macro - midterm 2

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What is is true within the circular flow of economic activity?

Households are buyers of products and sellers of production factors.

The largest component of GDP is

consumption expenditure.

With everything else held constant, if society increased the efficiency of matching people to jobs that need their skills, the natural rate of unemployment would likely

decrease

If the price index in 2019 is 400 and the price index in 2020 is 390, then during this period the economy is undergoing

deflation

Everything else the same, if investment expenditures rise by $300 billion and imports increase by $300 billion, then GDP

does not change.

During periods of economic expansion, cyclical unemployment can become _____, causing the unemployment rate to become _____ than the natural rate of unemployment.

negative; lower

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

Most economists believe that the consumer price index _____ the rate of inflation.

overstates

Which of these correctly lists the sequence of stages in the business cycle?

recession, trough, expansion, peak

The general purpose of the circular flow diagram is to show that total _____ equal(s) total _____ in an economy.

spending; income

The economy is LEAST likely to be heading into a recession when the National Activity Index equals

the highest possible number

(T/F) A double-dip recession is a recession that is twice as bad as the one that preceded it.

False

(T/F) Current national income and production statistics include the environmental benefits or harm of economic activity.

False

(T/F) Discouraged workers are counted in the labor force.

False

(T/F) Full employment is defined as zero unemployment.

False

(T/F) Leisure time is included in the GDP accounts.

False

(T/F) The labor force consists of all adults in the United States.

False

Which expenditure component of GDP tends to be the MOST volatile over time?

gross private domestic investment

Which group benefits from an unanticipated rise in the inflation rate?

homeowners with fixed-rate mortgages

A change in the Leading Economic Index is supposed to reflect

how the economy will behave in the near future.

Business cycles

vary in duration and magnitude.

(T/F) A disadvantage of using per capita GDP to measure the standard of living in a country is that it does not accurately reflect the differences in wealth between rich citizens and poor citizens in the same country.

True

(T/F) Excessive government spending and printing new money are signs that the economy is in danger of hyperinflation.

True

(T/F) Marci is 11 years old. She walks her neighbors' dogs for cash. Her income from this service is probably part of the informal economy.

True

(T/F) Structural unemployment can be reduced by retraining workers for new industries.

True

(T/F) The Weekly Jobs Report is used as a way to estimate trends in layoffs and hiring.

True

(T/F) The existence of discouraged workers tends to cause the official unemployment rate to understate the actual rate.

True

(T/F) The personal consumption expenditures price index does a better job in approximating the cost of living than does the consumer price index.

True

Suppose that Felicia borrowed $10,000 from Wells Fargo to pay for college expenses and the inflation rate dropped unexpectedly. Who is likely to benefit from this change?

Wells Fargo benefits because the money being paid back has more purchasing power than expected.

A guitar is produced in California using $100 in raw materials and sells for $300 in a guitar shop. Each guitar that is produced contributes _____ to U.S. GDP.

$300

Karl's Keychain Company produces keychains that sell in its stores for $1 each. On January 1, 2015, the company had inventory of 10,000 keychains. During 2015, the company sold 900,000 keychains. At the end of the business year on December 31, 2015, the company's inventory of keychains was 6,000. How much did Karl's output contribute to GDP in 2015?

$896,000

All of these types of wages can cause unemployment EXCEPT A.) equilibrium. B.) minimum. C.) efficiency. D.) union.

A.) equilibrium.

The GDP deflator is an index that includes prices of all of these EXCEPT A.) government goods and services. B.) imports. C.) investment goods. D.) consumer goods.

B.) Imports

Which is NOT a criticism of the official unemployment rate? A.) Underemployed workers are counted as employed. B.) It does not include people who want to work but stopped searching out of frustration. C.) It is not reported frequently enough to provide a good picture of the state of the economy. D.) Marginally attached workers are not counted as unemployed.

C.) It is not reported frequently enough to provide a good picture of the state of the economy.

Which event is LEAST likely to result in inflation? A.) Strong consumer confidence leads to robust spending on luxury goods. B.) Rampant government debt leads to excessive printing of money. C.) A severe drought in the South results in a reduced harvest. D.) Increasing imports causing domestic manufacturers that are unable to compete to be displaced.

D.) Increasing imports causing domestic manufacturers that are unable to compete to be displaced.

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

When the economy is operating at full employment _____ unemployment is zero.

Cyclical

When the economy is operating at the natural rate of unemployment _____ unemployment is zero.

Cyclical

What is an example of a final good? A.) tartar sauce purchased by a fish restaurant B.) corn purchased by a hog farmer C.) bacon purchased at a grocery store D.) rubber purchased by a bicycle company

C.) bacon purchased at a grocery store

The mortgage crisis caused a lot of consumers to stop spending money. The decrease in spending led to a decrease in production. Which type of unemployment resulted?

Cyclical

Which assumption is NOT a problem related to using the consumer price index (CPI) to accurately state the rate of inflation? A.) The CPI does not account for quality changes. B.) The CPI does not include new products. C.) The CPI assumes that people do not substitute goods. D.) The CPI does not deal with producer prices.

D.) The CPI does not deal with producer prices.

Which of these is NOT an example of gross private domestic investment? A.) the construction of new residential housing B.) a change in business inventories C.) the construction of a new hotel D.) a household's purchase of shares of Google stock

D.) a household's purchase of shares of Google stock

Which action would reduce frictional unemployment? A.) retraining workers B.) taming the business cycle C.) subsidizing obsolete technologies D.) holding job fairs

D.) holding job fairs

The national income and product accounts do all of these EXCEPT A.) track the economy's condition over the course of the business cycle. B.) compare U.S. income and output to that of other nations. C.) let economists judge our nation's economic performance. D.) track changes in income distribution.

D.) track changes in income distribution.

The broadest measure of inflation is the

GDP deflator.

When Mr. Wilson worked full time, he paid a service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP?

GDP falls as a result of this change.

If LG (a South Korean company) produces televisions in Mexico, the value of these televisions will count toward South Korea's _____ and Mexico's _____.

GNP; GDP

Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, what happens to Jennifer's purchasing power?

Jennifer's purchasing power will decline by 2%.

If 50 workers from a restaurant going out of business lose their jobs and they all immediately begin to work part-time driving for Uber or Lyft while seeking new restaurant jobs, how will this affect the unemployment rate?

The unemployment rate would not change.

At the peak of the business cycle, the economy is typically operating

at its capacity

The U.S. gross domestic product is equal to the total market value of all

final goods and services produced by resources in the United States.

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.

We should MOST likely expect a recession if the Leading Economic Index _____ months in a row.

falls for three

If a country experiences a rise in prices but produces the same quantity of output as in the previous year, its nominal GDP will _____ and its real GDP will _____.

increase; be unchanged

Which component of GDP includes inventory changes?

investment

One of the criticisms of the way business cycles are officially dated by the NBER is that

it uses historical data to date phases after they occur.

The "business cycle" refers to

short-run fluctuations in macroeconomic activity

For which situation would the yield curve MOST likely predict that a recession will occur?

short-term interest rate = 4%; long-term interest rate = 3%


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