econ test 2
When a firm pays a wage that is higher than the market wage in order to increase worker productivity, the wage is called
an efficiency wage
An efficiency wage is
an above-market wage paid by a firm to maximize worker productivity.
When tax revenue equals government spending there is
balanced budget
Which of the following are financial securities that represent promises to repay a fixed amount of funds?
bonds
When tax revenue is less than government spending there is
budget deficit
When tax revenue exceeds government spending (government purchases and transfer payments) there is
budget surplus
An underground economy involves all of the following except
buying and selling of goods and services by obtaining a permit from the government.
The following table gives nominal and real GDP for an economy for two years. Year 1 Year 2 Nominal GDP 1650.0 2100.0 Real GDP 1,500 1800.0
116.7 inflation rate: 6.1%
The current GDP of USA is about _____________, and the current GDP per capital is about _____________
18,000 billion, 55,000
Real GDP per capita in the country of Arcadia grew from about $4 comma 4,624 in 1900 to about $41,347 in 2008, which represents an annual growth rate of 2.052.05 percent. If Arcadia continues to grow at this rate, calculate the number of years when its real GDP per capita will double
34 years
Consider the following simple economy that produces only three goods: 2000 (Base Year) 2009 Product Quantity Price Quantity Price Denim pants 80 $40 100 $50 Wine 90 11 80 10 Textbooks 15 90 20 100
6680
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2008 if the CPI in 2008 is 215 and the CPI in 1984 is 104?
70,288
The GDP of the country Sumeria has grown at an average rate of 6 percent over the last two years, while the rate of inflation has remained more or less stable. Macroeconomists in the country are arguing that this increase in GDP is a clear indication of an overall improvement in the well-being of its people. Which of the following, if true about the last two years in Sumeria, would strengthen this argument?
An increasing percentage of the population is choosing leisure time over time spent in the work force.
What index is used to measure the average prices paid by a typical family? An average of the prices of the goods and services purchased by a typical family is the:
CONSUMER PRICE index (cpi)
How does an increase in the price level affect the quantity of real GDP supplied in the long run?
Changes in the price level do not affect the level of GDP in the long run.
Which of the following is true about the consumption component of U.S. GDP in 2012?
Consumer spending on services was greater than the sum of spending on durable and nondurable goods.
If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast?
DISPOSABLE PERSONAL IMCOME
Following a long period of slow growth, the government of country X decided to open its economy and reduce trade barriers in order to boost economic growth. This provided the expected impetus to the economy as competition increased and the efficiency of domestic firms improved. A decade after opening the economy, the country's GDP is now growing at an average of 7-8 percent annually. A group of economists claim that the standard of living of the people has improved substantially during this period. They also expect this impressive growth to continue over the next five years. Which of the following, if true, will indicate that the standard of living has actually improved since the economy was opened?
Discretionary spending by domestic consumers increased during this time.
What is the general relationship between the business cycle and unemployment and inflation?
During an expansion, unemployment falls and inflation increases.
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.
Which one of the following is not a measure of the price level?
Government Price Index: an average of the prices paid by the government for goods and services used only by different government agencies.
Which of the following equals the amount of public saving?
Government tax revenue minus the sum of government purchases and transfer payments to households.
Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following, if true, would support the marketing head's claim?
Import barriers were reduced recently to encourage competition.
Which of the following does NOT lead to long-run economic growth
Increase in average wages
1982-84=100 In Chapter 9, we see something like "1982 - 84 = 100". What is it?
It means that CPI = 100 over 1982 to 84.
If the U.S. Bureau of Economic Analysis (BEA) added up the values of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP)?
Larger: The value of all goods and services sold would include intermediate goods.
At the start of the year, the rate of unemployment among U.S. citizens who were between 50 to 60 years old was 7 percent. At the end of the year, the same age-group reported an unemployment rate of 6 percent. However, a newspaper columnist claims that the falling unemployment rate is not an accurate indicator of the overall employment situation of this age-group. Which of the following, if true, would strengthen the columnist's claim?
Most people in this group who lost their jobs stopped actively looking for new work.
The agency that identifies a recession is the
National Bureau of Economic Research.
Which one of the following accurately describes the relationship between frictional unemployment and job search?
People are said to be frictionally unemployed when they are between jobs and searching for new jobs.
Why does the short-run aggregate supply curve slope upward?
Profits rise when the prices of the goods and services firms sell rise more rapidly than the prices they pay for inputs.
Which of the following factors brought on the recession of 2007−2009?
The end of the housing bubble. B. A rapid increase in the price of oil. C. The financial crisis
Narnia, a developed open economy, has been experiencing double-digit inflation and a decelerating output growth for the last four quarters. Jonathan Mathews and Ben Hall, two market analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. Jonathan thinks that the central bank should raise the nominal interest rate to control inflation. This, he feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. Ben however disagrees. According to him, an increase in the nominal interest rate will lower investment, leading to a decline in aggregate production by firms. This, in turn, will increase the shortage in the economy and prices will rise further. When the interest rate was actually increased, the aggregate supply of loanable funds in the economy did not increase as much as Jonathon expected. Which of the following, if true, would explain this outcome?
The government budget deficit increased by $10 billion this year.
Following a long period of slow growth, the government of country X decided to open its economy and reduce trade barriers in order to boost economic growth. This provided the expected impetus to the economy as competition increased and the efficiency of domestic firms improved. A decade after opening the economy, the country's GDP is now growing at an average of 7-8 percent annually. A group of economists claim that the standard of living of the people has improved substantially during this period. They also expect this impressive growth to continue over the next five years. Which of the following, if true, would weaken the economists' claim that the standard of living has improved?
The majority of wealth creation was concentrated in the highest income level.
As the economy nears the end of an expansion, which of the following typically occurs?
The profits of firms will be falling. B. Interest rates are usually rising. C. Wages are usually rising faster than prices.
Explain whether you agree with the following statement: "The dynamic aggregate demand and aggregate supply model LOADING... predicts that a recession caused by a decline in AD will cause the inflation rate to fall. I know that the 2007minus−2009 recession was caused by a fall in AD, but the inflation rate was not lower after the recession. The prices of most products were definitely higher in 2008 than they were in 2007, so the inflation rate could not have fallen."
The statement is wrong because it is confusing the price level with the inflation rate.
Paul Schumer and Jim Miller, two analysts at a research institute, discuss the rising costs of higher education in their country. Paul feels that escalating tuition fees in colleges and universities are indicative of a bubble in the higher education market. According to Jim, however, the rising costs are the result of better quality education being provided by the institutions in recent years. Which of the following, if true, will support Paul's claim that there is a bubble in the higher education market?
The student loan sector is threatened by increasing default rates.
Suppose an economy experiences technological progress and this causes a shift in the LRAS curve. Which of the following should not occur?
There will be an increase in government purchases as the economy has more income.
As the economy nears the end of an expansion, which of the following typically occurs?
Wages are usually rising faster than prices. B. The profits of firms will be falling. C. Interest rates are usually rising
Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following questions is most relevant to answer in order to determine the accuracy of the CEO's claim?
What are consumer expectations of future growth?
Why does inflation make nominal GDP LOADING... a poor measure of the increase in total production from one year to the next?
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
Which one of the following is not true when the economy is in macroeconomic equilibrium?
When the economy is at long-run equilibrium, firms will have excess capacity.
Which of the following equations sums up the components of Gross Domestic Product (GDP)?
Y= C+I+G+NX
A government that collects more in taxes than it spends experiences
a budget surplus.
Which of the following equals the amount of public saving?
a budget surplus.
Which of the following would cause a decrease in aggregate demand?
a decrease in government spending
Suppose that you are available to go to work but have not looked for a job for at least the last four weeks because you believe that there aren't any jobs available. You would be counted as
a discouraged worker
An insurance company is
a financial intermediary because they take premiums and use them to purchase financial securities.
Narnia, a developed open economy, has been experiencing double-digit inflation and a decelerating output growth for the last four quarters. Jonathan Mathews and Ben Hall, two market analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. Jonathan thinks that the central bank should raise the nominal interest rate to control inflation. This, he feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. Ben however disagrees. According to him, an increase in the nominal interest rate will lower investment, leading to a decline in aggregate production by firms. This, in turn, will increase the shortage in the economy and prices will rise further. Ben's claim that a higher interest rate will increase the shortage in the economy fails to recognize the possibility that:
a higher interest rate induces consumers to increase saving.
Which of the following causes the short-run aggregate supply curve to shift to the right?
a positive technological change
Which of the following is the best example of human capital?
a worker gets a college degree
Typically, when will the National Bureau of Economic Research (NBER) announce that the economy is in a recession?
a year or more after the recession has begun
Which of the following events would cause an increase in long-run aggregate supply?
an increase in the capital stock
Which of the following causes the short-run aggregate supply curve to shift to the left?
an increase in the expected price of an important natural resource
Which of the following is an example of structural unemployment?
autoworkers lose jobs due to globalization and must retain to find new jobs
[Related to the Making the Connection] Amartya Sen, a professor of economics at Harvard and a Nobel Laureate, has argued: "For India to match China in its range of manufacturing capacity... it needs a better-educated and healthier labor force at all levels of society." Source: Amartya Sen, "Why India Trails China," Wall Street Journal, June 19, 2013. Education and health care are important for economic growth because
a well-educated and healthy workforce has higher productivity.
"For India to match China in its range of manufacturing capacity... it needs a better-educated and healthier labor force at all levels of society." Source: Amartya Sen, "Why India Trails China," Wall Street Journal, June 19, 2013. Education and health care are important for economic growth because
a well-educated and healthy workforce has higher productivity.
Why does the failure of workers and firms to accurately predict the price level result in an upward-sloping aggregate supply curve?
because contracts between workers and firms make some wages and prices "sticky" B. because firms are often slow to adjust wages C. because menu costs make some prices "sticky"
How does the dynamic model of aggregate supply and aggregate demand explain inflation?
by showing that if total spending in the economy grows faster than total production, prices will rise
Which of the following is a problem of anticipated inflation?
costs to firms of changing prices
Recessions cause the inflation rate to _________, and the unemployment rate to _________.
decrease, increase
Recessions cause the inflation rate to _________, and the unemployment rate to _________.
decrease: increase
Which of the following do we subtract from GDP to obtain national income?
depreciation
Purchases of which types of goods are business cycles most likely to affect?
durable goods
All of the following are problems caused by deflation except
firms make higher profits as consumers buy more goods and services.
The financial system of a country is important for long-run economic growth because
firms need the financial system to acquire funds from households.
Businesses demand loanable funds because
firms need to borrow funds for new projects, such as building new factories or carrying out new research projects.
Suppose John Q. Worker is currently unemployed. Each day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John Q. what he does for work, he tells them that he is currently "in-between jobs." Which of the following best classifies John Q.'s unemployment status?
frictionally unemployed
Potential real GDP
grows over time
Which of the following is not a service that the financial system provides for savers and borrowers?
guaranteeing savers high rates of return
In the circular-flow diagram, who supplies factors of production in exchange for income?
households
The circular-flow diagram shows that all sources of income are owned by
households
The short-run aggregate supply curve slopes upward because of all of the following reasons except
in the short run, an unexpected change in the price of an important resource can change the cost to firms.
Households supply loanable funds because of the
interest income received from the borrowers.
What is the rule of 70? The rule of 70
is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double.
The ease with which a financial security can be exchanged for money is referred to as
liquity
In an economy with rising prices, compared to the base year,
nominal GDP is larger than real GDP in years after the base year.
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.
Which of the following is a major difference between the AD-AS model and the dynamic AD-AS model? The dynamic AD-AS model assume
potential GDP increases continually, while the AD-AS model assumes the LRAS does not change.
Which of the following is the best measure of the standard of living of the typical person in a country?
real GDP per person
Which of the following is not a "loanable fund"?
real estate
When compared to the Great Depression, the typical length of unemployment in the modern (post-Great Depression-era) U.S. economy is
relatively brief
Which of the following is not a service that the financial system provides for savers and borrowers?
risk sharing among savers
The 2007-2009 recession was a clear example of
the effect that a decrease in aggregate demand can have on the economy.
From a trough to a peak, the economy goes through
the expansionary phase of the business cycle.
India has been able to experience rapid economic growth since 1991 despite poor educational and health care systems because
the government scaled back central planning, reduced regulations, and introduced market-based reforms.
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
Potential real GDP is
the level of GDP attained when all firms are producing at capacity.
Gross Domestic Product (GDP) is
the market value of all final goods and services produced in a country during a period of time.
The position of the long-run aggregate supply (LRAS) curve is determined by
the number of workers, the amount of capital, and the available technology.
What relationship is shown by the aggregate demand curve? The aggregate demand curve shows the relationship between
the price level and the quantity of real GDP demanded by households, firms, and the government.
what relationship is shown by the aggregate supply curve? The short run aggregate supply curve shows the relationship in the short run between
the price level and the quantity of real GDP supplied by firms.
The National Income (NI) of the United States is equal to
the value of the total income (GDP) minus the consumption of fixed capital
If the price level increases, then
there will be a movement up along a stationary aggregate demand curve.
The circular-flow diagram shows that ________ should equal ________.
total expenditure; total income
What is the relationship between the unemployment rate and enacting or increasing a minimum wage? When a minimum wage is enacted or increased across a country, the unemployment rate
will increase some but the impacts will be much larger for some groups of workers.
Almora, a developing open economy, is experiencing an economic boom since it discovered oil reserves off its coast two years ago. Bill Hudson, an economist with the Finance Ministry of Almora, said in an interview that the oil boom has improved the average standard of living in the economy. Robin Peters is an industry analyst who does not agree with Hudson's view. In one of his recent articles in the country's leading business daily, Robin claimed that the high rate of inflation following the boom has actually weakened the expansionary impact on the economy. Which of the following, if true, will support Robin's argument?
Almora's agriculture and manufacturing sectors have become less competitive in the world market.
Almora, a developing open economy, is experiencing an economic boom since it discovered oil reserves off its coast two years ago. Bill Hudson, an economist with the Finance Ministry of Almora, said in an interview that the oil boom has improved the average standard of living in the economy. Robin Peters is an industry analyst who does not agree with Hudson's view. In one of his recent articles in the country's leading business daily, Robin claimed that the high rate of inflation following the boom has actually weakened the expansionary impact on the economy. Which of the following, if true, will support Robin's argument?
Almora's agriculture and manufacturing sectors have become less competitive in the world market.
What are the four major categories of expenditure?
Consumption, investment, government purchases, and net exports.
How does the size of a country's GDP affect the quality of life of the country's people?
Generally, the more goods and services people have, the better off they are.
If the U.S. Bureau of Economic Analysis (BEA) added up the values of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP)?
Larger: The value of all goods and services sold would include intermediate goods.
What are the four categories of income?
Wages, Interest, Rent, and Profit.
India has a "tricky political climate" because
ethnic, religious, cultural, and geographic divisions often make it difficult for the government to successfully implement policy.
Government unemployment payments can increase the unemployment rate by
allowing the unemployed to be more picky about taking a new job.
*Coffee beans purchased by a coffee shop *One share of Google stock *A new pick-up truck purchased by a consumer *A new home purchased by a family
*intermediate * neither *final *final
If real GDP equals $11,567 billion in 2006 and $11,916 billion in 2007, and assuming population is constant over those two years, how many years will it take for real GDP per capita LOADING... to double?
23.2
Why might the unemployment rate continue to rise during the early stages of a recovery?
Employment growth may be slow relative to the growth in the labor force. Some firms continue to operate well below their capacity even after a recession has ended.
All of the following are correct except
Gross domestic income does not include health insurance benefits received by the employees.
All of the following are correct except Which component of gross domestic income is the largest?
Gross domestic income does not include health insurance benefits received by the employees. wages
Suppose the amount the federal government collects in personal income taxes decreases, while the level of GDP remains the same. What will happen to the values of national income, personal income, and disposable personal income?
National income will remain the same . Personal income will remain the same . Disposable personal income will increase .
The textile industry in Indonesia has traditionally been one of the largest employers in the manufacturing sector. Increased production levels in this industry during the first three quarters this year led industry experts to believe that the industry's contribution to Indonesia's GDP would also increase. However, at the end of the year it was seen that the percentage of Indonesia's GDP that came from the textile industry actually declined. Which of the following, if true, would best explain this outcome?
Other major Indonesian industries reported greater increases in production value than those reported by the Indonesian textile industry.
Even perfectly anticipated inflation imposes costs. Why?
Paper money loses its purchasing power by the rate of inflation. B. Some wages will fail to keep up with anticipated inflation. C. Menu costs. D. All of the above.
Which of the following would be included in the gross national product (GNP) of the United States?
Production from a U.S. firm that operates in Mexico.
Which of the following is true about the government purchases component of U.S. GDP in 2012?
Purchases by state and local governments was greater than purchases by the federal government.
How does real GDP LOADING... deal with the problem inflation causes with nominal GDP?
Real GDP separates price changes from quantity changes. B. By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced. C. Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. D. All of the above
[Related to the Making the Connection] According to Dan Sichel, an economist at Wellesley College, the amount of time a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new machine." Source: David Kestenbaum, "Lady Gaga Writing a New Song Is Like a Factory Investing in a New Machine," www.npr.org, April 25, 2013. Which of the following statements is correct?
Song development time produces songs, similar to investment in a factory produces physical goods
Following a long period of slow growth, the government of country X decided to open its economy and reduce trade barriers in order to boost economic growth. This provided the expected impetus to the economy as competition increased and the efficiency of domestic firms improved. A decade after opening the economy, the country's GDP is now growing at an average of 7-8 percent annually. A group of economists claim that the standard of living of the people has improved substantially during this period. They also expect this impressive growth to continue over the next five years. Which of the following, if true, will indicate that the country may not be able to maintain this average growth over the next few years?
The central bank announced its intention to take appropriate measures to ensure that inflation stays within control.
Ambrosia, a small country in the Mediterranean region, has an agriculture-based economy. In recent years, a decline in global trade barriers has led to a massive increase in agricultural production in Ambrosia. The government of Ambrosia has claimed that this expansion has increased the country's GDP and also improved the overall welfare of its people by increasing employment opportunities. However, critics of the government have claimed that this expansion has actually made the people of Ambrosia worse off. Which of the following, if true, would support the critics' argument?
The expansion was made possible by an expansion of pesticide use that has damaged the natural environment.
Ambrosia, a small country in the Mediterranean region, has an agriculture-based economy. In recent years, a decline in global trade barriers has led to a massive increase in agricultural production in Ambrosia. The government of Ambrosia has claimed that this expansion has increased the country's GDP and also improved the overall welfare of its people by increasing employment opportunities. However, critics of the government have claimed that this expansion has actually made the people of Ambrosia worse off. Which of the following, if true, would support the critics' argument?
The expansion was made possible by an expansion of pesticide use that has damaged the natural environment.
The Council of Economic Advisors to the President of a country reported gross investment expenditure at $400,000 during a particular year. The group excluded from this valuation an amount of $50,000 spent by an existing domestic firm during the year. Mark, an economist, argued that this amount should have been included under the business fixed investment component of GDP. Which of the following, if true, would support Mark's argument?
The firm purchased new machinery worth $50,000 for its production facility during that year.
Narnia, a developed open economy, has been experiencing double-digit inflation and a decelerating output growth for the last four quarters. Jonathan Mathews and Ben Hall, two market analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. Jonathan thinks that the central bank should raise the nominal interest rate to control inflation. This, he feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. Ben however disagrees. According to him, an increase in the nominal interest rate will lower investment, leading to a decline in aggregate production by firms. This, in turn, will increase the shortage in the economy and prices will rise further. When the interest rate was actually increased, the aggregate supply of loanable funds in the economy did not increase as much as Jonathon expected. Which of the following, if true, would explain this outcome?
The government budget deficit increased by $10 billion this year.
Ethan has been comparing the economic data of the two countries of Glenshire and Nebuloz. He finds that the GDP of Glenshire has been higher than that of Nebuloz during the last five years. The former country recorded a much higher GDP growth rate during these years and its domestic currency also had more value than the currency of Nebuloz. On the basis of all this information, Ethan tried to convince his friend that Glenshire would be a much better country to live in than Nebuloz. Each of the following, if true, would strengthen Ethan's argument, except one. Identify the exception.
The government of Nebuloz uses disposable personal income as a measure of national welfare, while the Glenshire government uses GDP.
In an attempt to control inflation, the Indian central bank increased interest rates substantially. This was expected to have an adverse impact on the country's GDP this year. Some economists also expected a year-on-year decline in India's GNP. However, Indian GNP actually went up. Which of the following, if true, would best explain this outcome?
The number of Indian IT employees working on projects outside of India increased considerably this year.
During a certain year, aggregate disposable income of Country Q increased considerably. The level of inflation in the country was also relatively low by historical standards. Julia, an economist in this country, argued that this is an indication of higher purchasing power of its people. Which of the following, if true, would weaken Julia's argument?
The population in country Q increased.
The production of LCD television sets in Australia increased by 20% this year as compared to last year. Those TV sets were no less advanced technologically than the sets sold in previous years. However, the value of the contribution LCD television sets made to Australia's nominal GDP during this year was the same as the previous year. Which of the following, if true, would best explain this outcome?
The price of LCD television sets declined in the past year.
Which of the following describes the effect of the business cycle on the inflation rate and the unemployment rate?
The unemployment rate increases and the inflation rate falls during recessions.
What is the difference between the value of a firm's final product and the value added by the firm to the final product?
The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.
Which of the following is not one of the conditions someone needs to meet to be counted as unemployed?
They had worked only one hour per week during the previous four weeks.
The country of Alaine produces 1,000 tons of corn during a year. It is valued at $500 per ton. A lobbyist for the corn industry in Alaine argues that the total value of corn production should be included in the country's GDP for the same year. The lobbyist's claim is based on the assumption that
corn is not used in the production of other goods.
Crowding out occurs when
governments must borrow funds which causes interest rates to rise and thus private investment is reduced.
When examining the circular-flow diagram,
households can use some of their income to purchase goods from foreigners as imports.
Even though individuals earn interest on financial investments such as bonds, mutual funds, and certificates of deposits, they may still hold wealth in checking accounts because
individuals need money that is available to be spent on goods and services.
Graft can affect economic growth in India because it
inhibits the efficient functioning of a market economy.
One major component of GDP that can be negative is
net exports
One major component of GDP that can be negative is
net exports.
The difference between a nominal variable and a real variable is that
nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.
Which of the following is the correct formula for calculating the unemployment rate?
number of unemployed ____________________________x100 Labor force
Some countries have larger underground economies than do other countries, because
of government policies that are retarding economic growth.
The article also states that "the hope is that India's politicians will finally be more serious about fighting graft and enacting reform." Graft is
payments to officials to look the other way or provide some special service.
Disposable personal income is
personal income minus personal taxes.
If the GDP deflator in 2012 has a value of 98.0, then
prices have decreased 2 percent between the base year and 2012.
According to an article in the Economist, the Russian economy "may not have been booming by 7% a year, as in the mid-2000s, but GDP grew by 3.6% in 2012." Source: "The Russian Economy, Sputtering," Economist, June 22, 2013. These two percentages are referring to changes in
real GDP
Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates
real GDP using chain weights.
Potential GDP is
sometimes greater, sometimes less, and sometimes equal to actual real GDP.
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
The type of unemployment most likely to result in hardship for the people who are unemployed is
structural because this type of unemployment requires retraining to acquire new job skills.
[Related to the Making the Connection] According to an article on India in the Economist: "When the government announced its package of measures last September (2012), optimists hoped it was a moment to rival 1991." The article further states: "It is now clear that deep reforms are not going to happen in the near future, reflecting...a tricky political climate." Source: "India's Economy: Start Me Up," Economist, June 29-July 5, 2013. The year 1991 is an important date in the history of India's economy because in this year,
the Indian government decided to scale back central planning, reduce regulations, and introduce market-based reforms.
Jared Bernstein, an economist at the Center on Budget and Policy Priorities, has stated: "I want to see receipt of unemployment insurance...go up in recessions." If government unemployment insurance payments didn't go up, he explains, it "would be a sign that something's very wrong." Source: Jared Bernstein, "Lessons of the Great Recession: How the Safety Net Performed," New York Times, June 24, 2013. If government unemployment insurance payments did not rise during a recession,
the economy would suffer as purchasing power of consumers would suffer.
If the economy is experiencing deflation,
the nominal interest rate will be lower than the real interest rate.
Which of the following is included in the economist's definition of investment?
the purchase of new machines, factories, or houses
The nominal interest rate is 12%. The inflation rate is 3%
the real interest rate is equal to 9%
An important conclusion to draw from the circular-flow diagram is that
we can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income.
Real GDP is Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates
the value of goods and services evaluated at base year prices real GDP using chain weights.
Real GDP is
the value of goods and services evaluated at base year prices.
The Personal Income (PI) of the United States is equal to
the value of the total income received by all households in the United States
Transfer payments are not included in GDP calculations because
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
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.
In 2012, the largest component of gross domestic income was
wages
Which component of gross domestic income is the largest?
wages
The three types of unemployment are
frictional, structural, and cyclical unemploment.