Macro Econ: Exam 2 (8-10)

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Consider the following data for​ Tyrovia, a country that produces only two​ products: guns and butter. Year Guns Produced Price of Guns Butter Produced Price of Butter 2013 80 ​$5 40 ​$4 2020 90 6 60 10 Real GDP for Tyrovia for 2020 using 2013 as the base year equals

$690.

Total Population ​20,000 Working−Age Population ​15,000 Employment ​1,000 Unemployment 100 Consider the data in the table above for a simple economy. The unemployment rate for this simple economy equals

(100/1100)*100

Total Population ​20,000 Working−Age Population ​15,000 Employment ​1,000 Unemployment 100 Consider the data in the table above for a simple economy. The labor force participation rate for this simple economy equals

(1100/15000)*100

Suppose the working−age population of a fictional economy falls into the following​ categories: 90 are retired or​ homemakers; 60 have full−time ​employment; 20 have part−time ​employment; 20 do not have​ employment, but are actively looking for​ employment; and 10 would like employment but do not have employment and are not actively looking for employment. The official unemployment rate as calculated by the U.S. Bureau of Labor would equal

(20/100)*100

Consider the following values of the consumer price index for​ 1996, 1997, and​ 1998: Year CPI 1996 157 1997 161 1998 163 The inflation rate for 1997 was equal to

2.5 percent.

If you invest​ $10,000 in a bond that earns​ 8% interest per​ year, how many years will it take to double your​ money?

8 years and 9 months

Consider the data shown below for​ Vicuna, a country that produces only two​ products: oranges and shirts. Year Oranges Produced Price of Oranges Shirts Produced Price of Shirts 2019 ​1,800 ​$0.90 110 ​$30.00 2020 ​2,000 1.00 110 35.00 Real GDP for Vicuna for 2019 using 2020 as the base year equals

​$5,650.

Stage of Production Seller Buyer Price 1 Steel Mill Auto Manufacturer ​$10,000 2 Auto Manufacturer Auto Dealer ​18,000 3 Auto Dealer Consumer ​25,000 Refer to the table above showing three stages of production of an automobile. The value added by the automobile dealer equals

​$7,000

2017 2020 Product Quantity Price Quantity Price Movies 20 ​ $6.00 30 ​ $7.00 Burgers 100 2.00 90 2.50 Bikes 3 ​ 1,000.00 6 ​ 1,100.00 A very simple economy produces three​ goods: movies,​ burgers, and bikes. The quantities produced and their corresponding prices for 2017 and 2020 are shown in the table. What is real GDP in​ 2020, using 2017 as the base​ year?

​$6,360

Nominal Average Hourly Earnings CPI ​(1982-1984=​100) 1965 ​$2.65 32 2010 22.59 219 The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. The real average hourly earnings for 1965 in​ 1982-1984 dollars equal

​$8.28.

Suppose your grandfather earned a salary of​ $12,000 in 1964. If the CPI is 31 in 1964 and 219 in​ 2020, then the value of your​ grandfather's salary in 2020 dollars is approximately

​$84,775.

If the GDP deflator rises from 185 to​ 190, what is the rate of inflation between the two​ years?

​2.7%

If real GDP per capita doubles between 2007 and​ 2022, what is the average annual growth rate of real GDP per​ capita?

​4.7%

In the circular flow​ diagram, ________ supply the factors of​ production, and​ ________ goods and services.

​households; buy

During a business cycle​ expansion, total production​ ________ and total employment​ ___________.

​increases; increases

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure​ inflation, but​ ______ quality increases. This causes the CPI to​ ______ the cost of the market basket.

​not; overstate

If your nominal wage rises faster than the price​ level, we can say your real wage has​ ________ and the purchasing power of your income has​ ________.

​risen; risen

Which of the following transactions would be included in the official calculation of​ GDP?

You buy a new iPod.

Which of the following is an example of human​ capital?

a college education

Which of the following describes situations in which the person is hurt by​ inflation?

a person paid a fixed income during an inflationary period

An example of a transfer payment is

a welfare payment.

Suppose that in​ 2020, all prices in the economy double and that all wages and salaries also double. In​ 2020, you

are no better off or worse off than you were in 2019 as the purchasing power of your salary has remained the same.

When actual inflation is less than expected inflation

borrowers lose and lenders gain.

Which of the following would be the best measure of the cost of​ living?

consumer price index

The real wage equals the nominal wage​ ________ the​ CPI, all times 100.

divided by

Which of the following would most likely suffer the least from the costs of​ inflation?

persons whose incomes rise more rapidly than inflation

A good measure of the standard of living is

real GDP per capita.

The period between a business cycle peak and a business cycle trough is called

recession.

Human capital refers to which of the​ following?

the accumulated knowledge and skills workers acquire from education and training or from their life experiences

Potential GDP refers to

the level of GDP attained when all firms are producing at capacity.

Product Quantity Price Shoes 40 ​$60 DVDs 100 18 Tomatoes ​2,000 1 Ketchup 300 4 Suppose that a simple economy produces only four goods and​ services: shoes,​ DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above​ table, nominal GDP for this simple economy equals

​$6,400.

The CPI in 1990 was​ 131, and the CPI in 2010 was 218. If you earned a salary of​ $40,000 in​ 1990, what would be a salary with equivalent purchasing power in​ 2010?

​$66,565

Gross Domestic Product is calculated by summing up

the total market value of final goods and services produced in the economy during a period of time.

Gross domestic product understates the total production of final goods and services because of the omission of

the underground economy.

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,

the unemployment rate increased.

Jack just received a promotion at work and now works 50 hours per week instead of 35. As a​ result,

neither the unemployment rate nor the labor force participation rate changed.

Jack lost his job six months​ ago, and​ he's been actively looking for a new job ever since. The Bureau of Labor Statistics would classify Jack as

unemployed.

Nominal GDP is GDP in a given year

valued in the prices of that year.

Real GDP is GDP in a given year

valued in the prices of the base year.

Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as

not in the labor force.

Caroline is an artist. She purchases​ canvases, paints,​ brushes, and accessories for​ $75. She sells one of her original paintings to an art gallery for​ $1,500, even though an art lover would pay​ $4,500 for that painting. How much market value does Caroline​ add?

​$1,425

2017 2020 Product Quantity Price Quantity Price Camera 100 ​ $10 120 ​ $12 Legal services 50 15 45 20 Books 200 40 210 45 A very simple economy produces three​ goods: cameras, legal​ services, and books. The quantities produced and their corresponding prices for 2017 and 2020 are shown in the table. What is real GDP in​ 2020, using 2020 as the base​ year?

​$11,790

Monthly expenditures for a family of 4 in 2019 averaged​ $1,400. In​ 2020, the cost of the same purchases was​ $1,500. If 2019 is the base​ year, what was the CPI in​ 2020?

107

Consider the following data on nominal GDP and real GDP​ (values are in billions of​ dollars): Year Nominal GDP Real GDP 2019 ​$14,078 ​$13,254 2020 ​ 14,441 ​ 13,312 The GDP deflator for 2020 equals

108.5.

Assume the market basket for the consumer price index has two products—bread and milk—with the following values in 2013 and 2020 for price and​ quantity: Base Year​ (2013) 2020 Product Quantity Price Price Milk 50 ​$1.20 ​$1.50 Bread 100 1.00 1.10 The Consumer Price Index for 2020 equals

116

Assume the market basket for the consumer price index has two products—meat and potatoes—with the following values in 2013 and 2020 for price and​ quantity: Base Year​ (2013) 2020 Product Quantity Price Quantity Price Meat 100 ​$10 120 ​$12 Potatoes 200 2 180 3 The Consumer Price Index for 2020 equals

129

Consider the following data on nominal GDP and real GDP​ (values are in billions of​ dollars): Year Nominal GDP Real GDP 2017 ​$7,400 ​$7,537 2018 ​ 7,813 ​ 7,813 2019 ​ 8,301 ​ 8,165 2020 ​ 8,760 ​ 8,516 The base year used in calculating real GDP is

2018.

Product Quantity​ (2016) Price ​(2016) Expenditure​ (2016) Price ​(2020) Expenditure​ (on base year​ quantities) (2020) Hair cuts 6 ​ $50 ​ $300 ​ $70 ​ $420 Backpacks 4 25 100 30 120 Tacos 100 1 100 5 500 Total ​ $500 ​ $1,040 Suppose an economy has only three goods and the typical family purchases the amounts given in the table. If 2016 is the base​ year, then what is the CPI for​ 2020?

208

Real GDP ​(Billions of 2000​ dollars) 2017 ​$8,700 2018 ​ 8,875 2019 ​ 9,000 2020 ​ 9,280 Using the​ table, what is the approximate growth rate of real GDP from 2019 to​ 2020?

3%

If real GDP in a small country in 2019 is​ $8 billion and real GDP in the same country in 2020 is​ $8.3 billion, the growth rate of real GDP between 2019 and 2020 is

3.75%.

Assume the average annual CPI values for 2019 and 2020 were 207.3 and​ 215.3, respectively. What was the percent increase in the CPI between these two​ years?

3.86

2017 2020 Product Quantity Price Quantity Price Camera 100 ​ $10 120 ​ $12 Legal services 50 15 45 20 Books 200 40 210 45 A very simple economy produces three​ goods: cameras, legal​ services, and books. The quantities produced and their corresponding prices for 2017 and 2020 are shown in the table. What is the GDP deflator in 2017 if 2020 is the base​ year?

87

Scott is a woodworker and charges​ $125 an hour for his time manufacturing custom−made wood products. For his​ wife's birthday, he designs and creates an intricate bird'seye maple jewelry box that takes him 15 hours to complete. By how much and in what direction does GDP change as a result of his​ efforts?

GDP is not affected by​ Scott's production of the jewelry box.

Suppose Bob works for Mary as a proofreader. Mary and Bob fall deeply in​ love, marry, and have eight children. Bob stops working for Mary in order to care for the children. What will be the effect on​ GDP?

GDP will decrease.

Which of the following equations correctly measures GDP in an​ economy?

GDP​ = C​ + I​ + G​ + NX

The purchase by a household in China of an automobile produced in the United States is included in

U.S. net exports.

Which of the following goods is directly counted in​ GDP?

a 12 inch Subway sandwich purchased by a student

Which of the following transactions represents the purchase of a final​ good?

Your father buys a new John Deere riding lawn mower.

During the expansion phase of the business​ cycle, which of the following eventually​ increases?

all of the above

​Investment, as defined by​ economists, would not include which of the​ following? Ford

buys U.S. government bonds.

The factors of production include

capital

Workers laid off as a result of a recession suffer

cyclical unemployment.

The underground economy can be described as

economic activity that is hidden from the government to avoid taxes or because the activity is illegal.

The labor force equals the number of people

employed plus unemployed.

The natural rate of unemployment is the amount of unemployment

equal to frictional plus structural unemployment.

A transfer payment is a payment by the government to an individual

for which the government does not receive a good or service in return.

Jack just told his boss that he thinks his boss is an idiot. It is likely that Jack will be experiencing​ ________ unemployment in the near future.

frictional

Which of the following is not an example of a transfer​ payment?

health insurance payments to an army private

Legalizing all forms of illegal activities

increases GDP and reduces the size of the underground economy.

The percent increase in the CPI from one year to the next is a measure of the

inflation rate.

Which of the following is not directly counted in​ GDP?

intermediate goods

If the quantity of goods and services produced in the economy decreases

it may be possible for nominal GDP to increase.

Real GDP will increase

only if the quantity of final goods and services produced rises.

The Bureau of Labor Statistics would categorize a retiree who is not working as​ _________.

out of the labor force

If real GDP increases we know for sure that

output has risen.

The broadest measure of the price level that includes all final goods and services is

the GDP deflator.

If cyclical unemployment is eliminated in the​ economy, then

the economy is considered to be at full employment.

Discouraged workers are

workers who have stopped looking for work because they believe there are no jobs for them.


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