MACRO TEST 2 CH 6-9

Frictional unemployment

Individuals searching for jobs or waiting to take jobs soon

Higher oil prices are most likely to lead to

a negative supply shock

A college graduate using the summer following graduation to search for a job would best be classified as:

a part of frictional unemployment

Recession

a period where output and living standards decline (2007-2009)

The circular flow diagram

a simple economic model showing a private closed economy in which there is only a private sector consisting of households and businesses who interact with each other in the markets

Personal Consumption Expenditure (C)

all expenditures by households including durable and non durable goods and services

Gross Private Investment (Ig)

all final purchases of machinery, equipment, and tools by businesses, all construction, and changes in inventories

Demand-Pull inflation

is a result of spending increasing faster than production, continues as ling as excess spending continues

Growth is advantageous to a nation because it:

lessens the burden of scarcity

Inflation

looks at the increases in the overall level of prices

GDP

measure of aggregate output, it measures the value of final goods and services produced within the borders of a country during a specific period of time, usually a year

National income accounting

measures economy's overall performance

Nominal GDP

measures the dollar value of the goods and services at their current prices

If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that:

net investment is negative

Cost-Push inflation

occurs as prices rise because of a rise in per-unit production costs, ends in recession

The following are national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320); imports ($35); exports ($22); personal consumption expenditures ($2,460); and, government purchases ($470). What is GDP in this economy?

$3,237 billion

GDP in an economy is $4,600 billion. Consumer expenditures are $3,500 billion, government purchases are $900 billion, and gross private domestic investment is $400 billion. Net exports are:

-$200 billion

If the annual inflation rate is 5 percent a year, about how many years will it take for the price level to double?

14 years

If the annual growth in a nation's productivity is 2.5 percent rather than 1.5 percent, then the nation's standard of living will double in about:

28 years

A nation has a population of 300 million people. Of these, 80 million are retired, in the military, in institutions, or under sixteen years old. There are 210 million who are employed and 10 million who are unemployed. What is the unemployment rate?

4.5 percent

Rule of 70

Approx # of years required to double real GDP = 70/annual % rate of growth

GDP= (based on expenditure approach)

C+Ig+G+Xn

Cyclical unemployment

Caused by the recession phase of the business cycle

Economic Growth

Increase in real GDP or real GDP per capita over some time period

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

Expansion

Net Exports (Xn)

Exports (X) - Imports (M)

Business cycle

Fluctuations in output and employment

The monetary value of all final goods and services produced by the United States economy during a year is:

GDP

Suppose the total monetary value of all final goods and services produced in a particular country in 2008 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that:

GDP in 2008 is $500 billion

Determinants of growth- supply factors

Increase in quantity and quality of natural resources, human resources, capital goods, and improvements in technology

Determinants of growth- efficiency factor

Must achieve economic efficiency and full employment

in which of the following cases would real income rise?

Nominal income rises by 2 percent, and the price level remains unchanged

Structural unemployment

Occurs due to changes in the structure of the demand for labor

Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is:

Structural

Which would be considered an investment according to economists?

The sale of government bonds by the nation's central bank

Which is best considered a supply factor for long-run economic growth?

The stock of capital goods

The business cycle recession

a decline in total output, income, employment, and trade lasting six months or more; this is sometimes referred to as an economic contraction

Real GDP

adjusted for inflation. calculated by taking nominal GDP, which measures the dollar value of the goods and services at their current prices, and statistically eliminating the price changes that have occurred over time

Critics of economic growth:

argue that economic growth does not resolve socioeconomic problems such as an unequal distribution of income and wealth

Income approach

based on money flow, adds all income received from households from selling resources

Expenditure approach

based on real flow monetary value of final goods and services, measures GDP as the sum of all of the money spent in buying the output

Who are the principal source of investment?

businesses

What happens in prices are sticky?

businesses change production to match demand or use inventory to help

The industries or sectors of the economy in which business cycle fluctuations tend to affect output the most are:

capital goods and durable consumer goods

Bureau of Economic Analysis

compiles National Income and Product Accounts

The real flow

consists of resources flowing from households and used in producing products that flow from businesses

Saving occurs when:

current consumption is less than current output

Real GDP measures:

current output at base year prices

Full empolyment

cyclical unemployment is zero

The money flow

facilitates the workings of the economic system

What does the information from the National income accounting and the Bureau of Economic analysis used for?

formulating decisions for the best interest of the nation. like what policy to use

3 main indicators of economic stability or instability

gdp, unemployment and inflation

Net investment =

gross investment - depreciation

Real GDP and nominal GDP differ because the real GDP:

has been adjusted for changes in the price level

Who are the principal source of savings?

households

Determinants of growth- demand factor

households and businesses and government must purchase the economy expanding output

Suppose that real GDP increases by 5 percent while the population of a country increases by 7 percent. Then:

output per person necessarily decreases

Investment occurs when:

resources are devoted to increasing future output

If an economy wants to increase its current level of investment, it must:

sacrifice current consumption

What happens to sales if prices are flexible?

sales are unchanged

What happens to sales if prices are sticky?

sales change

the source of investment is:

saving

The business cycle depicts:

short-run fluctuations in output and employment

A decline in a nation's rate of productivity growth will:

slow the growth of the standard of living

High levels of inflation mean:

that it will cost the average family more to purchase the same goods and services

The business cycle trough

the bottom of the recession period

Government Purchases (G)

the goods and services purchased by all levels of government

What happens is prices are flexible?

the market price will be able to adjust, no short-run fluctuations, production levels would be constant and unemployment won't change

A consumer price index attempts to measure changes in:

the price of a select market basket of goods and services

The GDP tends to:

understate economic welfare because it does not take into account increases in leisure

Demand shocks

unexpected changes in the demand for goods and services

Supply shocks

unexpected changes in the supply of goods and services

Shocks occur when:

unexpected situations occur

The business cycle peak

when business activity reaches a temporary maximum with full employment and near-capacity output

The business cycle expansion

when output and employment are recovering and expanding toward the full employment level

Real gross domestic product:

will increase if there is an increase in the level of output