Macro Test #2
Final goods and services
goods and services sold to the final, or end, user.
Intermediate goods and services
goods and services—bought from one firm by another firm—that are inputs for production of final goods and services.
The circular-flow diagram illustrates all of the following in the U.S. economy EXCEPT: growing income inequality. flows of money. flows of goods and services. the purchase and sale of factors of production.
growing income inequality.
Real GDP
the total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year.
Nominal GDP
the value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced.
Real wage
the wage rate divided by the price level.
Government purchases of goods and services
total purchases by federal, state, and local governments on goods and services.
If an economy is open: trading with other countries makes up a portion of its economy. Its real GDP will drop. anyone can immigrate to the country. it does not trade with other countries.
trading with other countries makes up a portion of its economy.
Jim has a part-time job and would prefer to have a full-time job but has been unable to find one. Jim is classified as: a discouraged worker. underemployed. unemployed. out of the labor force.
underemployed.
One of the issues of importance to macroeconomists is: how firms determine the profit-maximizing level of output. the behavior of individual markets. the behavior of individuals and their allocation of income. understanding how living standards change over time
understanding how living standards change over time.
A person who has no job but is looking for one is: unemployed. a discouraged worker. part of the labor force. unemployed and part of the labor force.
unemployed and part of the labor force.
The key measure used to track economic growth is: nominal GDP per capita. real GDP per capita. nominal GDP. real GDP.
real GDP per capita.
(Figure: The Minimum Wage) Look at the figure The Minimum Wage. What is the quantity of labor supplied at a binding minimum wage of P3? Q1 Q2 Q3 Q4
Q4
Long -run growth is sustained upward trend in: the unemployment rate over time. aggregate output per person over the business cycle. interest rates over time. aggregate output per person over several decades.
aggregate output per person over several decades.
The relation between a country's level of saving and investment: affects its trade balances. pertains to trade surpluses only. does not affect an open economy. has often been used to correct a trade deficit but not a trade surplus.
affects its trade balances.
(Figure: The Business Cycle) Look at the figure The Business Cycle. The movement from point B to C is called a(n): expansion. trough. depression. peak.
expansion
If during several months the economy is simultaneously increasing its levels of output and employment, then the economy is a(n): turning point between a recovery and a downturn. expansion. recession. depression.
expansion.
If the growth rate of GDP is above its historical average, then there is a tendency for the unemployment rate to: fall to zero. rise. fall. stabilize.
fall.
An economic expansion in the United States is typically associated with a(n): increase in the poverty rate. falling unemployment rate. decrease in corporate profits. falling inflation rate.
falling unemployment rate.
Setting government spending and taxes in an effort to change overall spending in an economy is use of: investment. fiscal policy. the stock market. monetary policy.
fiscal policy.
Natural unemployment equals _____ unemployment plus _____ unemployment. frictional; structural cyclical; structural frictional; cyclical frictional; structural unemployment plus cyclical
frictional; structural
Anna recently moved to Boston, as her husband, Joe, has a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is: frictionally unemployed. structurally unemployed. cyclically unemployed. counted as employed, since she is likely to receive a job offer soon.
frictionally unemployed.
Imports
goods and services purchased from other countries.
Exports
goods and services sold to other countries.
(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow Model. What is GDP? $700 $1,000 $200 $1,080
$1,000
Bond
a legal document based on borrowing in the form of an IOU that pays interest.
Inventories
stocks of goods and raw materials held to facilitate business operations.
Suppose that real GDP per capita of the United States is $32,000 and its growth rate is 2% per year. Real GDP per capita of China is $4,000, and its annual growth rate is 7%. (Scenario: Growth Rates) Look at the scenario Growth Rates. According to the rule of 70, how large will China's real GDP per capita be in 20 years? $28,000 $16,000 $5,600 $8,000
$16,000
(Table: Measuring GDP) Look at the table Measuring GDP. Government purchases of goods and services are: $100 billion. $300 billion. $50 billion. $200 billion.
$300 billion.
(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that an economy produces only lemonade and cookies. If 2013 is the base year, real GDP in 2013 was: $425. $400. $420. $445.
$400
Enchanté Inc., a designer clothing company, buys $400 worth of silk and $30 worth of accessories to produce each dress. If the value added by Enchanté is equal to $200, then according to the value-added approach, the price of the designer dress should be: $200. $830. $230. $630.
$630.
Value added
(of a producer) the value of a producer's sales minus the value of its purchases of intermediate goods and services.
Unit-of-account costs
(of inflation) costs arising from the way inflation makes money a less reliable unit of measurement.
(Table: Price Levels) Look at the table Price Levels. What is the rate of inflation from 2013 to 2014? 1.1% 2.6% 2.9% 2.0%
1.1%
(Table: The Consumer Price Index (CPI)) Look at the table The Consumer Price Index (CPI). The consumer price index in 2009 was 212.2. In 2010, it was 216.7. What was the rate of inflation from 2009 to 2010? 12.2% 4.5% 2.1% 16.7%
2.1%
A survey reveals that on a small island 100 people have jobs, 25 people are not working but are looking for jobs, and 45 people are neither working nor looking for work. The unemployment rate on the island is: 12.5%. 20%. 25%. 50%
20%.
(Table: Employment Data) Look at the table Employment Data. The labor force is: 33 million. 32 million. 31 million. 22 million.
32 million
Scenario: Employment in Xenia Xenia has 10,000 people. Of this population, 1,000 residents are below age 16, and 2,000 have given up looking for work. Currently, 500 people are unemployed but are actively looking for work; 2,500 work part-time, and the rest are fully employed. Reference: Ref 8-12 (Scenario: Employment in Xenia) Look at the scenario Employment in Xenia. What is the unemployment rate? 7.14% 4.25% 11.11% 2%
7.14%
(Table: Labor Force Data) Look at the table Labor Force Data. If the labor force participation rate is 70%, the unemployment rate is: 7.6%. 5%. 4%. 3%
7.6%
U.S. real GDP per capita in 2010 was _____ as much per person as in 1900. 758% 16% 46% 129%
758%
Which of the following transactions is included in the nation's gross domestic product? A construction company purchases lumber to build a new house. A group of college students volunteer to rake leaves at an assisted living facility for senior citizens. A college student buys a used textbook from his roommate. A college student buys a pizza and has it delivered to her dorm room.
A college student buys a pizza and has it delivered to her dorm room.
(Figure: Technological Progress and Productivity Growth) Look at the figure Technological Progress and Productivity Growth. Which of the following changes in real GDP is most likely to have resulted from an increase in domestic savings? C to B A to B C to A B to A
A to B
(Figure: Productivity) Look at the figure Productivity. An improvement in technology with everything else remaining unchanged is shown on the diagram as a movement from: B to C. A to B. A to C. B to A.
B to C.
The total income of households after taxes and government transfers is called: private savings. disposable income. investment. aggregate spending.
Disposable income
The equation that breaks GDP down by the four sources of aggregate spending is: GDP = C + I + G + X - IM. GDP = C - I - G - X + IM. GDP = C + I + G - X - IM. GDP = C + I + G + X + IM.
GDP = C + I + G + X - IM. private consumption + gross investment + government investment + government spending + (exports - imports)
GDP per capita
GDP divided by the size of the population; equivalent to the average GDP per person.
Diminishing returns to physical capital
In an aggregate production function when the amount of human capital per worker and the state of technology are held fixed, each successive increase in the amount of physical capital per worker leads to a smaller increase in productivity.
The table below shows different quantities of labor supplied and labor demanded at different wage rates. Wage rate, w Quantity of labor demanded (millions), LD Quantity of labor supplied (millions), LS $6 100 20 8 80 40 10 60 60 12 40 80 14 20 100 Part 1: Use the multi-point line tool to draw the labor demand and labor supply curves. Be sure to label each point on each curve. Label them appropriately. Part 2: Use a double drop line tool to plot the equilibrium point (label it E). Part 3: Now, suppose that a minimum wage of $12 is imposed on the labor market. Locate the resulting combination of employment and wage. Use a double drop line tool to plot this point and label it A.
Self Explanatory
An example of a government transfer is a(n): salary for a member of the armed forces. bequest from a deceased relative. Social Security payment. expenditure on an interstate highway.
Social Security payment.
The text discusses the relationship between economic growth and changes in the unemployment rate during the short run. Using the infinite line drawing tool, draw a curve to illustrate the relationship between the real GDP growth rate and the changes in the unemployment rate. Label the curve A.
The answer is a downward sloping line.
Economists mostly agree that the problem of climate change necessitates government action in the form of market-based incentives such as: a reduction in the amount of gasoline that each person is allowed to purchase. a carbon tax or a cap and trade system. tax rebates to those causing negative externalities. a reduction in the price of green cars and appliances.
a carbon tax or a cap and trade system.
The central mission of modern macroeconomics is to prevent: a deep recession like the Great Depression. surpluses. shortages. high gas prices.
a deep recession like the Great Depression.
Recession
a downturn in the economy when output and employment are falling; also referred to as a contraction.
Deflation
a fall in the overall level of prices.
Market basket
a hypothetical consumption bundle of consumer purchases of goods and services, used to measure changes in overall price level.
Aggregate Production Function
a hypothetical function that shows how productivity (real GDP per worker) depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology.
Rule of 70
a mathematical formula that states that the time it takes real GDP per capita, or any other variable that grows gradually over time, to double is approximately 70 divided by that variable's annual growth rate.
Consumer price index (CPI)
a measure of prices; calculated by surveying market prices for a market basket intended to represent the consumption of a typical urban American family of four. The CPI is the most commonly used measure of prices in the United States.
Producer price index (PPI)
a measure of the cost of a typical basket of goods and services purchased by producers. Because these commodity prices respond quickly to changes in demand, the PPI is often regarded as a leading indicator of changes in the inflation rate.
Price index
a measure of the cost of purchasing a given market basket in a given year, where that cost is normalized so that it is equal to 100 in the selected base year; a measure of overall price level.
Jobless recovery
a period in which real GDP growth rate is positive but the unemployment rate is still rising.
GDP deflator
a price measure for a given year that is equal to 100 times the ratio of nominal GDP to real GDP in that year.
Convergence Hypothesis
a principle of economic growth that holds that international differences in real GDP per capita tend to narrow over time because countries that start with lower real GDP per capita tend to have higher growth rates.
One normally expects that unemployment increases while aggregate output and aggregate incomes decrease during: a recession. an expansion. the peak of the business cycle. government intervention.
a recession.
Inflation
a rise in the overall level of prices.
Keynesian economics
a school of thought emerging out of the works of John Maynard Keynes; according to Keynesian economics, a depressed economy is the result of inadequate spending and government intervention can help a depressed economy through monetary policy and fiscal policy.
Stock
a share in the ownership of a company held by a shareholder.
Aggregate price level
a single number that represents the overall price level for final goods and services in the economy.
Price stability
a situation in which the overall cost of living is changing slowly or not at all.
Diminishing returns to physical capital means that when the amount of human capital per worker and the state of technology are held fixed, each increase in the amount of physical capital per worker leads to: a constant amount of total output. a smaller increase in the marginal product of labor. a decrease in the total amount of output. negative marginal product.
a smaller increase in the marginal product of labor.
Long-run economic growth is best measured by: trade surpluses in the long run. a sustained rise in the production of goods and services. the rate of private saving. the growth of the money supply.
a sustained rise in the production of goods and services.
A nation whose value of imports exceeds its value of exports is said to have: hyperinflation. a trade surplus. a trade deficit. price stability.
a trade deficit.
Which would NOT be classified as a MACROECONOMIC question? a. What determines a university's cost of offering a new course? b. What determines the overall trade in goods, services, and financial assets between the United States and the rest of the world? c. How many people are employed in the economy as a whole? d. What determines the overall level of prices?
a. What determines a university's cost of offering a new course?
Growth Accounting
accounting that estimates the contribution of each of the major factors (physical and human capital, labor, and technology) in the aggregate production function.
A price index: always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year. always includes a base year. measures the cost of purchasing a market basket of output across different years. is normalized to 100 for the base year.
always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.
Technological Progress
an advance in the technical means of production of goods and services.
Open economy
an economy that trades goods and services with other countries.
(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is an increase in government spending, which of the following is likely to happen? a decrease in the real GDP an increase in the unemployment rate an increase in the nominal GDP a decrease in the inflation rate
an increase in the nominal GDP
An increase in capital stock would: shift the production function inward. shift the production function upward. shift the production function downward. cause a movement to the right along a stationary production function.
cause a movement to the right along a stationary production function.
Unanticipated inflation does all of the following EXCEPT: reduce the value of money. reduce the value of debt. cause uncertainty about the future. cause disinflation.
cause disinflation.
Fiscal policy
changes in government spending and taxes designed to affect overall spending.
Monetary policy
changes in the quantity of money in circulation designed to alter interest rates and affect the level of overall spending.
From the standpoint of economic growth, banks are important to: fight inflation. channel investment into savings. keep interest rates low. channel savings into investment.
channel savings into investment.
Which question is the most appropriate to the study of MACROECONOMICS? a. What determines whether Wachovia opens a new office in Beijing? b. How much will Sony charge for the new game system to be introduced later this year? c. How does the level of interest rates affect Delta's decision to buy a new airplane? d. How does aggregate price level affect overall consumer spending?
d. How does the aggregate price level affect overall consumer spending?
Which of the following statements is TRUE? a. In the past century, the population of the United States has grown faster than output. b. Since World War II, the economy of Argentina has grown faster than the economy of Canada. c. Long-run growth models and business cycle models are the same. d. The level of saving is important for long-run growth.
d. The level of saving is important for long-run growth.
As the average age of the labor force increased from the end of the 1970s to the end of the 1990s, the natural rate of unemployment: increased. decreased. was unaffected. was unpredictable.
decreased.
Self-regulating economy
describes an economy in which problems such as unemployment are resolved without government intervention, through the working of the invisible hand, and in which government attempts to improve the economy's performance would be ineffective at best, and would probably make things worse.
Economists frequently use GDP per capita to reflect: people who are employed. differences in living standards across countries. both people who are employed and those who are unemployed. the impact of prices on GDP.
differences in living standards across countries.
Private savings
disposable income minus consumer spending; disposable income that is not spent on consumption but rather goes into financial markets.
Goods that are produced in a particular period but NOT sold in that period: are classified as intermediate goods. are finally included in depreciation when they are sold. end up in inventory and are included in investment. go into inventory and are called consumption.
end up in inventory and are included in investment.
The rule of 70 is most useful in: identifying the causes of economic growth. identifying the sources of economic growth. estimating the doubling time of real GDP for a given growth rate. estimating the productivity of labor.
estimating the doubling time of real GDP for a given growth rate.
Long-run economic growth is: higher in countries with a weak rule of law and excessive government intervention. lower in countries with a strong government and independent judiciary. lower in countries whose courts enforce property rights and whose government protects its citizens. higher in countries with a strong rule of law and political stability.
higher in countries with a strong rule of law and political stability
Consumer spending
household spending on goods and services from domestic and foreign firms.
The skills, training, and education possessed by workers that contribute to economic growth are known as: natural resources. human capital. output of labor. saving.
human capital
Physical Capital
human-made resources such as buildings and machines.
The dollar value of final goods and services only is counted in GDP because: if we counted the value of all goods, we would count inputs, like the value of steel in a new automobile, more than once. we can measure only the value of final goods and services, not the value of inputs. only final goods and services matter for the economy. intermediate goods reduce GDP
if we counted the value of all goods, we would count inputs, like the value of steel in a new automobile, more than once.
Real income
income divided by the price level.
Disposable income
income plus government transfers minus taxes; the total amount of household income available to spend on consumption and to save.
If workers' nominal wages have risen by 50% over a 10 years and prices have increased by 40% in that same period, then we can safely conclude that the amount of goods and services workers can buy has: increased. fallen. decreased in quality. not changed.
increased.
(Table: Peanut Butter and Jelly Economy) Look at the table Peanut Butter and Jelly Economy. From 2010 to 2011 real GDP ____ by _____. increased; 12.5% decreased; 12.5% increased; 43.75% decreased; 50%
increased; 12.5%
Discouraged workers
individuals who want to work but who have stated to government researchers that they aren't currently searching for a job because they see little prospect of finding one given the state of the job market.
The topics studied in macroeconomics include: - spillovers, such as pollution. - inflation. - monopolies. - mergers.
inflation.
Which of the following contributes to economic development? investment in infrastructure a command socialist economic system low saving and investment rates complete absence of government involvement
investment in infrastructure
A country's GNP: excludes factor income earned abroad by Americans. must be larger than its GDP. includes factor income earned by foreigners. is the total factor income earned by residents of a country.
is the total factor income earned by residents of a country.
Which pair of policies is likely to reduce the natural rate of unemployment? job training and employment subsidies high minimum wages and generous unemployment benefits job training and higher minimum wages employment subsidies and policies designed to strengthen labor unions
job training and employment subsidies
To acquire human capital a person would: learn to use a printing press. purchase a printing press rather than a very large television. save to buy a printing press. sell the books that the printing press produces.
learn to use a printing press.
Sustainable Long-Run Economic Growth
long-run growth that can continue in the face of the limited supply of natural resources and the impact of growth on the environment.
National income and product accounts (national accounts)
method of calculating and keeping track of consumer spending, sales of producers, business investment spending, government purchases, and a variety of other flows of money between different sectors of the economy.
A country's exports minus its imports during a period are: gross imports. net imports. gross exports. net exports.
net exports.
Marginally attached workers
nonworking individuals who say they would like a job and have looked for work in the recent past but are not currently looking for work.
Productivity
output per worker; a shortened form of the term labor productivity.
Labor productivity
output per worker; also referred to as simply productivity. Increases in labor productivity are the only source of long-run economic growth.
Government transfers
payments by the government to individuals for which no good or service is provided in return.
Expansion
period of economic upturn in which output and employment are rising; most economic numbers are following their normal upward trend; also referred to as a recovery.
Infrastructure
physical capital, such as roads, power lines, ports, information networks, and other parts of an economy, that provides the underpinnings, or foundation, for economic activity.
Productivity is declining when: real GDP growth exceeds the population growth. the number of hours worked exceeds the number of workers. the ratio of adult civilians employed outside the home rises. population growth exceeds real GDP growth.
population growth exceeds real GDP growth.
Investment spending is spending on: productive physical capital. productive physical capital, bonds, and shares of stock. shares of stock. bonds.
productive physical capital. (not bonds or stocks)
An example of the frictionally unemployed is a(n): autoworker who is temporarily laid off because of a decline in sales. geologist who is permanently laid off from an oil company because of a technological advance. worker at a fast-food restaurant who quits work and attends college. real estate agent who leaves a job in Texas and searches for a similar higher-paying job in California.
real estate agent who leaves a job in Texas and searches for a similar higher-paying job in California.
All else equal, a nation that has a high rate of _____ will have a high rate of _____ and therefore a high growth rate of _____ capital. savings; investment; natural investment; savings; human savings; consumption; physical savings; investment; physical
savings; investment; physical
Investment spending
spending on productive physical capital—such as machinery and construction of buildings—and on changes to inventories.
Research and Development (R&D)
spending to create new technologies and prepare them for practical use.
When the demand for labor is falling and employers have committed to high wages, _____ unemployment will result. frictional cyclical permanent structural
structural
The view that the government should take an active role in the macroeconomy dates to: the Great Depression. World War I. the Civil War. the Vietnam War.
the Great Depression.
Total Factor Productivity
the amount of output that can be produced with a given amount of factor inputs.
Inflation rate
the annual percent change in a price index—typically the consumer price index. The inflation rate is positive when the aggregate price level is rising (inflation) and negative when the aggregate price level is falling (deflation).
Financial markets
the banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing.
Trade deficit
the deficit that results when the value of the goods and services bought from foreigners is more than the value of the goods and services sold to consumers abroad.
Cyclical unemployment
the difference between the actual rate of unemployment and the natural rate of unemployment due to downturns in the business cycle.
Net exports
the difference between the value of exports and the value of imports. A positive value for net exports indicates that a country is a net exporter of goods and services; a negative value indicates that a country is a net importer of goods and services.
Keynesian economics stressed: the long run. the importance of total spending. the self-correcting power of free markets. that the Depression should run its course to bring down the high cost of living.
the importance of total spending.
Human Capital
the improvement in labor created by the education and knowledge embodied in the workforce.
Shoe-leather costs
the increased costs of transactions caused by inflation.
Nominal interest rate
the interest rate in dollar terms.
Real interest rate
the nominal interest rate minus the inflation rate.
Natural rate of unemployment
the normal unemployment rate around which the actual unemployment rate fluctuates; the unemployment rate that arises from the effects of frictional and structural unemployment.
Underemployment
the number of people who work part time because they cannot find full-time jobs.
Price stability occurs when: the overall cost of living is changing very slowly. the economy is at full employment. the overall price level is zero. food prices have remained the same.
the overall cost of living is changing very slowly.
Labor force participation rate
the percentage of the population age 16 or older that is in the labor force.
Unemployment rate
the percentage of the total number of people in the labor force who are unemployed, calculated as unemployment/(unemployment + employment).
Business-cycle peak
the point in time at which the economy shifts from expansion to recession.
Business-cycle trough
the point in time at which the economy shifts from recession to expansion.
Interest rate
the price, calculated as a percentage of the amount borrowed, that a lender charges a borrower for the use of their savings for one year.
Disinflation
the process of bringing down inflation that has become embedded in expectations.
Menu costs
the real cost of changing a listed price.
Business cycle
the short-run alternation between economic downturns, known as recessions, and economic upturns, known as expansions.
Labor force
the sum of employment and unemployment; that is, the number of people who are currently working plus the number of people who are currently looking for work.
Trade surplus
the surplus that results when the value of goods and services bought from foreigners is less than the value of the goods and services sold to them.
Long-run economic growth
the sustained rise in the quantity of goods and services the economy produces.
Job search
the time spent by workers in looking for employment.
Government borrowing
the total amount of funds borrowed by federal, state, and local governments in financial markets to buy goods and services.
Aggregate spending
the total flow of funds into markets for domestically produced final goods and services; the sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports.
Employment
the total number of people currently employed for pay in the economy, either full time or part time.
Unemployment
the total number of people who are actively looking for work but aren't currently employed.
Aggregate output
the total quantity of final goods and services the economy produces for a given time period, usually a year. Real GDP is the numerical measure of aggregate output typically used by economists.
Gross domestic product (GDP)
the total value of all final goods and services produced in the economy during a given period, usually a year.
The unemployment rate is the ratio of all of the people: out of work to the total population. out of work to those over age 16. unemployed to those looking for work. unemployed to those in the labor force.
unemployed to those in the labor force.
Frictional unemployment
unemployment due to time workers spend in job search.
Structural unemployment
unemployment that results when there are more people seeking jobs in a particular labor market than there are jobs available at the current wage rate, even when the economy is at the peak of the business cycle.
Efficiency wages
wages that employers set above the equilibrium wage rate as an incentive for workers to deliver better performance.
Diminishing returns to physical capital suggests that: physical capital increases lead to drops in productivity when the amount of human capital per worker and the state of technology are fixed. increases in technological progress lead to decreases in productivity. when the amount of human capital per worker and the state of technology are fixed, successive increases in the amount of physical capital per worker lead to smaller increases in productivity. physical capital must be increased less than human capital and technological progress for growth to occur.
when the amount of human capital per worker and the state of technology are fixed, successive increases in the amount of physical capital per worker lead to smaller increases in productivity.