Macro Exam 1

Suppose that Katie's nominal wage rate was $20 per hour during 2017, the base year for the CPI. IF the CPI is 120 and her nominal wage rate has risen to $22 per hour, what is her real wage rate in 2017?

$18.33 = 22 x 100 / CPI

In 2108, Computers Inc manufactueed personal computers worth $20 Million. If $16 Million worth of them were sold in 2018 and $4 Million worth of them remianed unsold in the year end and were added to the year's inventory, how much did Computer Inc contribute to 2018 GDP?

$20 Million

Suppose in 2108, private investment spending was $500 Billion. Government spending on tools and equipment was $300 billion, and that year the total depreciation in the economy was $250 billion. How much did the stock capital increase in 2018?

$550 Billion

Efficiency implies that

-That there is no scope for improvement by reorganizing the resources -It is impossible to obtain gains in one area without losses in another

Some alternative measures of business cycles

-The Chicago Federal Reserve National Activity Index -The Conference Board Leading Economic Index -The Yield Curve (Upward slopping or inverted)

An important source of an increase in labor productivity (Q/L) in an economy is

-an improvement in the quality and quantity of human capital -Capital deepening -an increase in the capital labor ratio -technological progress

Pure market economic system

-competition (supply and demand) determine the allocation of resources -consumers decide what goods to be produced

Some important macroeconomic goals are

-full employment -price stability (neither inflation or deflation)

National Activity Index

1. A weighted average of 85 indicators of national economic activity. 2. An index of ZERO indicates that the economy is growing at its historical rate. 3. Negative indices mean that the economy is growing slower. a. an index below -0.7 following a period of expansion suggests high likelihood of recession 4. Positive indices mean that the economy is growing faster than its long-term trend.

Keynesian Economists

1. Believe that an active government role is needed to ensure economic activity is promoted. 2. Believes that government policies will spur growth.

Classical economists

1. Believes that raising debt is unsustainable. 2. Believes in relying more on the market forces to dictate economic actions. 3. Was the dominant form of thinking when macroeconomics was based upon microeconomic thought.

Yield Curve

1. Curve that shows the interest rates for bonds (y-axis) with different maturity rates (x-axis). 2. If the IR on a 10-year T-bond is less than the IR on a 3-month T-bill, a recession is likely to occur. a. true for 7 of last 8 recessions

Leading Economic Index

1. Established by The Conference Board; uses ten important indicators to produce a weighted index. 2. LEI predicts a recession whenever the index falls for three consecutive months. a. successfully predicted the last 7 recessions since 1969

GDP per Capita

1. GDP / total population. 2. Measures the relative standard of living of people in different countries. 3. Does NOT account for differences in wealth between the rich and poor.

Personal Consumption Spending

1. Goods and services purchased by residents of the US; individuals or businesses. 2. Includes durable goods, nondurable goods and services. 3. Accounts for nearly 70% of GDP; services are the largest part of personal consumption spending.

National Income and Product Accounts

1. National accounts that allow economists to judge the nation's economic performance, compare US income and output to other nations, and track the economic condition across business cycles. 2. Developed by the Department of Commerce - DOC. 3. Developed by Simon Kuznets - helped by developing methods to calculate the size and change in national income.

IF in a hypothetical economy, the CPI for 2107 is 112, the typical basket purchased by an urban household that year would cost

12% more than the same market basket purchased during the base year

If there is always constant tradeoff between goods A and B in an economy, then that country's the productions possibilities frontier is:

A downward-slopping straight line

The Wealth of Nations (1776) was written by

Adam Smith

The invisible hand principle and the automatic adjustment to full employment equilibrium in a lassie-faire economy were strongly believed by

Adam Smith

The production possibilities curve represents the possible combination of two goods that an economy can produce

At a certain time, under the condition of efficient and full production, and the given level of technology

Natalie is 19 years old and acts in movies. She earns $600,000 for her acting in a movie. Cassandra is 19 years old and works in a clothing store at the nearby shopping mall. She earns $10 an hour. Which of the two persons is more likely to attend college and for what reason?

Cassandra, because she has lower opportunity cost of attending college than natalie

In a command economy, the main economic goal is

Complete full employment

The three fundamental economic questions that every economic system must answer are:

For whom will be goods be produced? What goods will be produced? How will the goods be produced?

GDP formula

GDP = C + I + G + X, GDP = value of consumption + gross investment + government purchases and net exports

Government expenditures

Gov purchases (spending on goods and services, construction, salaries for gov employees...) and Gov transfer payments (increase incomes of targeted groups like elderly or unemployed)

In macroeconomics, which of the following economic activities-items is considered as a non-market activity and hence it is not included in GDP?

Growing vegetables in your backyard garden

What is an example of a positive economic statement

If the price of oranges falls, the quantity of demanded oranges increases

Suppose that the Federal Reserve Bank of Chicago's National Activity Index changed in July 2016 to +0.16 from +0.28 in June 2016. From this data, we can say that

In the United States, economic activity was above its historical trend in both June and July 2016, but its economic growth declined some what in July.

The optimal amount of pollution from the society's point of view is when

MB of pollution is equal to MC cost of pollution

Monetary Policy

Managing a nation's money, credit and banking system (raising interest rates when inflation threatens to rise too high)

Potenial GDP

Maximum sustainable level of output that economy can produce (high levels of labor force and capital stock utilization; during business downturns, actual GDP falls below its potential and unemployment rises!

Capitalism and Freedom (1962) was written by

Milton Friedman

Real gross domestic product (RGDP) can be defined as

Nominal GDP x 100 / GDP Deflator

Transfer Payments are

Payments for which no services are rendered during the current period

In what economic situation does a country's standard of living certain to increase

RGDP increases at a faster rate than of its population

What is the difference between nominal gdp and real gdp

RGDP is adjusted for price changes (inflation or deflation) in the economy, and GDP is not

The phase of a business cycle that is characterized by rising incomes, increasing consumer and business confidence and falling unemployment rate is termed as:

Recovery or expansion

Hyperinflation

Rise in the price level of a thousand or a million percent a year

If a new discovery of some resource is made for the level of technology improves, the PPF will:

Shift outward

If it id possible to produce more of one good without getting less of another, then currently:

The economy is operating inefficiently

Macroeconomics approaches the study of economics from the viewpoint of

The entire economy or the aggregate total economy

John Meynard Keynes, the author of The General Theory of employment, Interest and Money, Advocated

The government should play an active role in the economy, using fiscal policy actions (cutting taxes and increasing government spending to create full employment)

Mary Taylor attends the university of Nebraska-Lincoln. The opportunity cost of her attending college is

The highest valued alternative she forfeits to attend college

When a market economy exhibits both allocative and productive efficiency, then it is producing:

The maximum output which consumers want to buy with the available resources and technology using the least cost combination of inputs/resources

Classical economists such as Adam Smith and JB Say believed that

The policy of laissez-faire will enable the economy to achieve full employment

Economics is

The science of scarcity of economic resources

Which of the following topics is considered a microeconomics topic?

The study of factors that determine the price of market shares of general motors in 2017

GDP (Gross Domestic Product) is defined in macroeconomics as

The total market value go all final goods and services produced for the market place during a given period within the boarders of a nation

Aggregate Demand

Total amount that different sectors in the economy willingly spend in a given period (total spending on goods and services; depends on price level, monetary policy and fiscal policy)

Aggregate Supply

Total quantity of goods and services that the nation's businesses willingly produce and sell in a given period (depends on price level, productive capacity of an economy and level of costs)

Fiscal Policy

Uses of tax and government expenditures

Comparative Advantage

ability to be better suited to the production of one good versus another

productive efficiency

achieving as much output as possible from a given amount of input or resources

Relative economic scarcity exists

in all countries of the world

principle of increasing marginal opportunity cost

in order to get more of something, one must give up ever-increasing quantities of something else

globalization

increase integration of economies, cultures, and institutions across the globe

Price Index

measures of the overall price levels

Ceteris Paribus is

other things being equal

Under pure command economic system/ collective economic system

the government determines the allocation of resources in the economy

If wages paid per hour of your work rise then

the opportunity cost of an hour of leisure increases

The unattainable region of a production possibilities frontier includes

the points above the PPF