MacroEcon
Explain whether each of these individuals will be counted as a part of the labor force. Alex left his full−time job as a teacher and now works part−time at the library. John is a full−time student that works as a waiter on the weekends at Chili's. -Are they in the labor force?
-Both--in the labor force
Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be:
11%
A profit−maximizing firm will pay a worker ________. A. the value of the worker's marginal product B. less than the value of the worker's marginal product C. more than the value of the average revenue of the firm D. the revenue that it earns by selling one unit of the product
A
Which of these factors will not cause the demand curve for labor to shift? -A change in the wage -A change in human capital -A change in technology
A change in the wage
Which of these persons is officially unemployed? -A student who will be graduating soon and looking for a job -A housewife who is considering looking for a job -A non-working individual who has looked for a job in the past week
A non-working individual who has looked for a job in the past week
The labor demand curve represents the relationship between the quantity of labor demanded and the ________. A. price of the good that uses labor as an input B. wage C. average product of labor D. number of workers available in the market
B.
Which of the following does not cause the labor supply curve to shift? A. Changing social norms and their impact on people's willingness to take a job. B. Changes in the level of immigration. C. Shifts in the labor demand curve that cause a change in the wage rate. D.Changing opportunity cost of time
C.
When relatively poor nations adopt knowledge and technologies developed by advanced nations to stimulate economic growth it is known as;
Catch-up growth
How does fiat money differ from commodities like gold and silver that were used as money? If fiat money is intrinsically worthless, then why is it valuable?
Fiat money is intrinsically worthless, whereas gold and silver have intrinsic value Fiat money is used as legal tender by government decree and other people will accept it as payment for transactions.
What are functions banks perform as financial intermediaries in the economy?
Identify profitable lending opportunities. Manage risk through diversification strategies. Transform short-term liabilities into long-term assets.
Moral hazard occurs when an economic agent is incentivized to take risks because some (or all) of the losses that might result will be borne by other economic agents. How might federal deposit insurance, as administered by the FDIC, lead to moral hazard?
Insurance may cause bank shareholders to be less vigilant in monitoring the investment strategies of bank managers. Insurance gives bank managers incentives to pursue added risks since losses can be shifted to the FDIC. Depositors may pay less attention to the lending practices of banks since their deposits are covered up to some cap.
Out of the following people, who is not considered a potential worker? -Joe, who is currently serving a prison sentence for robbery -Mary, who was fired and meanwhile has given up looking for a job for over a year -David, who is a sophomore in College
Joe, who is currently serving a prison sentence for robbery
What is the correct expression for calculating the Labor Force Participation Rate?
Labor Force Participation Rate = 100% * [(Employed+ Unemployed)/Potential Workers]
What are the functions of money in a modern economy
Medium of exchange. Store of value. Unit of account.
Sometimes new technology in production reduces the time that a worker takes to complete a task. Technological innovations can also completely replace a factory worker. Does this mean that technological progress will lead to large-scale unemployment?
No, some sectors may experience unemployment as a result of the innovations but overall productivity and incomes will increase, leading to more employment opportunities.
What is the significance of the real wage as it relates to inflation?
Since an increase in inflation reduces the real wage that firms must pay, they are more willing to hire workers, thus stimulating the economy
In August, 1979, the annual rate of inflation in the U.S. was nearly 12%, and the U.S. short-term nominal interest rate was nearly 10%. Over the next 35 years, both the rate of inflation and short-term nominal interest rate tended to fall. By August2014, the rate of inflation was about 2% and the short-term nominal interest rate was close to 0%. How has the real short-term interest rate changed from 1979 to 2014?
The real rate remained stable at −2%
What is the correct expression for calculating the unemployment rate?
Unemployment rate = 100% * [Unemployed/ (Employed+ Unemployed)]
Let VMPL equal the value of the marginal product of labor and W equal the wage rate. When should a firm hire more workers to increase profit?
When VMPL > W
Which of the following cannot produce a shift in the credit supply curve?
a change in the real interest rate
As the wage rate increases, the ________, assuming all else equal. A. demand for labor increases B. quantity of labor supplied increases C. quantity of labor demanded increases D. supply of labor increases
b
Money functions as a medium of exchange when you ___________. A. use it to compare two cars that are different prices. B. buy jeans at the mall. C. trade action figures for a rare comic book that you expect will increase in value. D. trade a cup of sugar for five eggs.
buy jeans at the mall
Which of the following factors does not cause a shift in the labor demand curve? A.Changes in output prices. B.Changing technology. C.Changing input prices. D.Changes in the wage rate.
changes in the wage rate
The shortcoming of the Big Mac Index is that it
compares the prices that a single good has in two different countries
Banks and other financial institutions of an economy are in the business of channeling funds from suppliers of financial capital to users of financial capital. This process is known as ____________. The two basic types of financial capital are ____________.
financial intermediation credit & equity
When the economy is at full employment, which types of unemployment remain
frictional and structural
The period before 1800 is characterized economically as a period;
lacking in sustained growth
The quantity equation states that the
money supply times the velocity of money equals the price level times real output.
The defining characteristic of long-run economic growth is:
rising productivity
As technology improves, the demand for labor curve:
shifts to the right
As the population increases, the labor supply curve:
shifts to the right
As the price of the final product increases, the demand for labor curve:
shifts to the right
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and job requirements is called __________.
structural unemployment
creases in the minimum wage will increase __________.
teenage unemployment
According to the quantity theory of money, inflation is caused by
the money supply growing faster than real GDP
productivity is
the quantity of goods and services produced from each unit of labor input
Maturity transformation is the process by which banks...
transfer short-term liabilities into long-term investments.
Assume that the aggregate production function is Y = F(K, H). Let K = 10, H = 20, and the function be Y equals 2 times the product of K and H.
y=400 Y= 2(20x10)
In February 2014, the United States added 175,000 jobs to the economy. Given this information, what can we say about the unemployment rate of the country? there were 5,200,000 workers in the labor force, with 4,845,000 employed and 355,000 unemployed. What is the unemployment rate?
-It may increase, decrease, or not change depending on how many people started searching for jobs during the month. -unemployment rate= 100%x(unemployed/labor force) 6.83%
Identify the category in which the Department of Labor would classify the following people: -Bella retired from the military last month and has been actively looking for work since. -Cameron works part time at company X and actively takes part in community service. -Daisy is working full-time at company Y but is looking for more work for extra income. -After being fired from his job last week, a 45 year old Gary has stopped looking for a job.
-Unemployed -employed -employed -not in the labor force
If π denotes the rate of inflation and i denotes the nominal rate of interest, then the amount a borrower repays in a year on a one-dollar loan is------and the inflation-adjusted purchasing power of the originally borrowed dollar is ----
1+i 1+π
If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?
3.5%
According to the quantity theory of money, what must the growth rate of the money supply be given the following information? The growth rate of real GDP is 1.0%. The growth rate of nominal GDP is 3.8%. The nominal interest rate is 5.6%. The real interest rate is 2.8%. The money supply (M2) is $10,612 (in billions) According to the quantity theory of money, the inflation rate is:
3.8% 2.8% (Inflation rate=Growth rate of money supply−Growth rate of real GDP.)
Many kinds of loans, like student loans and mortgages, can be taken out at either a fixed or variable rate. A fixed rate loan allows the borrower to pay the same nominal interest rate for the entire lifetime of the loan, while a variable rate loan may experience changes in the nominal interest rate as the rate that banks charge each other for overnight loans changes. For this problem, assume that the variable nominal interest rate adjusts such that the associated real interest rate remains constant over time. In the first year, inflation is 4.5 percent and the nominal interest rate for both fixed and variable rate loans is 7.5 percent. Given this information, the real interest rate for fixed rate loans is-- percent and the real interest rate for variable rate loans is ---percent. In the second year, inflation rises to 6.5 percent. Given this information, the nominal interest rate for fixed rate loans is --- percent and the real interest rate for fixed rate loans is --- percent. Given this information, the nominal interest rate for variable rate loans is -----percent and the real interest rate for variable rate loans is ----- percent.
3/3% 7.5%/1% (fixed nominal rate does not change) 9.5%/3% (variable interest real interest rate does not change)
Scenario: Suppose that professors pay their teaching assistants $10 an hour to grade papers for their classes, and then the professors sell the graded papers back to the students in their classes for $.75 a paper. The following table shows the number of papers graded in a given number of hours. Hours of Labor Number of Papers Graded 1---40 2---75 3----105 4----130 5----142 6----149 7----154 What is the value of the marginal productivity of labor of the fifth hour of labor? A. $15.50 B. $9.00 C. $5.25 D. $10.50
9
Scenario: The unemployment rate in Country Y is 6 percent, and the labor force is equals about 200 million people. Who is considered part of the 6 percent of unemployed workers in Country Y? A. Peter, an engineer who became a stay−at−home husband after his start−up company went bankrupt, but he wants to find a new engineering job B. John, who is taking a year off to travel after college C. Amanda, who works 20 hours per week at a coffee shop but wants to work full time D. All of the above
A
Which of the following statements is true? A. There always exists some amount of unemployment in an economy. B. The unemployment rate in an economy is constant in the long run. C. Unemployment in an economy normally increases during times of expansion and decreases during times of contraction. D. In almost every economy, each job opening is instantly filled by a qualified worker.
A
Barter is a method of exchange whereby goods or services are traded directly for other goods or services without the use of money or any other medium of exchange. Suppose you need to get your house painted. You register with a barter Web site and want to offer your car cleaning services to someone who will paint your house in return. What are the problems you are likely to encounter? (Check all that apply.) A. You might find it difficult to find someone who needs you to wash his car and is willing to paint your house in return. B. It may take a lot of time to negotiate and finally settle on a deal that you both find fair. C. It might be difficult to agree on how many car washes is equivalent to painting a house. D. The house painter may not do a good job since he isn't being paid in money. E. Inflation would create problems when there is a time difference in the provision of services.
A,B, & C
All of the following could explain productivity differences across countries except A. the number of workers. B. human capital. C. physical capital. D. technology.
A.
assets and liabilities
Assets: Anything of value owned by a company. Includes: Reserves Cash equivalents Long-term investments Liabilities& Stockholder Equity: Obligations to be paid to creditors. Includes: Demand deposits Short-term borrowing Long-term debt Stockholders' equity
Workers who are unemployed but are not actively looking for jobs are referred to as ________. A. abandoned workers B. discouraged workers C. unskilled workers D. laid−off workers
B
Frictional unemployment can result when ____________. (Check all that apply.) A.government regulations may limit the number of people that a firm can hire. B.it takes time to find what jobs are available in a specific field. Your answer is correct. C.it takes time for firms to find applicants with the right skills and experience. Your answer is correct. D.firms and workers have imperfect information about each other.
B. C. D
Inflation that is ________ than what is expected benefits ________ and hurts ________. A. less; borrowers; lenders B. greater; lenders; borrowers C. less; lenders; borrowers D. greater; lenders; no one
C
Scenario: Jim, Pam, Michael, and Angela all worked for a paper company until the company went out of business. Jim was a salesman, Pam was a receptionist, Michael was the manager, and Angela was an accountant. Once the company went out of business, they all had to look for and consider other work opportunities. While these individuals are looking for other work, what type of unemployed are they? A. Structurally unemployed B. Voluntarily unemployed C. Frictionally unemployed D. Cyclically unemployed
C
he authors of the NBER study found that the unemployment rate "rises dramatically in the border counties belonging to the states that expanded unemployment benefit duration" during the Great Recession. Why might this be so? Based on Hagedorn, Karahan, et al., "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects." NBER working paper 19499, October 2013. A. The longer the duration of benefits, the lower the wages become that firms will offer new workers. This caused upward wage rigidity, causing unemployment to rise dramatically. B. The longer duration of unemployment benefits encouraged those workers who were unemployed to seek work sooner to avoid having their skills diminish, which increased the time for job search, leading to higher unemployment. C. With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment. Your answer is correct. D. All of the above.
C
Which of the following best explains why the labor supply curve slopes upward? A. When the price of a good increases, firms get more value out of each worker and thus seek to hire more workers. B. When the wage rate increases, the number of employees that a firm wants to hire increases. C. When wages increase, the opportunity cost of not working increases, leading people to seek more work hours. D. When the output that a firm produces increases, the opportunity cost of hiring another worker increases.
C.
Any change that causes a decrease in the demand for labor at a given wage rate will be represented by a(n) ________ the labor demand curve, assuming all else equal. A. upward movement along B. downward movement along C. right shift of D. left shift of
D
Frictional unemployment is the unemployment that arises ____________. A. when wage rigidity creates a persistent gap between labor supply and labor demand. B. during recessions when the unemployment rate is above the natural rate. C. from the average of the unemployment rates over an extended period of time. D. from workers' imperfect information about available jobs.
D
Which of the following groups of people would not be considered employed? A. Teachers in public schools B. Paid workers in the agricultural sector of a country C. Government representatives earning a fixed salary every month D. Housewives raising kids at home
D
Which of the following people are counted as potential workers? A. People that are institutionalized. B. Children under the age of 16. C. People on active duty in the military. D. People who are already employed full-time. Which of the following would be classified as unemployed? A. Someone who is working part-time but wants a full-time job. B. Students who are not working or looking for work. C. Someone who is not working and looked for work two weeks ago. D. All of the above. The labor force equation is equal to the number employed (minus, divided by, plus, times) the number unemployed.
D C. plus
Which of the following is an example of what economists refer to as job search? A person who applies for a high-paying job but does not qualify, so she begins searching for an appropriate position. B.People that engage in the job hunt by sending out resumes. C.An individual that engages in the job hunt by determining who is hiring and how much they pay. D.All of the above. What type of unemployment does job search lead to?
D Frictional unemployment
Which of these factors can cause the natural rate of unemployment to change? -Higher inflation -New resource discoveries -Demographic changes
Demographic changes
Structural unemployment can be caused by ____________. A. collective bargaining rights of workers. B. minimum wage laws. C. time−consuming job seach efforts. D. all of the above. E. A and B only.
E
What is the difference between nominal and real interest rates? A. The real interest rate is the nominal interest rate adjusted for inflation. B.The nominal interest rate always exceeds the real interest rate. C.The nominal interest rate is the rate you pay on a loan. D.All of the above. E.A and C only.
E
Banks that practice narrow banking match the maturity of their investments with the term of the deposits that they collect from the public. In other words, narrow banks take short-maturity deposits and invest in assets that carry a low level of risk and are also of short-term maturity, like short-term government debt. Suppose that all FDIC-insured banks decide to adopt narrow banking. How would narrow banking reduce the level of risk in the banking system?
It would reduce risk in the banking system by reducing the likelihood of bank runs and liquidity problems for banks. Banks still practice maturity transformation simply because it is generally very profitable to do so.
Imagine that the chairperson of the Federal Reserve announced that, as of the following day, all currency in circulation in the United States would be worth 10 times its face denomination. For example, a $10 bill would be worth $100; a $100 bill would be worth $1,000, etc. Furthermore, the balance in all checking and savings accounts is to be multiplied by 10 as will the balance of all outstanding debts. So, if you have $500 in your checking account, as of the following day, your balance would be $5,000, etc. Would you actually be 10 times better off on the day the announcement took effect?
No, because all prices would increase by a factor of 10 as well, keeping the real value of your money constant.
In April 2012, the Bazanian Daily, a leading newspaper in the country of Bazania, carried a report titled "20,000 jobs added in the last quarter; unemployment rate shoots up from 5 percent to 6.7 percent." How could the unemployment rate in Bazania increase even when new jobs were created?
The new jobs may have made discouraged workers optimistic enough to start applying for jobs, thus re-entering the labor force and being counted as unemployed, which causes the overall unemployment rate to increase.
Which of the following is the equivalent of the demand curve for labor?
The value of the marginal product of labor
how does variable interest rates adjust?
The variable nominal interest rate adjusts such that the associated real interest rate remains constant over time. The nominal interest rate for variable rate loans is calculated by using the formula r =i −π,where r= the real interest rate, i= the nominal interest rate, and π= the rate of inflation.
Why do the inflation rate and the nominal interest rate tend to move together over the long-run?
Their up and down together movement tells us that the real interest rate is relatively stable in the long run. This synchronized movement indicates that credit market conditions have tended to be relatively stable over time.
In May 2013, the value of the Consumer Price Index (CPI) in a certain country, Polonia, reached an all-time high of 169 index points and per capita nominal GDP was $53,900. In January 1950, the CPI was at its lowest at 88 index points. Per capita nominal GDP in 1950 was $7,100. Calculate real GDP per capita for 1950 by converting that year's nominal GDP per capita into current (2013) dollars.
Value in 2013 dollars= (Price index in 2013 / Price index in 1950) ×Value in 1950 dollars = 13,635.23
The size of the labor force in a country is equal to the ________. A. number of employed workers plus the number of unemployed workers in the country B. number of unemployed workers in the country C. number of employed workers in the country D. number of employed workers minus the number of unemployed workers in the country
a
Which of the following countries will be better off in the long run? A. Country A with $1,000 annual GDP per capita and a 6 percent annual growth rate. B. Country B with $5,000 annual GDP per capita and a 2 percent annual growth rate. C. Country C with $40,000 annual GDP per capita and a 1 percent annual growth rate. D. Country D with $60,000 annual GDP per capita and a 0.1 percent annual growth rate.
a
A change in which of these factors would cause a movement along the supply curve for labor rather than a shift of the labor supply curve? -A change in demographics -A change in population -A change in the wage
a change in the wage
Firms, households, and governments use the credit market for borrowing. The credit demand curve shows the relationship between the quantity of credit demanded and the real interest rate. The credit demand curve slopes downward because ____________. A shift in the credit demand curve can be caused by ___________.
a lower real interest rate raises a borrowing firm's profit and hence its willingness to borrow. changes in perceived business opportunities for firms. changes in household preferences or expectations. changes in government policy.
If consumers decide to be more frugal and save more out of their income, then this will cause
a shift in the supply curve to the right
To an economist, land refers to;
all natural resources
A bank run is ____________
an extraordinarily large volume of withdrawals driven by a concern that a bank will run out of liquid assets with which to pay withdrawals.
Consider the following aggregate production function: Y = A x F(K, H). Technological progress will lead to
an increase in the level of output in the economy
The period from 2007 to 2009 was a time of economic contraction that came to be known as the "Great Recession." During periods of recession, most firms experience a decline in demand for their product, as well as a decline in the product's equilibrium price. All other things being equal, macroeconomic theory predicts that the wage of most workers should decline in recessionary periods. However, this was not the case in the Great Recession, or during many other economic downturns throughout recent history. Based on the discussion in the chapter, explain why this might be so, and what the implications are for unemployment. A. Since most workers in the economy earn at or near the minimum wage, it is not possible for firms to lower the wages of workers during downturns. This keeps unemployment artificially high. B. During downturns workers are resistant to the lowering of wages and firms try to avoid doing so. This downward wage rigidity keeps the quantity of labor supplied greater than demand, causing unemployment. Your answer is correct. C. Since most workers in the economy earn at or near the minimum wage, it is not possible for firms to lower the wages of workers during downturns. This keeps unemployment artificially low. D. During downturns firms do not have an incentive to lower wages since the lower price level throughout the economy already decreases the buying power of workers' wages.
b
Which of the following is not true regarding the natural rate of unemployment? A. The natural rate of unemployment does not include cyclical unemployment. B. The natural rate of unemployment is 0 percent when the U.S. economy is not in a recession. Your answer is correct. C. The natural rate includes both frictional and structural unemployment. D. The natural rate is calculated by averaging the unemployment rate over an extended time period.
b
A downward movement along the labor demand curve occurs when ________, assuming all else equal. A. the price of the output that the labor is used to produce increases B. the price of the output that the labor is used to produce decreases C. the wage rate decreases D. the wage rate increases
c
The value of the marginal product of the tenth worker hired by a firm is $50. What is the maximum wage that should be paid to the worker? A. $5 B. $0.20 C. $50 D. $500
c.
If the economy experiences an unexpectedly low rate of inflation, the group that would tend to benefit is?
creditors
The M2 money supply is defined to include:
currency in circulation, checking accounts, savings accounts, travelers' checks, and money market accounts.
The goal of a country with a healthy economy is to have ____________ equal to zero.
cyclical unemployment
At full employment, __________.
cyclical unemployment is zero
What will happen to the demand curve for workers in steel mills if some technology that increases their productivity is introduced, assuming all else equal? A. There will be an upward movement along the demand curve for the workers. B. There will be a downward movement along the demand curve for the workers. C. There will be a left shift of the demand curve for the workers. D. There will be a right shift of the demand curve for the workers.
d
If the labor demand is unchanged, an increase in the labor supply will __________ the equilibrium wage and __________ the number of workers employed.
decrease; increase
As the number of workers increases, the marginal product of labor __________ and the marginal revenue product of labor __________.
decreases; decreases
An aggregate production function is used to ____________.
demonstrate how the factors of production are combined to produce GDP.
In measuring changes in the standard of living of a country, economists rely heavily on comparisons over time of real GDP per capita because:
despite its well-known flaws, it is the best means we have of comparing the performance of an economy over time
Suppose you are available for work but have not looked for a job for at least the last four weeks because you believe that no jobs are available. You would then be counted as __________.
discouraged worker
The "normal or natural" underlying level of unemployment in the economy is the __________.
full employment rate of unemployment
Higher levels of income inequality can lead to;
higher crime rates
Households and firms with savings lend money to banks and other financial institutions. The credit supply curve shows the relationship between the quantity of credit supplied and the real interest rate. The credit supply curve slopes upward because a ____________.
higher real interest rate discourages current consumption. higher real interest rate encourages more saving. an aging population that is ill-prepared for retirement. heightened desire on the part of firms to internally fund their future activities. an elevated perception on the part of households that the future may hold many "rainy days."
Productivity varies across countries because __________
human capital per worker varies substantially from country to country. the quantity of physical capital that workers can access varies greatly across countries. the level of technology differs across countries
According to the quantity theory of money: Which of the following equations is the equation for velocity in the quantity theory of money?
in the long run, the growth in the money supply is directly related to the inflation rate. nominal GDP ---------------- money supply
Most economists would argue that the best way to reduce poverty is to;
increase economic growth
A government budget surplus from reduced government spending (no change in net taxes) will ________ the level of investment in the economy and ________ the level of total saving (private plus public) in the economy.
increase; increase
The US data on the unemployment rate since 1948 shows that the unemployment rate tends to ________during_________
increase;recessions
Government policies can help to reduce the levels of frictional and structural unemployment, but they can also help to increase them. Which of these policies can cause an increase in the levels of frictional and structural unemployment?
increasing minimum wage
The only way that the standard of living of the average person in a country can increase is by:
increasing production faster than population growth
the real wage is What is the significance of the real wage as it relates to inflation?
inflation-adjusted wage. Since an increase in inflation reduces the real wage that firms must pay, firms are more willing to hire workers, thus stimulating economic activity.
When production begins to increase at a decreasing rate after the addition of one more worker, holding all else constant, it illustrates the;
law of diminishing marginal product
Suppose that a 10 percent increase in the physical capital stock increases GDP by 10 percent. Now consider an additional 10 percent increase in the physical capital stock. This increase in the physical capital stock will increase GDP by---(more, less, or equal to 10%)
less
The demand for loanable funds is downward sloping because the ______ the interest rate, the __________ the number of profitable investment projects a firm can undertake, and the _________ the quantity demanded of loanable funds.
lower; greater; greater
The value of the marginal product of labor is the ____________ Anthony owns a landscaping business that has 4 employees. His company is able to earn revenue of $600 per day. He knows that if he hires another worker, he would have to pay that worker $50 per day and the company would earn revenue of$680 per day if the new worker is hired. Determine the value of the marginal product of labor of the employee that Anthony is considering hiring.
market value of a worker's additional output for a firm. 80
Fiat money is
money that has value because the government has ordered that it is an acceptable means to pay debts
Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan. Suppose the average rate paid by banks on savings accounts is 0.5% at a time when inflation is around 1.95%. For the average saver, the real rate of interest on his or her savings is---? If banks expect that the rate of inflation in the coming year will be 4.95% and they want a real return of 7.5% on a certain category of loans, then the nominal rate they should charge borrowers on those loans is??
nominal interest rate minus the actual or expected inflation rate -1.45% 12.45%
Income per worker is defined as GDP divided by the;
number of people employed
The value of goods and services produced by one worker in one hour is known as______
productivity
A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds.
savers; borrowers
If the current wage is above the market clearing-wage, there is __________ in the labor market.
surplus
Which of these will cause the quantity of goods and services that can be produced by one worker, or in one hour of work, to increase?
technological change
According to the quantity theory of money, the inflation rate is: If the inflation rate is negative, what must be true?
the gap between the growth rate of money supply and the growth rate of real GDP The growth rate of real GDP >the growth rate of money supply.
Deflation is ____________.
the rate of decrease of the overall price level in the economy
Suppose the local pizza restaurant wants to hire another delivery driver to replace the worker who recently quit. The former worker could make 40 deliveries per week. The restaurant has received three applications from equally qualified workers. If it hires any one of these workers, it could boost deliveries by 30 deliveries per week. If each of these applicants is capable of boosting deliveries by 30 per week, what would happen to deliveries if the restaurant hired all three of the applicants?
the rate of delivery would increase by less than 90 per week since there will be diminishing marginal product of labor.
The quantity theory of money assumes that: If the growth rate of money supply is larger than the growth rate of real GDP, the inflation rate is Are the predictions of the quantity theory of money borne out by historical data?
the ratio of money supply to nominal GDP is exactly constant positive Yes, the long-run data show a one-for-one growth rate of money supply and inflation
Which of these groups is included in the labor force? -The unemployed -Retirees, homemakers, and full-time students -People in mental hospitals and prison
the unemployed
Unemployment statistics are measured and released by the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor. The BLS officially classifies a person as being employed if: Potential workers are classified as being unemployed when: The equation for the labor force participation rate is defined as:
they work a full-time or a part time job they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work 100%x(unemployment/labor force)
The natural rate of unemployment is the __________.
unemployment rate that results when the economy produces the potential level of real GDP
If the minimum wage is set above the market-determined clearing wage, the __________.
unemployment rate will be higher than it would be without a minimum wage
Firms should hire workers until the ____________.
value of the marginal product of labor is at least as great as the wage paid.
The inflation-adjusted purchasing power of the originally borrowed dollar is subtracted from the amount a borrower repays in a year on a one-dollar loan. The result is the ____________.
inflation-adjusted cost of the loan. real interest rate. real price of the loan.
If nominal GDP for 2017 is $60 trillion and real GDP for 2017 is $46 trillion, then the GDP deflator for 2017 is
GDP price deflator = (nominal GDP ÷ real GDP) x 100 =130.43
During exponential growth, real GDP increases at a(n) ___________growth rate
almost constant
The Industrial Revolution was a ___________ process
gradual and systemic
The old Soviet Union devoted enormous resources exclusively to increasing its physical capital stock, and yet eventually the increase in the country's real GDP came to an end. Based on the discussion in the chapter, explain why this was inevitable.
in the absence of technological innovation, massive capital investments yielded diminishing marginal returns.
The real wage is the ____________
inflation-adjusted wage
Factors of production are the
inputs used to produce other goods and services in an economy.
Catch-up growth is the ____________. Sustained growth is the ____________.
process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations. process where GDP per capita grows at a positive and relatively steady rate for long periods of time.
Economic growth is ____________. Over the past 200 years, the U.S. economy has shown ____________
the increase in income (GDP) per capita of an economy. an increase in income per capita, albeit not an entirely steady one.
The nominal interest rate will be less than the real interest rate when
the rate of inflation is negative
You lend $5,000 to a friend for one year at a nominal interest rate of 10%. Inflation during that year is 5%. As a result, you will receive ________ at the end of the year, but that money has a purchasing power of ________.
-5500 -5250
If nominal GDP increases, what might be the cause of this increase?
-An Increase In real GDP -An Increase In Price Level
What are the costs associated with inflation?
-Uncertainty about the aggregate price level, which can distort prices and make planning difficult. -Logistical costs related to the need to frequently change prices. -Unproductive policies such as price controls, which may be due to voter dissatisfaction.
Predict the effect of the following Factors: 1. An improvement in transportation facilities. 2.A decreased investment in infrastructure. 3.An increase in brain drain in a nation. 4. The use of advanced technology.
1. Increase in GDP 2.Decrease in GDP 3.Decrease in GDP 4.Increase in GDP
Which of the following would be excluded when calculating the Consumer Price Index (CPI) but included when calculating the GDP deflator? A. An ambulance B. Condos C. Sofas D. Japanese laptops
A. An ambulance An ambulance is something a household would not purchase, so it would not be included when calculating the CPI. As a local government purchase, it would be included when calculating the GDP deflator.
One example of a technological advancement that has improved lives globally is A. patent protection. B. the advent of gasoline engines. C. The drastic improvement in wireless communications.
C
Which of these terms refers to the accumulated knowledge and skills workers acquire from education, training and life experiences? A.Physical capital B.Financial capital C.Human capital
Human Capital
Human capital is Physical capital is Technology is
Human Capital is each person's stock of skills to produce output or economic value Physical capital is any good, including machines and buildings, used for production Technology is the ability to use labor and capital more efficiently
How is the aggregate production function expressed?
Y = F(K,H). where Y stands for real GDP, K is capital stock, and H is efficiency units of labor.
Suppose that at the beginning of a loan contract, the real interest rate is 4% and expected inflation is currently 6%. If actual inflation turns out to be 7% over the loan contract period, then
borrowers gain 1%
Which of the following statements regarding the aggregate production function are not true? A. It describes the relationship between the aggregate GDP of a nation and its factors of production. B. It brings out the reasons behind productivity differences across countries. C. It helps to understand the composition of GDP and various production techniques. D. It aggregates the production of a few commodities in an economy.
c&d
The Industrial Revolution was a series of technological advances, innovations and their implementation in the production process that started
late 1700s in Britan
GDP at purchasing power parity (PPP) takes into account variations in: PPP attempts to work out how much currency will be needed to buy-----quantity of goods and services in different countries. GDP per capita in PPP is the most useful for comparing
living costs same living standards
When technology improves, holding all else constant, an economy can produce ___________.
more outputs with the same amount of input--gdp will increase
Economists refer to any machinery, buildings, or tools used in the production process as
physical capital
Productivity varies across countries because of differences in ____________.
physical capital, human capital, and technology
The nominal interest rate equals the real interest rate ________ the inflation rate.
plus
The total number of workers in an economy is a ____indicator of how much total output can be produced, because____
poor; there are big differences in human capital across work
Exponential growth is the ____________.
process by which new growth builds on past growth, leading to a (roughly) constant growth rate.
Efficiency of production is a component of technology that refers to the ability of an economy to
produce the highest level of output at a given cost given existing resources and knowledge.
One way to make accurate country comparisons about per capita GDP is to compare relative costs using;
purchasing power parity (is a measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries' currencies)
Because the focus of long-run economic growth is on the standard of living of the average person, we measure the standard of living in terms of
real GDP per capita
What is the correlation between income per capita and welfare measures like absolute poverty and life expectancy? What does this correlation suggest about real income per capita as a measure of welfare?
strong positive connection Real income per capita is a reliable—though not perfect indicator of human welfare within and across countries
Which of these will ensure that an economy experiences sustained economic growth?
technological change
The ability to produce more output without using any more inputs is due to
technological progress
The country of Sylvania produces and consumes only three goods: Red Bull, pizza, and T-shirts. The quantity produced and price of each good in 2011 and 2012 are given in the following table: 2011----------------2012 Quan--Price Quan--Price T-Shirts: 100--$25 120--$25 Red Bull Cans: 480--$2 480--$3 Pizza Slices: 1040--$3 960--$6 Nominal GDP in 2011 was ---? and nominal GDP in 2012 was ---? If 2011 is the base year, real GDP in 2011 was ---- and real GDP in 2012 was -- Based on your answer above, the percentage change in real GDP between 2011 and 2012 was
GDP = private consumption + gross investment + government investment + government spending + (exports - imports). Nominal: 6580--10200 Real GDP for any year is found by multiplying the base year price (PBasei) times quantity for each product and then summing across all products: Real GDP= (PBase1×Q1) + (PBase2×Q2).... where n is the number of final products in the economy. Real:6580--6840 The percentage change in real GDP from time t−1 to time t is found using: (RGDPt−RGDPt−1/RGDPt−1)×100 % Change= 3.95%
difference between CPI and GDP deflator
GDP deflator -- all items in domestic production, includes more than just consumer goods like bought by government/firms, BROADER MEASURE OF INFLATION CPI -- based on market basket of goods that are bought consumers, some goods produced abroad, MEASURE OF INFLATION OF ONLY CONSUMER GOODS
Given the following information, what is the growth rate of nominal GDP? Y0 real GDP = $1000 (in millions) Y1 real GDP = $1100 (in millions) Y0 price level = 110 Y1 price level =115
Growth rate of nominal GDP = 4.55%+10.00%=14.55% /The formula for the growth rate of nominal GDP is Growth rate of nominal GDP = Growth rate of prices + Growth rate of real GDP So, to calculate the growth rate of nominal GDP, you must first calculate the other growth rates. To calculate growth rates as a percentage, you use the followingformula: 100× X1−X0/X0 Using this formula, the growth rate of prices is 100×115−110110=4.55% and the growth rate of real GDP is 100×$1100−$1000$1000=10.00%. Then, add these two rates together to get the growth rate of nominal GDP
Inflation is the ____________.
Growth rate of the overall price level in the economy
When it comes to raising the standard of living in a country, how important is the growth rate of real GDP?
Growth rates in real GDP are very important because a small difference in growth can have a large impact in the standard of living over a period of time.
Consider a $100 increase in GDP per capita. In 2012, Niger had a GDP per capita of approximately $800, and the United States had a GDP per capita of $50,700. Calculate the corresponding growth rates for these two countries. Niger's growth rate is nothing percent, and the U.S. growth rate is nothing percent
Growth= Yt-y1/yt 12.5% and .20%
Which equation correctly describes how total efficiency units of labor are calculated?
H=Lxh (L = total number of workers in the economy and h = the average efficiency (human capital) of workers)
n 1968, Paul Ehrlich, a Stanford University professor, claimed that overpopulation would lead to famines and starvation in the 1970s and 1980s. In his book The Population Bomb, he said that unless population growth was curbed, millions around the world would die. However, as we now know, this did not happen. What do you think was the flaw in Ehrlich's argument?
He did not account for the role technology would play in increasing food supply
Give an intuitive explanation of the concept of "efficiency of production." Efficiency of production is the ability of the economy to produce... Why is efficiency of production so important to real GDP?
the maximal amount of output at a given cost or for given amounts of the factors of production. higher efficiency translates into higher efficiency for workers
One factor that may help explain why some countries are more productively efficient than others is;
the presence of more entrepreneurs in efficient economies
What is the rate of growth that occurred if a country's GDP grew from $1.43 trillion in 2012 to $1.51 trillion in 2013?
5.59% 1.51-1.43=.08 (.08/1.43)x100= 5.59%
Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?
8%
Which of the following individuals would be most negatively affected by anticipated inflation? A. a retired railroad engineer who receives a fixed income payment every month B. a full−time employee at a pizza parlor who makes more than the minimum wage C. a union contractor whose pay is adjusted based on changes in the CPI D. a student who borrows $10,000 at a nominal interest rate of 5% to finance educational expenses
A
Suppose there is a job opening at Galaxy Solutions for the position of a financial correspondent. Samantha, a recent post-graduate in physics, and Alice, who has an MBA in finance, apply for it. For this position, Galaxy Solutions is more likely to select------because she holds ---- Galaxy Solutions' -----includes its office infrastructure. Galaxy Solutions' competitor, Ruby Ltd. discovers certain practices that enable more efficient use of labor and capital, about which Galaxy Solutions has no idea. In this case, which of the following statements is true?
Alice--Human Capital Physical capital Ruby has higher productivity
The role of technological progress in determining economic growth can be described by which statement? A. Technological progress will be beneficial only if the population also grows. B. Per capita output will rise when we discover new and more effective uses of capital and labor. C. Technological progress does not cause real GDP to rise, rather it shifts what goods the economy makes.
B
Which of these is most likely to increase productivity? A. Higher corporate tax rates B. Investments in research and development C. Increase in population
B.
Suppose that in 2018, all prices in the economy double and that all wages and salaries also double. In 2018 you are...
No better or worse off then you were in 2017 since the purchasing power of your salary remains the same
You read a newspaper report that compares wages paid to employees at Starbucks in India and in the United Kingdom. At the time, 1 pound was equal to 87 rupees. The report says that Starbucks baristas in India are paid a mere 56 pence anhour, which is lower than the cheapest coffee that Starbucks sells in the United Kingdom. A friend of yours who read the report is appalled by this information and thinks that Starbucks ought to raise its salaries substantially in India. Is your friend necessarily correct?
No, the flaw in the report is that it converts the wages paid in India to pounds using the current exchange rate, but does not account for the cost of living (or the prices of goods) in India.
Holding all else equal, will increasing the efficiency units of labor lead to sustained growth? Why?
Not likely, because each individual has a finite life and there is a limit to the number of years of schooling that an individual can obtain.
However, the BLS gives housing a more significant weight than medical care. More specifically, the BLS weights housing at 41.3% while medical care is weighted at only 6.6%. Consumer Price Index Increase Housing=54.5 Medical=104.7 Complete the following table to show the contribution each of the increases recorded above actually make to the overall CPI. Consumer Price Index Contributions Housing=? Medical=?
The contribution a category index change makes to the overall CPI is simply the change in the category index "times" the category weight. (remember to change percent to decimal before multiplying) housing= 54.5 x .413 medical=104.7 x .066 Housing=22.5 Medical=6.9
Which of the following are possible benefits of inflation? A. There may be a reduction in real wages. B. Revenue is generated to the government when it prints money. C. There may be a reduction in the real interest rate. D. The introduction of price controls could make goods more affordable. E. There are no benefits to inflation.
a, b, & c
The aggregate production function describes the relationship between the
aggregate GDP of a nation and its factors of production
Which of these statements about the benefits of economic growth is true? A. Economic growth assures full employment. B. Economic growth can help people at all income levels. C. Economic growth will eliminate poverty.
b
Suppose that from period 1 to period 2, the unemployment rate in the economy increases. Everything else remains unchanged. The total efficiency units of labor will ----- because------ What are the consequences of this increase in unemployment for GDP? What are the consequences of this decrease in real GDP for real GDP per capita and real GDP per worker? Suppose that there is technological advance from period 1 to period 2 but, at the same time, a decrease in the physical capital stock? Can you say whether real GDP will increase or decrease?
decrease, because less workers are employed Y1>Y2 both of these items will decrease Not really, since the two items have offsetting effects.
There is a natural limit to economic growth from capital deepening (i.e. increases in the capital per worker ratio) due to:
diminishing returns
As the wage increases, the demand for labor curve:
does not shift, but the quantity demanded for labor decreases
Countries that desire to increase output and overall standards of living can provide incentives by;
encouraging R&D through tax credits
The short-term unemployment that arises from workers, in the process of changing jobs, is called __________.
frictional unemployment
Economic growth will often result in;
greater income inequality
Knowledge encompasses improvements in capital stock and also additions to;
human capital
Labor productivity can be increased through investments in?
human capital
Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. In the second approach, you also convert both values to U.S. dollars using the purchasing power parity-adjusted exchange rate. Which approach is likely to give you a more accurate picture of the living standards in both countries?
the second approach because it takes into account the relative costs for each country
What is the key difference between the Consumer Price Index (CPI) and the GDP deflator?
the two indexes measure price changes for different baskets of production
Why is total efficiency units of labor used as an indicator of how much the economy can produce? A decrease in the total efficiency units of labor results from-----in the average efficiency of workers and/or ------in the total number of workers in the economy. Which of the following statements regarding the aggregate production function is true? A. GDP increases by a constant amount for every unit increase in the physical capital stock. B. GDP increases at a decreasing rate for every unit increase in the efficiency units of labor. C. GDP increases at an increasing rate for every unit increase in the physical capital stock. D. GDP decreases by a constant amount for every unit increase in the efficiency units of labor.
there exists differences in workers' human capital decrease--decrease B
Is real income per capita more relevant in understanding differences in international living standards than real income per worker?
yes at it conveys the conditions of the whole population including children and elderly
On May 22, 2013, ForbesLOADING... magazine reported that Bill Gates had overtaken Mexican businessman Carlos Slim as the "richest man in the world." Gates's fortune on that date was estimated at $70 billion, whereas Slim's was a mere $69.86 billion. But does this make Gates the richest American who ever lived? John D. Rockefeller, the founder of Standard Oil, is usually credited with this distinction. At the time of his death in 1937, the founder of the Standard Oil empire, had an estimated net worth of $1.4 billion. The following table has data from the Bureau of Labor Statistics (BLS) for the consumer price index (CPI-U; 1982-84 = 100) for 1937 and 2012 along with Gates's estimated 2012 net worth. Year. CPI-U. Bill Gates Net Worth 1937. 14.4. --- 2012. 229.6 $70.0 Using the data above, Bill Gates's net worth measured in 1937 dollars is -----
Value in 1937 dollars= (Price index in 1937 / Price index in 2012) ×Value in 2012 dollars =$4.39. billion
