Economics Exam 2 Study Guide
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
(Number of unemployed/number in labor force)*100
Which of the following is NOT a function of money? A. Medium of exchange B. Store of value C. Unit of account D. Acceptability
Acceptability
As of August 2015, which of the following demographic groups has the highest unemployment rate? A. African Americans B. Asians C. Whites D. Hispanics
African Americans
Which of the following contribute(s) to shorter recessions, longer expansions, and less severe fluctuations in real GDP? (Mark all that apply.) A. Monetary policyMonetary policy B. A service-based economy C. Social Security benefitsSocial Security benefits D. All of the above E. A&C Only
All of the above
Real GDP per capita is often used as a measure of general well-being. While increases in real GDP often do lead to increases in the well-being of the population, why is real GDP not a perfect measure of well-being? A. The value of leisure is not included. B. The costs of pollution are not included. C. GDP does not include crime rates or income distribution. D. All of the above.
All of the above.
When the economy is at full employment, A. the unemployment rate is greater than zero. B. all remaining unemployment is either frictional or structural. C. the natural rate of unemployment prevails. D. All of the above.
All of the above.
Which of the following is true with respect to hyperinflation? A. It is caused by central banks increasing the money supply at a rate much greater than the growth rate of real GDP. B. It can be hundredslong dash—even thousandslong dash—of percentage points per year. C. In the presence of hyperinflation, firms and households avoid holding money. D. All of the above.
All of the above.
What are the four major categories of expenditure? A. Labor, capital, natural resources, and entrepreneurship. B. Final goods, intermediate goods, production, and income. C. Consumption, investment, government purchases, and net exports. .D. Wages, interest, rent, and profit.
Consumption, investment, government purchases, and net exports.
What happens if we measure GDP by adding up the value of every good and service produced in the economy? A. GDP is underestimated because of double counting. B. GDP is overestimated because of double counting. Your answer is correct.C. This is the correct measure of nominal GDP but not real GDP. D. This is the correct measure of real GDP but not nominal GDP.
GDP is overestimated because of double counting.
What would be expected to happen to each of the following variables during a recession? Unemployment would be expected to . Durable goods production, such as automobiles, would be expected to . The inflation rate would be expected to .
Increase Decrease Decrease
In the dynamic aggregate demand and aggregate supply model, if aggregate demand increases faster than potential real GDP, there will be ____________ . In the dynamic aggregate demand and aggregate supply model, if aggregate demand increases slower than potential real GDP, there will be __________
Inflation Recession
Consider the downward-sloping aggregate demand (AD) curve to the right. Which of the following results in a movement from point A to point B (a movement up along the AD curve) or from point A to point C (a movement down along the AD curve)? (Mark all that apply.) A. Interest rate effect B. Multiplier effect C. Wealth effect .D. Inflation effect
Interest Rate Effect Wealth Effect
ndicate whether each of the following is a final good, an intermediate good, or neither. 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 Good Final Good
A change in the price level causes a ___________ the short-run aggregate supply (SRAS) curve. In the figure, this is shown by moving from point A to B . A change in any other factor causes a ________ the SRAS curve. In the figure, this is shown by moving from point ___________ .
Movement Along Shift in B to C
Technological progress is affected by (check all that apply) A. new software developments B. private property rights C. investment in capital .D. population growth E. entrepreneurship
New Software Developments Private Property rights Investment in capital Entrepreneurship
In a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows: Y = $15 trillion C = $10 trillion I = $4 trillion TR = $1 trillion T = $4 trillion Using the information above, what is the value of private saving and public saving? A. Private saving equals $2 trillion and public saving equals $2 trillion. B. Private saving equals $10 trillion and public saving equals $4 trillion. C. Private saving equals $2 trillion and public saving equals $1 trillion. D. Private saving equals $4 trillion and public saving equals $10 trillion.
Private saving equals $2 trillion and public saving equals $2 trillion.
Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP ? A. RGDP = NGDP because prices are stable. B. RGDP < NGDP because prices are rising. Your answer is correct.C. RGDP > NGDP because prices are falling. D. The relationship is uncertain without more information on prices.
RGDP < NGDP because prices are rising.
What effect do labor unions LOADING... have on the unemployment rate? A. Labor unions can significantly increase the unemployment rate when members go on strike. B. Since few non-government workers are unionized, there is no significant effect on the unemployment rate. .C. By increasing the wage above market equilibrium, labor unions considerably decrease the unemployment rate. D. By increasing the wage above market equilibrium, labor unions considerably increase the unemployment rate.
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
ndicate whether the following statement is true or false and why. "A wage rising slower than the rate of inflation is actually falling." A. True. If wages are increasing slower than the average price of goods and services, purchasing power increases. B. False. A higher wage increases purchasing power regardless of inflation. C. False. A higher wage decreases purchasing power regardless of inflation. D. True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
hich of the following causes the short-run aggregate supply curve to shift to the right? A. a decrease in the capital stock B. a positive technological change C. an increase in the expected price of an important natural resource D. a higher expected future price level
a positive technological change
Which of the following causes the short-run aggregate supply curve to shift to the left? A. an increase in productivity B. an increase in the labor force C. a positive technological change D. an increase in the expected price of an important natural resource
an increase in the expected price of an important natural resource
A bank will consider a car loan to a customer __________ and a customer's checking account to be ____________. A. a liability; an asset B. an asset; an asset C. an asset; a liability D. a liability; a liability E. an asset; net worth
an asset; a liability
An initial decrease in a bank's reserves will decrease checkable deposits A. by an amount equal to the decrease in reserves. B. by an amount less than the decrease in reserves. C. by an amount greater than the decrease in reserves. .D. An initial decrease in reserves will increase checkable deposits.
by an amount greater than the decrease in reserves.
Long-run growth in GDP is determined by A. consumption, investment, and government expenditures. B. technology, investment, and consumption C. labor productivity, capital, and government expenditures. D. capital, labor productivity, and technology.
capital, labor productivity, and technology
If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then A. changes in the CPI understate the true rate of inflation. B. changes in the CPI are unrelated to the true rate of inflation. C. changes in the CPI overstate the true rate of inflation. D. changes in the CPI accurately reflect the true rate of inflation.
changes in the CPI overstate the true rate of inflation.
The labor force equals the number of people A. unemployed. B. employed. C. employed plus unemployed. .D. in the workingminus−age population.
employed plus unemployed.
Credit cards are A. included in both the M1 and the M2 definitions of the money supply. B. included in the M1 definition of the money supply, but not in the M2 definition. C. included in neither the M1 definition of the money supply nor in the M2 definition. D. included in the M2 definition of the money supply, but not in the M1 definition
included in neither the M1 definition of the money supply nor in the M2 definition.
The purchase of $1 million of Treasury securities by the Federal Reserve, if there is no change in the quantity of currency, will cause reserves at banks to A. decrease by $1 million. B. decrease by less than $1 million. C. increase by less than $1 million. D. increase by $1 million.
increase by $1 million.
Potential GDP A. measures the maximum that a firm is capable of producing. B. increases over time as technological change occurs. C. increases over time as the labor force grows. D. All of the above. E. B and C only.
increases over time as technological change occurs. increases over time as the labor force grows.
Lowering the discount rate will A. increase reserves, encourage banks to make more loans, and increase the money supply. B. increase reserves, encourage banks to make more loans, and decrease the money supply. C. decrease reserves, encourage banks to make fewer loans, and decrease the money supply. D. decrease reserves, encourage banks to make fewer loans, and increase the money supply.
increase reserves, encourage banks to make more loans, and increase the money supply.
Which of the following statements describes the experiences of Corning, Inc. since it was established in 1851? A. little or no growth in the long run, and unaffected by the business cycle B. strong uninterrupted growth in demand C. long-run growth interrupted by periods of business cycle recession D. little or no growth in the long run, but very vulnerable to the business cycle
long-run growth interrupted by periods of business cycle recession
Personal income is A. national income minus income taxes. B. national income plus government transfer payments. C. equal to the value of all final goods and services produced within a country's borders during one year. D. national income minus retained corporate earnings plus government transfer payments and interest on government bonds.
national income minus retained corporate earnings plus government transfer payments and interest on government bonds.
Money serves as a standard of deferred payment when A. sellers are willing to accept it in exchange for goods or services. B. it can be easily stored today and used for transactions in the future. C. payments agreed to today but made in the future are in terms of money. D. All of the above are examples of money serving as a standard of deferred payment.
payments agreed to today but made in the future are in terms of money.
Money serves as a unit of account when A. prices of goods and services are stated in terms of money. B. sellers are willing to accept it in exchange for goods or services. C. it can be easily stored and used for transactions in the future. D. All of the above are examples of money serving as a unit of account.
prices of goods and services are stated in terms of money.
A baseball fan with a Mike Trout baseball card wants to trade it for a Giancarlo Stanton baseball card, but everyone the fan knows who has a Stanton card doesn't want a Trout card. Economists characterize this problem as a failure of the A. theory of comparative advantage. B. principle of a double coincidence of wants. C. irrational exuberance doctrine. D. market clearing mechanism.
principle of a double coincidence of wants
Which of the following is the best measure of the standard of living of the typical person in a country? A. real GDP B. the unemployment rate C. real GDP per person D. the inflation rate
real GDP per person
An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run. A. the price level; the price level B. the price level; real GDP C. real GDP; real GDP D. real GDP; the price level
real GDP; the price level
The basic aggregate demand and aggregate supply curve model helps explain A. price fluctuations in an individual market. B. long term growth. C. output fluctuations in an individual market. D. short term fluctuations in real GDP and the price level.
short term fluctuations in real GDP and the price level.
If Ebenezer Scrooge spends rather than saves his vast wealth he will A. slow economic growth because he is reducing the amount of funds available for investment. B. slow economic growth because he is increasing the amount of funds available for investment. C. promote economic growth because he is increasing the amount of funds available for investment. D. promote economic growth because he is decreasing the amount of funds available for investment.
slow economic growth because he is reducing the amount of funds available for investment.
Gross domestic product is best defined as A. the total quantity of goods and services produced in a country during a period of time. B. the amount of all incomes earned by all citizens of a country, including those living overseas. C. the total value of all goods that can be found in a country. D. the market value of all final goods and services produced in a country during a period of time, typically
the market value of all final goods and services produced in a country during a period of time, typically one year.
The true cost of borrowing and lending is best measured by A. the nominal interest rate. B. the inflation rate. C. the three-month U.S. Treasury bill rate. D. the real interest rate.
the real interest rate.
Mike has been unemployed for over a year. He hasn't looked for a job in the last three months, but he's just started looking for work again. Because Mike started looking for a new job, A. the labor force participation rate decreased. B. the workingminus−age population increased. C. the unemployment rate decreased. D. the unemployment rate increased.
the unemployment rate increased.
The largest component of gross domestic income is A. interest. B. rent. C. wages. D. profits.
wages.
In a small economy, gross investment is $1,500, consumption spending is $6,000, net investment is $200, government spending is $1,500, exports are $2,000, and imports are $1,000. What is GDP for this economy? A. $10,700 B. $10,300 C. $10,200 D. $10,000
$10,000
If, between 2006 and 2016, the economy's real GDP grew from $20 billion to $40 billion, what was the average annual growth rate in the economy? A. 3% B. 7% C. 20% D. 100%
7%
In addition to the Federal Reserve Bank, what other economic actors influence the money supply? A. The U.S. Senate and the U.S. House of Representatives. B. The U.S. Mint and the U.S. Treasury. C. The U.S. President and Vice President. D. Households, firms, and banks.
Households, firms, and banks
What are the four categories of income? A. Wages, Salaries, Interest, and Dividends. B. Consumption, Investment, Government Purchases, and Net Exports. C. Labor, Capital, Natural Resources, and Entrepreneurship. D. Wages, Interest, Rent, and Profit.
Wages, Interest, Rent, and Profit.
A decrease in aggregate demand results in a(n) ________ in the ________. A. expansion; short run B. expansion; long run C. recession; short run .D. recession; long run
recession; short run