Exam 2 - Macro
One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI...
fails to account for the introduction of new goods.
When consumer spending is broken down into the major categories of goods and services, the largest single category is spending on transportation.
False
When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.
False
The CPI is always 1 in the base year.
False - The CPI is always 100 in the base year.
Frictional unemployment is thought to explain relatively
short spells of unemployment, while structural unemployment is thought to explain relatively long spells of unemployment.
The amount of unemployment varies:
substantially over time and across countries
An understanding of the best ways to produce goods and services is called:
technology
Social Security payments are indexed for inflation using
the CPI
Core CPI is
the CPI excluding food and energy.
We associate the term debt finance with
the bond market, and we associate the term equity finance with the stock market.
The price of a stock will rise if the
the demand for the stock rises.
As long as prices are rising over time, then.
the nominal interest rate exceeds the real interest rate.
The term inflation is used to describe inflation in which
the overall level in prices in the economy is increasing
The natural rate of unemployment
varies less than the measured unemployment rate.
Cyclical unemployment refers to
year-to-year fluctuations of unemployment around its natural rate
During periods of deflation, the nominal interest rate will be:
lower than the real interest rate.
Which of the following is an example of an efficiency wage?
An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants.
The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.
False
Which of the following demonstrates human capital and physical capital in that order?
For a restaurant: the chefs' knowledge about preparing food and the equipment in the kitchen
The real interest rate tells you how fast the purchasing power of your bank account rises over time.
True
When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same standard of living.
True
Which of the following is correct?
Union membership in the United States peaked in the 1940s and 1950s.
In 1870, the richest country in the world was
United Kingdom
The CPI is calculated.
Monthly
Other things the same, which of the following would increase productivity?
An increase in either human of physical capital
Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.
True
Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.
True
If the quality of a good deteriorates from one year to the next while its price remains the same, then the value of a dollar falls.
True
In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.
True
Inflation can be measured using either the GDP deflator or the consumer price index.
True
It is possible to observe a positive nominal interest rate together with a negative real interest rate.
True
Many economists believe the bias in the CPI is now only about half as large as it once was.
True
A budget deficit
changes the supply of loanable funds
Cole, a financial advisor, has told his clients the following things. Which of his statements is not correct?
"U.S. government bonds generally pay a higher rate of interest than corporate bonds."
Two common measures of the overall level of prices are
-the GDP deflator and the consumer price index.
Consumer price index = (Price of basket of goods and services in base year / Price of basket in current year ) x 100
False
An organization that tries to encourage the flow of investment from advanced countries to poor countries is the
World Bank
The unemployment rate is computed as the number of unemployed
divided by the labor force, all times 100.
Institutions that help to match one person's saving with another person's investment are collectively called the
financial system.
Michael learns how to sew from his grandmother. This is an example of
human capital, but not technological knowledge
A bond that never matures is known as a
perpetuity
The key determinant of the standard of living in a country is
the amount of goods and services produced from each hour of a worker's time.
The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.
False
When the consumer price index is computed, the base year is always the first year among the years being considered.
False
When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.
False
The economy's two most important financial markets are
The bond market and the stock market
An increase in the price of bread produced domestically will be reflected in
both the GDP deflator and the consumer price index.
In an economy where net exports are zero, if saving rises in some period, then in that period
consumption falls and investment rises.
Crowding out occurs when investment declines because a budget:
deficit makes interest rates rise.
Efficiency wages
increase productivity but increase unemployment
At the broadest level, the financial system moves the economy's scarce resources from
savers and borrowers
In a closed economy, private saving is
the amount of income that households have left after paying for their taxes and consumption.
The largest sector in the consumer price index market basket is food and beverage purchases.
False
Which of the following is not a cause of the decline in the U.S. men's labor-force participation rate over the past several decades?
With more women employed, there are fewer jobs now available to men.
Two of the economy's most important financial intermediaries are
banks and mutual funds.
The catch-up effect refers to the idea that
it is easier for a country to grow fast and so catch-up if it starts out relatively poor.
The theory of efficiency wages explains why
it may be in the best interest of firms to offer wages that are above the equilibrium level.
Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should
lend support to the invisible hand by maintaining property rights and political stability.
Katleen is considering expanding her dress shop. If interest rates rise she is
less likely to expand. This illustrates why the demand for loanable funds slopes downward.
The consumer price index is used to monitor changes in an economy's production of goods and services over time.
False
By far the largest category of goods and services in the CPI basket is
Housing
The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then multiplying by 100.
True
The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.
True
The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.
True
A mutual fund is
an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds
Financial intermediaries are
financial institutions through which savers can indirectly provide funds to borrowers
In a closed economy, national saving equals
private saving plus public saving
The CPI is more commonly used as a gauge of inflation than the GDP deflator is because the
CPI better reflects the goods and services bought by consumers.
The real interest rate measures the change in dollar amounts.
False
Index fund typically have a
higher rate of return and lower costs than managed mutual funds.
The inflation rate is the absolute change in the price level from the previous period.
False
Suppose that the adult population in the country of Atlantis is 140 million. If 90 million people are employed and 10 million are unemployed, then
40 million are not in the labor force.
When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.
False
Which of the following includes everyone in the adult population that the Bureau of Labor Statistics counts as "unemployed"?
Anyone who is not employed, is available for work, has looked for work in the past four weeks, and anyone who is waiting to be recalled from a job from which they have been laid official
Which of the following statements is correct?
Human capital per worker is a determinant of productivity.
Which of the following statements is correct about the relationship between inflation and interest rates?
In order to fully understand interest rates, we need to know how to correct for the effects of inflation.
Changes in the quality of a good.
Present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias.
Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?
The Real Interest rate is the nominal interest rate minus the rate of inflation
A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?
The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI
Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor country to catch up?
The poor country has a health epidemic such as the Zika virus.
During periods of deflation, the nominal interest rate will
be lower than the real interest rate.
As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is
borrowing directly
If the Apple corporation sells a bond it is
borrowing directly from the public
The natural rate of unemployment includes
both frictional and structural unemployment
Esmeralda Is taking a three month leave from work to travel across Europe. The Bureau of Labor Statistics counts Esmeralda as
employed and in the labor force
In recent decades, Americans have increased their purchase of stocks of foreign-based companies. The Americans who have bought these stocks were engaged in
foreign portfolio investment.
Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called
frictional unemployment
Sandy has graduated from college and is devoting her time to searching for a job. She haas see plenty of openings but has not yet been offered one that best suits her tastes and skills. Sandy is
frictionally unemployed. Frictional unemployment can exist even in the long run.
Right-to-work laws
give workers in a unionized firm the right to choose whether to join the union
For any given year, the CPI is the price of the basket of goods and services in the
given year divided by the price of the basket in the base year, then multiplied by 100.
In the early 1900s, Henry Ford introduced a
high-wage policy, and this policy produced many of the effects predicted by efficiency-wage theory.
All else equal, if there are diminishing returns, then
increases in the capital stock increase output by ever smaller amounts.
The CPI differs from the GDP deflator in that
increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.
Matilda loses her job and decides to sit on the beach rather than look for work during the next few months. Other things the same, the unemployment rate
increases, and the labor-force participation rate decreases.
Other things the same, when the interest rate rises, people would want to lend
more, making the quantity of loanable funds supplied increase.
In order to promote growth in living standards, policymakers
must protect property rights and maintain political stability.
The slope of the demand for loanable funds curve represents the
negative relation between the real interest rate and investment.
Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that.
neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.
The behavior of market prices over time indicates that natural resources are
not a limit to economic growth.
An increase in the government's budget surplus means public saving is=
positive and increasing.
Educated people may generate ideas that increase production. These ideas
produce a return to society from education that is greater than the return to the individual.
Educated people may generate ideas that increase production. These ideas:
produce a return to society from education that is greater than the return to the individual.
Productivity is the amount of goods and services
produced for each hour of a worker's time. It is linked to a nation's economic policies.
A larger budget deficit
raises the interest rate and reduces investment
Given that Sarah's income exceeds her expenditures, Sarah is best described as a
saver or as a supplier of funds.
The catch-up effect refers to the idea that it
is easier for a country to grow fast and so catch-up if it starts out relatively poor.
National saving is
the total income in the economy that remains after paying for consumption and government purchases
If over a short time there is an increase in the number of people retired and a decrease in the number of people working
then productivity rises but real GDP per person falls.
Unions contribute:
to the natural rate of unemployment but not frictional unemployment.
The price index was 105 in Year 1 and 111 in Year 2. What was the inflation rate?
5.7%
Other things the same, which bond would you expect to pay the lowest interest rate?
A bond issued by a state with a very good credit rating
The consumer price index tries to gauge how much incomes must rise to maintain.
A constant standard of living
Which of the following countries achieved higher economic growth, in part by mandating a reduction in population growth?
China
The old adage, "Don't put all your eggs in one basket, " is very similar to a modern bit of advice concerning financial matters:
Diversity
Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.
False
In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent?
Public Savings
Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.
True
By keeping the basket of goods and services the same when computing the CPI, the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.
True
Labor unions
are similar to cartels.
public policy
can reduce both frictional unemployment and the natural rate of unemployment.
To open a print shop you need printers, computers, and furniture. Economists call these expenditures
capital investment
To open a print shop, you need printers, computers, and furniture. Economists call these expenditures
capital investment
Joshua is working from home for a start-up company developing mobile apps. The Bureau of Labor Statistics counts Joshua as
employed
If an American-based firm opens and operates a new clothing factory in Honduras, then it is engaging in
foreign direct investment
The CPI and the GDP deflator
generally move together
A bond buyer is a
saver. Bond buyers may sell their bonds prior to maturity.
Evidence from research studies by economists:
shows that increased unemployment benefits decrease the job search efforts of the unemployed.
The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index
False
Which of the following statements is correct?
The CPI can be used to compare dollar figures from different points in time.
Which of the following is correct?
The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
Consumer price index = (Price of basket of goods and services in current year / Price of basket in base year ) x 100
True
Persistent increases in the overall level of prices have been the norm.
True
Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.
True
If the consumer price index was 93 in Year 1, 97 in Year 2, and 100 in Year 3, then the base year must be:
Year 3
Which of the following is the correct formula for calculating the consumer price index?
[(price of basket of goods and services in current year/price of basket in base year)] × 100
Industrial machinery is an example of
a factor of production that in the past was an output from the production process.
Other things the same, as the maturity of a bond becomes longer, the bond will pay
a higher interest rate because it has more risk.
Index funds typically have a
higher rate of return and lower costs than managed mutual funds.
The real interest rate tells you
how fast the purchasing power of your bank account rises over time
The source of the supply of loanable funds
is saving and the source of demand for loanable funds is investment
Apple founder Steve Jobs received patents on many of his ideas. While the patents existed, his ideas were
private goods and proprietary knowledge.
Minimum wages create unemployment in markets where they create a
surplus of labor. Unemployment of this type is called structural.
In national income accounting, we use which of the following pairs of terms interchangeably?
"Public saving" and "government tax revenue minus government spending"
If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced.
11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.
Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been selected as the base year. In Year 1, the basket's cost was $50; in Year 2, the basket's cost was $52; and in Year 3, the basket's cost was $55. The value of the CPI in Year 3 was
110.00
Over the last century, U.S. real GDP per person grew at a rate of about
2 percent per year, so that it is now 8 times as high as it was a century ago.
If the consumer price index was 100 in the base year and 103 in the following year, then the inflation rate was
3 percent
On which of these bonds is the prospect of default most likely?
A junk bond
Which of the following bonds has the highest interest rate?
A long term and a high credit risk
Which of the following is a certificate of indebtedness?
Bonds not stocks
Natalia worked part-time for her mother's business without pay. Tabitha was absent from work because she had strep throat. Who is counted as "employed" by the Bureau of Labor Statistics?
Both Natalia and Tabitha
An economist claims that changes in information technology and unemployment insurance have reduced unemployment. Which of these changes affect frictional unemployment?
Both the changes in information technology and unemployment insurance
Core CPI is a price index that only looks at the prices of food and energy and ignores the prices of all other goods and services.
False
Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.
False
Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on housing.
False
Each week, the Bureau of Labor Statistics computes and reports the consumer price index.
False
If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.
False
The content of the basket of goods and services used to compute the CPI changes every month
False
There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.
False
Which of the following countries has had the greatest growth rate of real GDP per person within the last 10 years?
Germany
Kamila is not working but is available for work. Daniel was fired but has not looked for work during the last two months. Who does the Bureau of Labor Statistics count as "unemployed"?
Kamila but not Daniel
Suppose that garbage collectors and landscaping workers have no unions. Now suppose that garbage collectors form unions. What does this do to the labor supply and wages of landscaping workers?
Labor supply increases, and wages decrease.
Which of the following is correct?
Nominal and real interest rates do not always move together
Economist Robert Fogel focused on which of the following factors as one determinant of long-run economic growth?
Nutrition
Octavia is a stay-at-home parent who has not searched for work in recent years. Michaeldoes not currently have a job, but has applied for several jobs in the previous week. Who does the Bureau of Labor Statistics count as "not in the labor force"?
Octavia but not Michael
An increase in the government's budget surplus means public saving is
Positive and Increasing
When ranking movies by nominal box office receipts, what important fact is overlooked?
Prices, including those for movie tickets, have been rising over time.
One variable responsible for most significant explanation of variations in living standards around the world is
Productivity
Which of the following is an example of a nonrenewable resource?
Profitable business
From 1960 to 1990, in which of the following countries has investment resulted in economic growth sufficiently higher than that in the United States?
South Korea
Providing training for unemployed individuals is primarily intended to reduce
Structural unemployment.
One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called
Substitution bias
When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?
Survey sellers to determine what the typical consumer buys.
Which of the following statements is correct?
The expected future profitability of a corporation influences the demand for its stock.
What basket of goods and services is used to construct the CPI?
The goods and services that are typically bought by consumers as determined by government surveys
Out of the following economic statistics, which is the best measure of economic prosperity?
The level of real GDP
Which of the following can be measured by the level of real GDP per person?
The standard of living but not productivity
The Karmic Deed Restaurant uses all of the following to produce vegetarian meals. Which of them is an example of physical capital?
The tables and chairs in the restaurant
Which of the following is an example of human capital?
The things you have learned this semester
Of the following groups, who is eligible for unemployment insurance benefits?
The unemployed who were laid off because their previous employers no longer needed their skills
Which of the following is not correct?
The unemployment rate occasionally falls to zero
The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.
True
The Bureau of Labor Statistics is part of the U.S. Department of Labor.
True
The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods
True
The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.
True
The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.
True
The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.
True
The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.
True
The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.
True
The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.
True
The real interest rate is the interest rate corrected for inflation.
True
Keira is a farmer. Which of the following are included in her human capital?
What she's learned from experience but not her seed drill
If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals
[(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100.
Teenagers have more frequent unemployment spells and spend more time searching for jobs. Other thing the same, this means that teenagers have
a higher unemployment rate. If a larger portion of the adult population were teenagers, the natural rate of unemployment would be higher.
When a minimum-wage law forces the wage to remain above the equilibrium level, the result is
a surplus of labor and a shortage of jobs.
The CPI is a measure of the overall cost of the goods and services bought by
a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics.
The level of real GDP per person
and the growth rate of real GDP per person vary widely across countries.
If an unemployed person quits looking for work, then, eventually the unemployment rate
and the labor-force participation rate both decrease.
In determining living standards, productivity plays a key role for
both nations and individuals.
Suppose that a large number of people who used to work or seek work no longer do either. Other things the same, this makes
both the number of people unemployed and in the labor force fall.
When a union bargains successfully with employers, in that industry,
both wages and unemployment increase.
When the consumer price index falls, the typical family
can spend fewer dollars to maintain the same standard of living.
When the consumer price index falls, the typical family:
can spend fewer dollars to maintain the same standard of living.
In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the
consumer price index rises much more than does the GDP deflator.
Financial intermediaries are
financial institutions through which savers can indirectly provide funds to borrowers.
The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:
fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate
Over the past several decades, the difference between the labor-force participation rates of men and women in the U.S. has
gradually decreased
In Belgium, Norway, and Sweden, the percentage of workers who belong to unions is:
greater than it is in the United States.
Minimum-wage laws are least likely to affect the wages paid to
highly-educated workers
A policy that increases saving will
improve economic growth and health outcomes.
Sectoral shifts in demand for output
increase unemployment due to job search
An increase in the minimum wage above the equilibrium wage
increases structural unemployment.
When the quality of a good improves while its price remains the same, the purchasing power of the dollar
increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
By definition, equity finance
is accomplished when firms sell shares of stock.
Educational attainment tends to be
low in countries with high population growth
When the government's budget deficit increases the government is borrowing
more and public saving falls.
Suppose an economy experiences an increase in its saving rate. The higher saving rate leads to a higher growth rate of productivity.
more in the short run than in the long run
In the long run, the unemployment rate equals
natural rate of unemployment
Marginally attached workers are people who are
not working and are not looking for work, but would work if asked.
The labor force equals the
number of people employed plus the number of people unemployed
Proprietary technology is knowledge that is known
only by the company that discovered it.
If over a short time there is an increase in the number of people retired and a decrease in the number of people working, then productivity
rises but real GDP per person falls.
As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,
sell bonds
If the government's expenditures exceeded its receipts, it would likely
sell bonds directly to the public.
Most spells of unemployment are
short, but most unemployment observed at any given time is long term.
In a closed economy, public saving is the amount of
tax revenue that the government has left after paying for its spending.
Suppose that in 2018, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that
the consumer price index will increase in the future.
If the price of Italian shoes imported into the United States increases, then
the consumer price index will increase, but the GDP deflator will not increase.
The consumer price index is used to:
turn dollar figures into meaningful measures of purchasing power
The rate of real economic growth is
underestimated using measures of income growth
Sasha is on temporary layoff. The Bureau of Labor Statistics counts Sasha as
unemployed and in the labor force.
Indexation refers to
using a law or contract to automatically correct a dollar amount for the effects of inflation.