall to the equilibrium. C. Binding minimum wages cause cyclical unemployment. D. In this labor market, a minimum wage of $8.50 would be binding.

A & D

Which of the following, if true, would not illustrate why price indexes such as the UPI might overstate inflation in the cost of going to college? A. Professors required each student to buy eight notebooks, regardless of the price. B. As the price of textbooks increased, more and more students turned to the used-book market or chose not to buy textbooks at all, instead using the copies on reserve in the library. C. The quality of content provided by streaming services improved dramatically from 2020 to 2022. Many companies invested heavily in the actors cast for their original series, but this quality change is hard to measure. D. A natural dietary supplement is developed that is clinically proven to safely boost memory.

A. Professors required each student to buy eight notebooks, regardless of the price.

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? A. The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government B. The costs of overfishing and other overly intensive uses of resources C. Expenditures on federal highways D. The quality of goods available to consumers

A; B; D

Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs. Check all that apply. A. The $250 Alex spends to purchase software from Maction B. The $450 per week Alex earns working for Breanna's Brewing Company C. The beer Becky receives

B & C

Which of the following statements are correct? A. The Dow Jones Industrial Average is an example of a stock exchange where he can purchase Bayzer stock. B. An increase in the perceived profitability of Bayzer will likely cause the value of Jaylan's shares to rise. C. Bayzer earns revenue when Jaylan purchases 250 shares, even if he purchases them from an existing shareholder.

B. An increase in the perceived profitability of Bayzer will likely cause the value of Jaylan's shares to rise.

For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Ginny gets a new video camera made in the United States.

C

For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Eric buys a bottle of Italian wine.

C & M

Indicate whether each scenario will affect the GDP deflator or the CPI for the United States. A decrease in the price of a Scandinavian-made furniture that is popular among U.S. consumers

CPI

What is a significant factor in long-run economic growth that Robert Fogel, an economic historian, is best known for suggesting? A. Improvements in the protection of property and enforcement of contracts through the maturation of the civil and criminal justice systems B. Improvements in technology from the incentives created by a better patent system C. Inward-oriented policies that protect domestic firms from foreign competition D. Improvements in worker health from better nutrition

D. Improvements in worker health from better nutrition

Which of the following policies are consistent with the goal of increasing productivity and growth in developing countries? A. Pursuing inward-oriented policies B. Increasing taxes on income from savings C. Imposing restrictions on foreign ownership of domestic capital D. Providing tax breaks and patents for firms that pursue research and development in health and sciences

D. Providing tax breaks and patents for firms that pursue research and development in health and sciences

Suppose Bayzer, a pharmaceutical firm, is selling bonds to raise money for a new lab. This practice is called ______ finance. Buying a bond issued by Bayzer would give Jaylan _______ the firm. In the event that Bayzer runs into financial difficulty, __________ will be paid first.

Debt; an IOU, or promise to pay from; Jaylan and the other bondholders

Suppose the world price of tobacco falls significantly. The demand for labor among tobacco-producing firms in Kentucky will __________ . The demand for labor among cigarette manufacturing firms in Virginia, which use tobacco as an input, will _______ . The temporary unemployment that results from sectoral shifts such as the ones describes above is best categorized as ______ unemployment.

Decrease; Increase; Frictional

Suppose Hondamaha, a motorcycle manufacturing firm headquartered in Japan, builds a production plant in Arizona. This is an example of foreign _____ investment in the United States.

Direct

Based on the criteria used by the Bureau of Labor Statistics (BLS), identify each person's status as employed, unemployed, "not in the labor force" (if not in the civilian labor force but still part of the adult population), or "not in the adult population" if not in the civilian adult population. Charles is a 75-year-old professor. He teaches only one or two courses a year, but still publishes research at a productive rate.

Employed

Based on the criteria used by the Bureau of Labor Statistics (BLS), identify each person's status as employed, unemployed, "not in the labor force" (if not in the civilian labor force but still part of the adult population), or "not in the adult population" if not in the civilian adult population. Lorenzo is a famous novelist. He is spending the summer at his lake house Wisconsin, doing a little writing each day but mostly spending his time gardening and reading.

Employed

Are the Following Scenarios Included or Excluded in the US GDP A.Graincorp, a U.S. agricultural company, produces corn syrup at a plant in Iowa on September 13, 2023. It sells the corn syrup to Crunchy's for use in the production of cereal that will be made in the United States in 2023. (Note: Focus exclusively on whether production of the corn syrup increases GDP directly, and ignore the effect of production of the cereal on GDP.) B. Parkway Motors, a U.S. automobile company, produces a convertible at a plant in Mexico on March 10, 2023. Parkway Motors imports the convertible into the United States on May 20, 2023. C. Using wood from a red maple tree on your Michigan property you make a birdhouse in 2023. A similar birdhouse sells for $55 in a craft store.

Excluded

Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Suppose the government repeals a previously existing investment tax credit. The repeal of the previously existing tax credit causes the interest rate to ____ and the level of investment to ____.

Fall; Fall

True or False: Gross domestic product (GDP) cannot be used to measure the economy's income.

False

Based on this model, households earn income when ___ purchase _________ in markets for factors of production.

Firms; Labor & Capital

Identify each person in the table as structurally, frictionally, or cyclically unemployed. Alyssa just moved with her husband to Bismark, North Dakota. She's looking for a job as a judicial clerk.

Frictional

For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. The borough of Conshohocken sponsors a parade for St. Patrick's Day.

G

Using the expenditure approach, GDP is equal to the sum of consumption, investment, government purchases, and net exports:

GDP = C + I + G + (X−M)

Indicate whether each scenario will affect the GDP deflator or the CPI for the United States. An increase in the price of a Smooth Streets Industries pothole puncher, which is commercial construction equipment made in the U.S. but not bought by U.S. consumers

GDP Deflator

In the following table, select the appropriate productivity determinant that represents each example. The knowledge workers receive from advanced writing workshops

Human Capital per Worker

For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Eric's employer upgrades all of its computer systems using U.S.-made parts.

I

Natural Rate of Unemployment:

If there is no cyclical unemployment, the economy is at its natural rate of unemployment, equal to the sum of frictional and structural unemployment. In this case, because cyclical unemployment is 0.0%, the economy is at its natural rate of unemployment.

Suppose the government wants to reduce frictional unemployment. Which of the following policies would help achieve this goal?

Improving a widely used job-search website so that it matches workers to job vacancies more effectively

Are the Following Scenarios Included or Excluded in the US GDP A. Larry's Lattes, a U.S. coffee company, produces a latte at its location in Los Angeles on January 21, 2023. It sells the latte to a customer immediately. B. Billy Bonka's, a German chocolate company, produces a chocolate bar at a plant in Pennsylvania on December 5, 2023. A high schooler buys the chocolate bar on December 24.

Included

Saving is the source of the supply of loanable funds. As the interest rate rises, the quantity of loanable funds supplied ______

Increases

Assuming that everything else is equal, a municipal bond issued by a state most likely pays a ______ interest rate than a corporate bond issued by an electronics manufacturer.

Lower

The gross domestic product (GDP) of the United States is defined as the ______ all _______ _________ in a given period of time.

Market Value of; Final Goods and Services Produced; within the United States

In the following table, select the appropriate productivity determinant that represents each example. The trees used to create pulp contributing to paper production

Natural Resources per Worker

Based on the criteria used by the Bureau of Labor Statistics (BLS), identify each person's status as employed, unemployed, "not in the labor force" (if not in the civilian labor force but still part of the adult population), or "not in the adult population" if not in the civilian adult population. Juanita is a 13-year-old student at River Rock Middle School. She babysits her younger cousin and does other chores, so her parents give her an allowance of $30 per week.

Not in the Adult Population

Based on the criteria used by the Bureau of Labor Statistics (BLS), identify each person's status as employed, unemployed, "not in the labor force" (if not in the civilian labor force but still part of the adult population), or "not in the adult population" if not in the civilian adult population. Gilberto is a 39-year-old graphic designer who is taking 2 years off from work to care for his young child.

Not in the Labor Force

Based on the criteria used by the Bureau of Labor Statistics (BLS), identify each person's status as employed, unemployed, "not in the labor force" (if not in the civilian labor force but still part of the adult population), or "not in the adult population" if not in the civilian adult population. Neha is a 29-year-old who lost her job as an associate producer for a podcast. After spending a few weeks out of work and interviewing for several other positions, she gave up on her job search and decided to go back to grad school. She made that decision a few months ago.

Not in the Labor Force

Output per Worker =

Output with 18 Tools per Worker / Number of Workers

The presses used to print books

Physical Capital per Worker

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Real GDP is not influenced by price changes, but nominal GDP is.

Scenario 1: Individual Retirement Accounts (IRAs) allow workers to shelter a portion of their income from taxation. Suppose the maximum annual contribution to accounts of this type is $6,000 per person. Now suppose there is a decrease in the maximum contribution, from $6,000 to $4,000 per year. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to _____ and the level of investment spending to ______

Rise; Decrease

Identify each person in the table as structurally, frictionally, or cyclically unemployed. Tim left his job as an electrician when his wife took a position in another region. The quantity of electrical services demanded is considerably lower in the new region, in part because of high union-negotiated wages. He would like to work at the high union wage but remains unemployed due to a lack of electrician jobs.

Structural

Scenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes. This change in spending causes the government to run a budget _____ , which ______ national saving.

Surplus; Increases

In the following table, select the appropriate productivity determinant that represents each example. An autoscroll screen function that allows editors to read more efficiently

Technological Knowledge

Excluding discouraged workers from the official unemployment rate may cause the official rate to ________ the true extent of underemployment.

Understate

Based on the criteria used by the Bureau of Labor Statistics (BLS), identify each person's status as employed, unemployed, "not in the labor force" (if not in the civilian labor force but still part of the adult population), or "not in the adult population" if not in the civilian adult population. Dina is a 25-year-old recent college graduate. She did not work for pay last week, but she had two job interviews.

Unemployed

For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Ginny's father in Sweden orders a bottle of Vermont maple syrup from the producer's website.

X

However, the CPI reflects only the prices of all goods and services:

bought by consumers

Discouraged workers

are marginally attached workers who give a job-market-related reason for giving up on their job search. Typically, discouraged workers give up on their search because they feel that there are no current opportunities for them in the labor market.

An economy's labor productivity is

equal to the ratio of output to labor hours devoted to the production of the output: = Output in 2037 / Labor Hours in 2037

real interest rate:

equals the nominal interest rate minus the inflation rate

National saving:

is the total income in the economy that is left over after paying for consumption and government purchases. In a closed economy, subtracting consumption and government purchases from GDP also yields investment spending, so national saving equals investment National Saving (S) = Y−C−G

Nominal GDP

measures the value of current output using current prices Calculating Nominal GDP 2020: ($3 per coffee×280 coffees) + ($4 per paper plate×165 paper plates)=$1,500 2021: ($2 per coffee×165 coffees) + ($4 per paper plate×220 paper plates)=$1,210 2022: ($3 per coffee×145 coffees) + ($4 per paper plate×185 paper plates)=$1,175

Real GDP

measures the value of output in the current year using prices from a base year Calculating Real GDP (Base Year 2020) 2020: ($3 per coffee×280 coffees) + ($4 per paper plate×165 paper plates)=$1,500 2021: ($3 per coffee×165 coffees) + ($4 per paper plate×220 paper plates)=$1,375 2022 ($3 per coffee×145 coffees) + ($4 per paper plate×185 paper plates)=$1,175

Foreign direct investment

refers to a capital investment that is owned and operated by a foreign entity.

Foreign portfolio investment

refers to an investment that is financed with foreign money but operated by domestic residents. Therefore, this is an example of foreign direct investment.

price index:

the cost of the market basket in the current year divided by the cost of the market basket in the base year, all multipled by 100. UPI in 2021 = 100 × (Cost of Basket in 2021/Cost of Basket in 2020)