Final Review
Which of these is NOT a problem in using GDP to measure standards of living?
failure to include exports and imports
The GDP deflator for the base year is:
always equal to 100
Human capital includes
the improvements to labor capabilities from training, education, and apprenticeship programs
In the simple Keynesian model with no government and foreign sectors, assume that the economy is in equilibrium at an output level of $2 billion with a marginal propensity to consume of 0.90. If investment spending decreases by $0.05 billion, what is the new equilibrium output level?
$1.50 billion
If a consumer is willing to pay $20 for a pizza, but the price of the pizza is $10, then the consumer surplus resulting from the customer's purchase of the pizza is:
$10
If personal consumption is $110, investment is $65, government purchases total $25, imports equal $20, and exports equal $30, then GDP equals $:
$210
If you have $100,000 in a 401k growing 10% per year on average, how much will this be worth in 35 years when you retire?
$3,200,000
GDP is $4.5 trillion in 2010. If the GDP deflator is 100 in 2000 and is 118 in 2010, what is real GDP?
$3.8 trillion
A guitar is produced in California using $300 in raw materials and sells for $400 in a guitar shop. Each guitar that is produced contributes $_____ to U.S. GDP.
$400
Jonathan purchased coffee for $5 at Jennifer's coffee shop; however, he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The transaction resulted in a consumer surplus of _____ and a producer surplus of _____.
$4; $2
(Table) The associated table provides a hypothetical bundle of goods and their respective prices for three different years. If 2014 is selected as the base year, the cost of the market basket in 2017 would be
$640.50
Suppose the market basket of goods costs $25,000 in 2009, the base period, and that same basket of goods now costs $33,000. What has been the percentage change in the cost of goods between the base period and the current period?
+20%
(Table) According to the table, what is the value of this country's net exports?
-$35
Suppose the unemployment rate is 8% and an economist breaks the unemployment rate into the following components: frictional (2%) and structural (5%). Based on these estimates, the cyclical unemployment rate is:
1%
Rocky Gap Furniture hires ten employees working eight hours each to produce 100 rocking chairs. What is the productivity of these workers?
1.25 chairs per hour
If personal consumption is $20, investment is $65, government purchases total $25, imports equal $30, and exports equal $20, then GDP equals $:
100
If the nominal GDP is $13 trillion for a given year and the GDP deflator for that year is 115, then the real GDP is $
11.3 trillion
According to the table, what is the unemployment rate of this economy?
14.3%
If $7,000 of additional spending occurs and the marginal propensity to save is 0.40, the total effect on the economy is an increase of $_____ in income or output
17,500
In the figure, investment has increased from I0 to I1. The multiplier equals:
2.5.
If MPC = 0.6, what is the spending multiplier?
2.50
If a car is produced in Detroit in 2013 but not sold until 2014, it should be included in _____ GDP, and its value should be counted in _____.
2013's; inventory changes
Suppose an economy has an MPC of 0.8. If the government increases spending (G) by $50 billion that is not financed by taxes, income would increase by $_____. Alternatively, if this spending is financed by a $50 increase in taxes (T), income would increase by $_____.
250 billion; 50 billion
Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (2%), and cyclical (5%). Based on these estimates, the natural rate of unemployment is:
4%
Investment spending is $600. If there is no government spending or net exports, the equilibrium income level is $:
4,000
If output equals A × (2K + 3L), what is output if A equals 200, capital equals 11, and labor equals 80?
52,400
If an economy's GDP will double in 11 years, then its growth rate must be about _____%
6.36
Suppose a country's economy grows from $100 billion on January 1, 2023, to $102 billion on April 1, 2023.What is this country's annualized growth rate as of April 1, 2023?
8.0%
What is an example of gross private domestic investment?
A change in business inventories
An effective price ceiling results in
A shortage
In the following PPF, between which two points would long-run growth be represented?
C to D
According to the simple Keynesian model, which of these statements is NOT correct?
APC + MPS = 1
How much faster does it take for a $10,000 investment to increase to $20,000 if the average annual growth rate is 14% compared to 7%?
At 14%, the investment will double five years faster.
In the following PPF, between which two points would short-run growth be represented?
B to C
Which of these is true within the circular flow of economic activity?
Business firms are sellers of products and buyers of production factors.
Which good is typically considered a public good?
Clean air
According to the table, which country was MOST likely to experience catch-up growth?
Econia
According to the table, which country will double its real GDP per capita MOST quickly?
Econia
The two approaches used by the government in estimating GDP are:
Expenditure and income
A person is considered to be unemployed if they have been either actively or passively looking for work.
False
A trough in the business cycle usually means that the economy is operating at its capacity.
False
Child care provided by a nanny is included in the GDP if the parents pay the nanny "under the table."
False
Deadweight loss is found by subtracting producer surplus from consumer surplus
False
Expectations of large increases in income lead to lower levels of consumption.
False
If a price ceiling is set above the market price, it is ineffective
False
In the income approach to calculating GDP, net interest is the interest paid by businesses plus the interest they receive.
False
Raj is a 16-year-old high school student who has no marketable skills. He has been browsing the want-ads in the local newspaper for months but finally got so discouraged that he quit looking for a job. According to the Bureau of Labor Statistics, Raj is unemployed.
False
The Index of Economic Freedom shows that countries with the fewest economic freedoms have the highest per capita GDP
False
The consumer price index measures the average change in prices received by domestic producers for their output.
False
The economy is not likely to be heading into a recession when the National Activity Index equals −0.95.
False
The inflation rate is 4%. If Social Security payments automatically rise by 4%, this adjustment is authorized by an:
escalator clause
The U.S. gross domestic product is equal to the total market value of all:
Final goods and services produced by resources in the US
Which of these equations is true at equilibrium in the simple Keynesian model?
I = S
According to the balanced budget multiplier, an increase in government spending of $15,000, that is financed by an increase of $15,000 in taxes, will have what effect on the economy when MPC is 0.60?
Income will increase by $15,000
If a country's real GDP today based on 2016 prices is equal to $20 billion, which of these statements is MOST accurate?
The country's nominal GDP is greater than $20 billion
Jill plants flowers in her yard to supply a local florist. Her neighbor enjoys the flowers. Therefore
Jill is creating an external benefit for her neighbor
Which of these values for MPC and MPS is possible for an economy?
MPC = 0.80; MPS = 0.20
Which of these statements does NOT describe an adjustment to national income to obtain GDP?
Net exports are added to national income.
Jamestown offers a free community bus service to anyone wishing to use it. Is this service a public good?
No, because there are only a limited number of seats on each bus
What correctly lists the sequence of stages in the business cycle?
Recession, Trough, Expansion, Peak
Suppose an effective price ceiling is imposed in a market, leading to the development of an illegal black market for the product. How would the price in the black market compare to the price of the product in the legal market?
The black market price is higher
_____ is a measure of the change in average prices paid by urban consumers for a typical market basket of goods and services.
The consumer price index
When demand for a product falls, ceteris paribus, what happens to the equilibrium price and consumer surplus at that price?
The equilibrium price falls, and consumer surplus falls
If income is $70,000, consumption is $55,000, and saving is $15,000, then the marginal propensity to save is:
There is not enough information to answer this question
When the supply of a product increases, ceteris paribus, what happens to firms' willingness to produce and to the amount of producer surplus?
They both increase
Why are prices above equilibrium inefficient?
They cause deadweight loss
A price floor is effective if it is set above the market equilibrium price.
True
Frictional unemployment refers primarily to workers between jobs.
True
In a country with income concentrated in the hands of a small group of people, median household income would be a better measure of the standard of living of a typical citizen than GDP per capita.
True
Long-run economic growth occurs when an economy finds new resources or finds ways to use existing resources better
True
Marco is an undocumented worker who follows the harvest, picking vegetables. His income from this work is probably part of the informal economy.
True
People must be actively engaged in a job search to be considered unemployed.
True
Price serves as a rationing device
True
Social Security payments are included in the personal income category of national income.
True
Structural unemployment is usually associated with extended periods of unemployment.
True
The national income and product accounts ignore nonmarket transactions, investments in human capital, and the use of people's leisure time.
True
Total factor productivity is a measure of output that is not explained by the number of inputs used
True
Total surplus is the net benefit a society attains from a market transaction.
True
What is a statement about environmental quality and economic activity is true?
Wealthier countries tend to value environmental quality more than developing countries.
When an economy is going through disinflation prices
are rising at a slowing pace
Which one of these would be included in GDP calculations?
a hamburger purchased by a hungry restaurant patron
Which of these reasons does NOT contribute to a higher level of unemployment?
a reduction in union bargaining activities
If a pharmaceutical company knows that one of its products has a dangerous side effect but does not disclose that to its customers, then the market for that product is likely to fail due to
asymmetric information or mismatch information
Getting a flu shot reduces the chances of spreading the illness to one's classmates and friends. Why, then, is the market for flu shots characterized by market failure?
because the number of people who obtain flu shots is less than the socially optimal number
Deadweight loss refers to a reduction in
both consumer surplus and producer surplus
Consumption spending is spending:
by individuals and households on both durable and nondurable goods
The largest category when using the income approach to calculate GDP is:
compensation of employees
Income and output are in equilibrium at point:
d
If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income
decreases by $10 billion.
Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing:
disinflation
With everything else held constant, if 5% of those considered to be frictionally unemployed found work while the number of people considered to be structurally unemployed increased by 5%, the natural rate of unemployment:
does not change
. If the marginal propensity to consume is 0.80, the marginal propensity to save is 0.20, and government spending decreases by $6 billion at the same time taxes fall by $6 billion, equilibrium income will:
fall by $6 billion
Which of these combinations would result in the MOST economic freedom?
free trade, competitive markets, and limited regulations
Market failure may provide a justification for
government intervention in the economy
Which of these actions would reduce frictional unemployment?
holding job fairs
In the formula for GDP (GDP = C + I + G + (X − M)), what does M represent?
imports
What is the single MOST important factor influencing economic growth for an economy?
increased productivity
If the marginal propensity to consume increases, the spending multiplier _____ and the balanced budget multiplier _____.
increases; remains the same
What occurs when spending is above the full employment level?
inflationary gap
In the simple Keynesian model, equilibrium exists when:
investment spending equals saving.
Physical capital includes
manufactured products that are used to produce other goods and services
In the circular flow diagram, the counterclockwise direction shows the flow of _____, where households supply _____ and businesses supply _____.
money; labor; goods and services
A production function says output per worker equals A × F(L/L, K/L, H/L, N/L) and tells us all of these EXCEPT _____ will lead to a better standard of living
more people
If aggregate expenditures equal $6,200 and aggregate income equals $5,800, businesses will produce:
more, raising both employment and income.
The sum of all income, including wages, salaries and benefits, profits, rental income, and interest, is called _____ income
national
GNP includes output produced _____, but it does not include output produced _____.
outside the United States by U.S. citizens; inside the United States by foreign citizens
Total spending in an economy is the sum of
personal consumption plus gross private investment plus government spending plus net exports.
When price falls below equilibrium price
producer surplus falls, and it is uncertain whether consumer surplus rises or falls
Suppose that the market price of a good is $6, and the equilibrium price is $8. Compared to the market equilibrium
producer surplus is smaller, and deadweight loss is larger
The difference between market price and the price at which sellers would be willing to supply a product is called:
producer surplus.
If the price of a good is above the equilibrium price
producers can gain at consumers' expense.
What is the BEST measure of economic growth and standards of living in a country?
real GDP per capita
Which of these items is NOT a category of personal consumption expenditures?
residential housing
If a price floor is set above the equilibrium price in the market, consumer surplus will be
smaller than it would be without the price floor
GDP can be found either by adding up all of the _____ or all of the _____ in the economy
spending; income
Which organization determines the beginning and end dates of a recession?
the National Bureau of Economic Research
If a price floor is set below the equilibrium price in the market, consumer surplus will be
the same as it would be without the price floor
If a country's population increases at a higher rate than the growth in its real GDP
the standard of living in the country has declined
In the market depicted in the graph, which shape represents consumer surplus?
the triangle hik
In the market depicted in the graph, which shape represents producer surplus?
the triangle jik
Flu vaccination shots provide external benefits. Thus
too few flu vaccination shots are given
Flu vaccination shots provide external benefits. Thus:
too few flu vaccination shots are given.
Joe fixes cars in his driveway to earn income. He works late at night and makes so much noise that Moe, his neighbor across the street, cannot sleep. Therefore:
too much is being produced relative to the socially optimal amount
Zeba was laid off from her job at the post office last month. Since then, she has been looking for a full-time job and has been applying to two new jobs weekly. According to the Bureau of Labor Statistics, Zeba is:
unemployed
How large is deadweight loss in equilibrium?
zero
