Exam 2 (ch. 7, 8, 9, 12, & 13)
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is
not in the labor force.
Which of the following do national income accountants consider to be investment?
the purchase of a new house
Suppose the CPI was 120 last year and is 144 this year. In contrast, suppose that the CPI was 120 last year and is 114 this year. What is this year's inflation rate?
-5 percent
Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. Tim just graduated from college and is looking for a job.
Frictional unemployment
Suppose that this year a small country has a GDP of $100 billion. Also assume that Ig = $30 billion, C = $60 billion, and Xn = − $10 billion. What is the value of G?
$20 billion
If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, actual GDP is
$385 billion
If foreigners spend $7 billion on U.S. exports in a given year and Americans spend $5 billion on imports from abroad in the same year, what is the value of U.S.
+$2 billion
Suppose that a country has 9 million people working full-time. It also has 1 million people who are actively seeking work but are currently unemployed, along with 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this country's unemployment rate?
10 percent
What annual growth rate is needed for a country to double its output in each of the following cases? In 7 years:
10 percent
Place the phases of the business cycle in order, starting with the highest level of GDP: recession, trough, peak, expansion.
1. Peak 2. recession 3. trough 4. expansion
What are the four supply factors of economic growth?
1. The quality and quantity of natural resources 2. The stock of capital goods 3. The level of technology 4. The quality and quantity of human resources
What annual growth rate is needed for a country to double its output in each of the following cases? In 140 years:
0.5 percent
What annual growth rate is needed for a country to double its output in each of the following cases? In 70 years:
1 percent
If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is
11 percent.
What annual growth rate is needed for a country to double its output in each of the following cases? In 35 years:
2 percent
Suppose the CPI was 120 last year and is 144 this year. What is this year's inflation rate?
20 percent
Which of the following is not seen by economists as an underlying cause of business cycle fluctuations?
All of these are identified as causes of business cycle changes.
Net exports might be a negative amount if
Americans spend more on imports than foreign countries spend on American exports.
Identify the following arguments about economic growth as either anti-growth or pro-growth. Earth has only finite amounts of natural resources:
Anti-growth
Identify the following arguments about economic growth as either anti-growth or pro-growth. Even the richest countries still have poverty, homelessness, and discrimination:
Anti-growth
Identify the following arguments about economic growth as either anti-growth or pro-growth. Growth means worker burnout and frantic schedules:
Anti-growth
Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. A recession causes a local factory to lay off 30 workers.
Cyclical unemployment
Suppose the CPI was 120 last year and is 144 this year. What term do economists use to describe this second outcome?
Deflation
Which of the following statements is true about deflation?
Deflation means that the price level is falling, whereas with inflation overall prices are rising.
Which of the following goods are usually intermediate goods and which are usually final goods? Coal:
Intermediate good
Which of the following goods are usually intermediate goods and which are usually final goods? Cotton fibers:
Intermediate good
Which of the following are included in this year's GDP? Which are excluded? A monthly allowance that a college student receives from home:
Excluded
Which of the following are included in this year's GDP? Which are excluded? An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay:
Excluded
Which of the following are included in this year's GDP? Which are excluded? Money received by Josh when he resells his nearly brand-new Honda automobile to Kim:
Excluded
Which of the following are included in this year's GDP? Which are excluded? Social Security payments received by a retired factory worker:
Excluded
Which of the following are included in this year's GDP? Which are excluded? The purchase of 100 shares of Alphabet (the parent company of Google) stock:
Excluded
Which of the following are included in this year's GDP? Which are excluded? Unpaid services of a family member who painted the family home:
Excluded
Which of the following goods are usually intermediate goods and which are usually final goods? Running shoes:
Final good
Which of the following goods are usually intermediate goods and which are usually final goods? Sunscreen lotion:
Final good
Which of the following goods are usually intermediate goods and which are usually final goods? Textbooks:
Final good
Which of the following goods are usually intermediate goods and which are usually final goods? Watches:
Final good
Which of the following goods are usually intermediate goods and which are usually final goods? Lumber:
Intermediate good
Which of the following are included in this year's GDP? Which are excluded? A $2 billion increase in business inventories:
Included
Which of the following are included in this year's GDP? Which are excluded? Income of a dentist from the dental services she provided:
Included
Which of the following are included in this year's GDP? Which are excluded? Interest received on an AT&T corporate bond:
Included
Which of the following are included in this year's GDP? Which are excluded? The publication and sale of a new college textbook:
Included
Identify the following arguments about economic growth as either anti-growth or pro-growth. Natural resource prices have fallen rather than increased over time:
Pro-growth
Which of the following transactions would be included in GDP?
Peter buys a newly constructed house.
Identify the following arguments about economic growth as either anti-growth or pro-growth. Richer countries spend more money protecting the environment:
Pro-growth
Identify the following arguments about economic growth as either anti-growth or pro-growth. Rising incomes allow people to buy more education, medical care, and recreation:
Pro-growth
Which of the following statements is true?
Real GDP is nominal GDP divided by the price index.
shift from AB to CD
Refer to the graph. Growth of production capacity is shown by the
Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. Hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India.
Structural unemployment
Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. Thousands of bus and truck drivers permanently lose their jobs to self-driving vehicles.
Structural unemployment
102 million
The table contains information about the hypothetical economy of Scoob. All figures are in millions. The labor force in Scoob is
6.9 percent
The table contains information about the hypothetical economy of Scoob. All figures are in millions. The unemployment rate in Scoob is
The phase of the business cycle in which real GDP declines is called
a recession
Even though the United States has an unemployment compensation program that provides income for those out of work, should we still worry about unemployment?
Yes, because the unemployment compensation program merely gives the unemployed enough funds for basic needs.
Which of the following is a private transfer payment?
a check for $250 sent by a parent to a daughter at college
Which of the following is a final good or service?
a haircut purchased by a father for his 12-year-old son
A large negative GDP gap implies
a high rate of unemployment
The GDP price index is
a measure of the price of a specified collection of goods and services compared to the price of a highly similar collection of goods and services in a reference year.
Year 1: Population- 300 Real GDP- 18 Year 2: Population- 375 Real GDP- 27 a. What is the growth rate of real GDP from year 1 to year 2? b. What is the growth rate of real GDP per capita from year 1 to year 2?
a. 50 percent b. 20 percent
The GDP gap measures the difference between
actual GDP and potential GDP.
In the treatment of U.S. exports and imports, national income accountants
add exports, but subtract imports, in calculating GDP.
Economic growth can be portrayed as
an outward shift of the production possibilities curve.
In national income accounting, the personal consumption expenditures category includes purchases of
automobiles for personal use but not houses.
According to the Bureau of Labor Statistics, to be officially unemployed a person must
be in the labor force.
Who gains from inflation?
borrowers
Recurring upswings and downswings in an economy's real GDP over time are called
business cycles
Given the annual rate of economic growth, the "rule of 70" allows one to
calculate the number of years required for real GDP to double.
A nation's gross domestic product (GDP)
can be found by summing C + Ig + G + Xn
The Consumer Price Index (CPI) is determined each month by
comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in a base year.
Inflation initiated by increases in wages or other resource prices is labeled
cost-push inflation
Real GDP measures
current output at base year prices.
For each of the following events, indicate whether it causes a demand-side or supply-side change, other things equal, and how the change will affect that side of the economy. Consumers become more pessimistic about the economy:
demand decreases
The phrase "too much money chasing too few goods" best describes
demand-pull inflation
Gross domestic product does not include the value of the stocks and bonds bought and sold because these transactions are considered
economic investment and should not be counted as production of final goods and services.
Economic growth is best defined as an increase in
either real GDP or real GDP per capita.
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
expansion
The losers from inflation are those with
fixed incomes in nominal terms
Net exports are a country's export of
goods and services less its imports of goods and services.
Final goods and services refers to
goods and services purchased by ultimate users, rather than for resale or further processing.
Government purchases include government spending on
government consumption goods and public capital goods.
The immediate-short-run aggregate supply curve is
horizontal
Economists include only final goods and services when measuring GDP because
if intermediate goods were counted, then multiple counting would occur.
The nominal interest rate
minus the inflation rate is the real interest rate.
The sale of a used automobile would not be included in GDP of the current year because it is a
nonproduction transaction.
In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are
not counted.
What is the primary reason that changes in total spending lead to cyclical changes in output and employment?
prices are sticky in the short run
The more reliable measure for comparing changes in the standard of living over a series of years is
real GDP
If nominal GDP rises,
real GDP may either rise or fall.
Which of the following formulas is correct? Percentage change in
real income approximates percentage change in nominal income minuspercentage change in price level.
Inflation
reduces the purchasing power of the dollar.
If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, its real GDP per capita will
remain constant.
Graphically, demand-pull inflation is shown as a
rightward shift of the AD curve along an upsloping AS curve.
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called
structural unemployment
The Bureau of Labor Statistics (BLS) calculates the inflation rate from one year to the next by
subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the previous year
For each of the following events, indicate whether it causes a demand-side or supply-side change, other things equal, and how the change will affect that side of the economy. Technological changes enable workers to be more productive:
supply increases
The largest contributor to increases in the productivity of American labor is
technological advance.
Nominal GDP is
the market or money value of all final goods and services produced by the economy in a given year, whereas real GDP is adjusted for inflation.
GDP excludes
the market value of unpaid work in the home.
The phase of the business cycle in which real GDP is at a minimum is called
the trough
When measuring GDP, economists don't include the value of the used furniture bought and sold because
this value was already counted in GDP in some previous year.
An increase in your nominal income and a decrease in your real income might occur simultaneously if
your nominal income increases less than the cost of living increases.
