Macroeconomics Exam 1

Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Which individual(s) would be included in the calculation of the natural unemployment rate? a) Mollie only b) George only c) Mollie and Jeanette d) George and Ricardo

c

Nominal GDP differs from real GDP because ___________. a) nominal GDP is based on constant prices b) real GDP Is based on current prices c) real GDP results from adjusting for changes in the price level d) nominal GDP results from adjusting for changes in the price level

c

Recently a teachers' union argued that the standard of living of teachers working for the school district was falling. The negotiating team for the school board replied that this was not true because the teachers had received significant increases in nominal income through collective bargaining. Could the union statement be correct? a) No, because real income may rise if price increases are proportionately greater than the increases in nominal income. b) Yes, because real income may fall if price increases are proportionately smaller than the increases in nominal income. c) Yes, because real income may fall if price increases are proportionately greater than the increases in nominal income. d) No, because real income may rise if price increases are proportionately greater than declines in nominal income.

c

"Full employment" refers to the situation when there is a) 100% employment of the labor force b) a 0% unemployment rate c) no frictional or structural unemployment d) no cyclical unemployment

d

Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as: a) structurally unemployed b) frictionally unemployed c) not in the labor force d) employed

d

For a person to keep his real income steady at a certain level from one year to the next, his nominal income must a) rise if the price index falls b) stay the same as the price index rises c) fall if the price index rises d) rise as fast as the price index

d

Full-time homemakers and retirees are classified in the BLS data as a) employed b) unemployed c) part of the labor force d) not in the labor force

d

GDP excludes most non market transactions. Therefore, GDP tends to _________. a) underestimate the rate of inflation in the economy b) overestimate the rate of inflation in the economy c) overestimate the amount of production of the economy d) underestimate the amount f production in the economy

d

Part-time workers who want full-time work are counted as a) unemployed and therefore the official unemployment rate may overstate the level of unemployment b) unemployed and therefore the official unemployment rate may understate the level of unemployment c) fully employed and therefore the official unemployment rate may overstate the level of unemployment d) fully employed and therefore the official unemployment rate may understate the level of unemployment

d

nominal GDP is the measure of an economy by adding expenditures of all final goods and services in a given year. True or False?

True

Real income will rise from one year to the next if nominal income a) falls and the price level falls faster. b) rises and the price level rises faster c) falls and the price level rises d) fall faster than the price level

a

Use the following table to answer the next question. The following national income data for an economy is in billions of dollars. Consumption: $5,100 Investment: $1,100 Transfer payments: $1,050 Government purchases: $1,400 Exports: $850 Imports: $950 Net foreign factor income: $20 What are the net exports for this economy? a) -$100 billion b) $100 billion c) $850 billion d) $950 billion

a

Which measure of inflation would include consumer goods and capital goods? a) the GDP Price Index b) the Consumer Price Index c) the Retail Trade Survey d) the Employment Cost Index

a

A nation has a population of 260 million people. Of these, 60 million are retired, in the military, institutionalized, or under 16 years old. There are 188 million who are employed and 12 million who are unemployed. What is the unemployment rate? a) 4% b) 6% c) 9% d) 27%

b

A person's real income will increase by 3% if her nominal income increases by a) 5% while the price index falls by 2% b) 5% while the price index rises by 2% c) 2% while the price index rises by 5% d) 2% while the price index falls by 5%

b

Answer the next question on the basis of the following information about the hypothetical economy of Asland. All figured are in millions. Unemployed 7 Total population 145 Employed 95 Discouraged Workers 3 The labor force in Asland is a) 95 million b) 102 million c) 105 million d) 145 million

b

If labor market institutions change so that it becomes easier to find a job, and unemployed people are unemployed for smaller durations of time, what would happen to the natural rate of unemployment? a) it would increase b) it would decrease c) it would remain the same, since the number of workers has not changed d) there is not enough information to determine what would happen

b

In calculating the unemployment rate, part-time workers are a) counted as unemployed because they are not working full-time. b) counted as employed because they are receiving payment for work c) used to determine the size of the labor force, but not the unemployment rate d) treated the same as "discouraged" workers who are not actively seeking employment.

b

Suppose the total monetary value of all final goods and services produced in a particular country during 2010 is $500 billion, and the total monetary value of final goods and services sold is $450 billion. We can conclude that _____. a) nominal GDP in 2010 is $450 billion b) nominal GDP in 2010 is $500 billion c) real GDP in 2010 is $450 billion d) inventories in 2010 fell by $50 billion

b

Use the following table to answer the next question. The following national income data for an economy is in billions of dollars. Consumption: $5,100 Investment: $1,100 Transfer payments: $1,050 Government purchases: $1,400 Exports: $850 Imports: $950 Net foreign factor income: $20 GDP for this economy is _______. a) $6,400 billion b) $7,500 billion c) $9,400 billion d) $10,470 billion

b

Use the following table to answer the question below. GDP figures are in billions of dollars. Year | Nom. GDP | Real GDP | P.I. 1 5,200 4,800 -- 2 5,500 -- 112 3 5,750 5,000 -- What is the GDP price index in year 1? a) 105.2 b) 108.3 c) 109.6 d) 111.5

b

Which phase of the business cycle would be most closely associated with an economic contraction? a) peak b) recession c) trough d) recovery

b

A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment? a) structural b) cyclical c) frictional d) natural

c

Use the following table to answer the next question. Year | Real GDP | Population 2008 $20,000 200 2009 $40,000 400 2010 $60,000 400 2011 $70,000 500 Real GDP per capita is highest in which year?

2010

real GDP measures constant dollar value produced in a country during a fixed time period. True or False?

True

Answer the question below based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Year Units of Output Price/Unit 1 8 $2 2 10 $3 3 15 $4 4 18 $5 5 20 $6 If year 2 is the base year, the Consumer Price Index for year 5 is a) 200 b) 150 c) 100 d) 50

a

For a given amount of nominal income, the real income will a) fall if the price level rises b) fall if the price level falls c) be unaffected if the price level falls d) rise as the price level rises

a

A GDP price index of 130 in year 2 means that __________. a) prices in year 2 are on average 130% higher than in the base year b) prices in year 2 are on average 13 times that in the base year c) prices in year 2 are on average 30% higher than in the base year d) nominal GDP is 130% higher than real GDP in year 2

c

Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Which individual is frictionally unemployed? a) Mollie b) George c) Jeanette d) Ricardo

a

Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would a) decline b) increase c) increase in the short run but eventually decline d) be unchanged

a

The service a homeowner performs when she mows her yard is not included in GDP because _____. a) this is a non market transaction b) this is anon production activity c) this is a non-investment transaction d) multiple counting would be involved

a

Use the following table to answer the next question. Year. 1 2 3 4 5 6 Price Index 100 95 105 125 125 120 If output increases by 8% from year 5 to year 6, then in that period _____. a) real GDP will rise faster than nominal GDP b) real GDP will rise slower than nominal GDP c) nominal GDP will decrease d) real GDP will decrease

a

Answer the next question on the basis of the following information about a hypothetical economy. Full-time employed = 80 Part-time employed = 25 Unemployed = 15 Discouraged workers = 5 Members of underground economy = 6 Consumer price index = 110 The unemployment rate is a) 18.8% b) 12.5% c) 16.7% d) 25%

b

If the Consumer Price was 170 in one year and 180 in the next year, then the rate of inflation is approximately a) 5.5% b) 5.9% c) 6.3% d) 7.2%

b

If the average level of nominal income in a nation is $44,000 and the Consumer Price Index is 175, the average real income would be about a) $18,857 b) $25,143 c) $44,000 d) $77,000

b

Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Which individual is cyclically unemployed? a) Mollie b) George c) Jeanette d) Ricardo

b

Official unemployment statistics a) understate unemployment because individuals receiving unemployment compensation are counted as employed b) understate unemployment because discouraged workers are not counted as unemployed c) include cyclical and structural unemployment and not frictional unemployment d) overstate unemployment because workers who are involuntarily working part time are counted as being employed.

b

Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because a) cycles include a trough phase while fluctuations do not. b) cycles imply regularity while fluctuations do not c) fluctuations include an expansion phase while cycles do not d) fluctuations are relatively predictable events

b

Suppose Canada has a population of 30 million people and a labor force participation rate of 2/3. Furthermore, suppose the natural rate of unemployment in Canada is 7%. If the current number of unemployed people is 1.4 million people, what can we conclude about Canada's economy? a) the unemployment rate is above the natural rate of unemployment b) There is no cyclical unemployment present in the economy c) the unemployment rate is below the natural rate of unemployment d) there is cyclical unemployment present in the economy

b

The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is a) 6 million b) 9 million c) 12 million d) 24 million

b

a worker would be hurt least by inflation when the a) worker anticipates inflation and increases savings at the bank b) worker is protected by a cost-living adjustment clause in an employment contract c) worker is protected by fixed annual increases in wages and benefits in an employment contract d) government increases the level of social security retirement benefits to correct for the effects of expected inflation

b

Answer the next question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Year | Units of output | Price / Unit 1 8 $2 2 10 $3 3 15 $4 4 18 $5 5 20 $6 If year 2 is the base year, then the percentage increase in real GDP from year 2 to year 4 is __________. a) 40% b) 50% c) 80% d) 100%

c

Assume that the real GDP of a developing nation increases from $120 billion to $140 billion while its population expands from 100 to 110 million. As a result, real GDP per capita has increased by about ________. a) $56 per person b) $64 per person c) $72 per person d) $88 per person

c

Consider the following data for a nation. Year | Nominal GDP | Price Index 1 $35 90 2 $40 100 3 $45 110 4 $48 120 5 $56 140 The country's real GDP declined between years. a) 1 and 2 b) 2 and 3 c) 3 and 4 d) 4 and 5

c

GDP does not include which of the following activities? a) business installing anti-pollution equipment. b) households spending to enhance security of their neighborhoods c) couples remodeling their own homes (with their own labor) d) families eating out at restaurants

c

If a country's imports of goods and services exceeds its exports, ______. a) net exports b) GDP exceeds the sum of consumption, investment, and government purchases c) GDP is less than the sum of consumption, investment, and government purchases d) GDP equals the sum of consumption, investment, and government purchases

c

If the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, then the unemployment rate would be a) 4% b) 5% c) 8% d) 10%

c

In year 1, the Consumer Price Index as 120 and the average nominal income was $30,000. In year 2, the Consumer Price Index was 125 and the average nominal level of income was $32,000. What happened to real income from year 1 to year 2? a) it fell by $400 b) it rose by $400 c) it rose by $600 d) it rose by $2,000

c

Kara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is: a) cyclically unemployed b) structurally unemployed c) frictionally unemployed d) not a member of the labor force

c

Kevin has lost his job in an automobile plant because the company switched to robots for its welding step in 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: a) cyclical b) frictional c) structural d) natural

c

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result, the a) official unemployment rate will fall b) official unemployment rate will rise c) official unemployment rate will remain unchanged d) size of the labor force will increase

c

The natural rate of unemployment a) means that the economy will always operate at that rate b) means that the economy will always realize its potential output c) is equal to the total of frictional and structural unemployment d) is a fixed unemployment rate that does not change over time

c

The purchase of a computer by a person for household use would be counted in what category of GDP? a) The purchase is counted as consumption if the computer was manufactured in the United States; otherwise, it is ignored. b) The purchase is included as part of investment c) The purchase is always counted as consumption d) The purchase is not included in GDP at all, but the value of services the computer gives is included in consumption each year.

c

Use the following table to answer the next question. GDP figures are in billions of dollars. Year | Nom. GDP | Real GDP | P.I. 1 5,200 4,800 -- 2 5,500 -- 112 3 5,750 5,000 -- What was the real GDP in year 2? a) $4,820 billion b) $4,875 billion c) $4,911 billion d) $5,320 billion

c

Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unexpected inflation occurs in the economy, then a) both lenders and borrowers benefit b) both lenders and borrowers are hurt c) borrowers are hurt, but lenders benefit d) lenders are hurt, but borrowers benefit

d

Consumers in an economy buy only three general types of products, A, B, and C. Changes in the prices of these items over a period are shown below. Product Quantity $ Yr 1 $ Yr 2 A 10 $10 $8 B 15 $20 $22 C 8 $50 $55 Using year 1 as the base year, the country's Consumer Price Index in year 2 is a) 100.00 b) 103.75 c) 105.25 d) 106.25

d

Consumers in an economy buy only three general types of products: A, B, and C. Changes in the prices of these items over a period are shown below: Avg. Price Product | Quantity | Year 1 | Year 2 A 10 $10 $8 B 15 20 22 C 8 50 55 Using year 1 as the base year, the country's price index in year 2 is ________. a) 100.0 b) 103.9 c) 105.2 d) 106.3

d

If the actual rate of unemployment is above the natural rate of unemployment, the potential GDP is a) equal to the GDP gap. b) equal to the actual GDP. c) less than the actual GDP. d) greater than actual GDP.

d

Which of the following statements is correct? a) For a given real interest rate, the nominal interest must decrease if expected inflation increases. b) For a given nominal interest rate, the real interest will decrease if inflation decreases c) For a given expected inflation rate, the nominal interest must increase if real interest decreases. d) For a given real interest rate, the nominal interest must increase if expected inflation increases.

d

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6%. But if the rate of inflation was expected to be 4%, the bank would most likely charge the firm an annual interest rate of a) 2% b) 4% c) 6% d) 10%

d