Macroeconomics Exam 2 Review

All U.S states require children to attend school. Mandatory school attendance ends at ages 16-18, depending on the state. The adult literacy rate in North America was 100% in 2016. Describe how compulsory education impacts overall economic growth:

-Enables workers to work with increasingly sophisticated machinery, which boots productivity -Helps workers develop more skills to bring to jobs, which increases an economy's output potential -Develops literacy, which helps workers read and follow instructions, execute orders, and communicate effectively

In what ways does money make trade easier?

-Money enables you to specialize in tasks you are good at, knowing you can earn the money needed to buy the products of other individuals, skilled in different tasks -money eliminates the need to find trading partners who happen to possess what you want and want what you possess -money provides a measuring stick with which to express relative values of goods and services simplifying comparisons

Since the Industrial Revolution, economic growth has increased tremendously. What are some of the outcomes of the economic growth?

-Production and consumption both increased -Average life expectancies increased in industrialized countries

Assume the new plant is not a replacement for other outdated plants, but a brand-new production facility. Since the plant is state-of-the-art, there will be ______ in amount of human capital used in the economy

-an increase

What can you tell about an aggregate production function if real GDP per worker increased by 10% in response to all of the inputs by 10%? The aggregate production function has____ What would you expect to happen if all inputs are doubled? Output Will _____

-constant returns to scale -double

Furthermore, the self-driving cars could ______ opportunities for new businesses, which would have _____ effect

-create -opposite

What are some of the crucial elements that governments must provide to encourage innovation and growth. Government should:

-embrace policies that encourage innovation -establish and maintain a stable society -recognize and guarantee property rights -adopt efficient regulations

A wage above the market equilibrium

-enables the company to increase its profit -may reduce employee turnover rate for the company -will increase the productivity or employees

Assume the new plant is not a replacement for other outdated plants, but a brand-new production facility. Opening a plant like this will ____ the number of people working thereby contributing _____ labor to the aggregate production function

-increase -more

In the US, the richest quintile of the population receives 13 times as much income as the poorest quintile. However, the richest quintile only spend 4 times as much as the poorest quintile. Identify the possible reasons for this stark difference between income inequality and consumption inequality.

-individuals experiencing temporary fluctuations in their incomes are more likely to maintain moderate spending habits -the richest quintile has the ability to save a larger percentage of its income

In 2008, the rate of inflation was 2%, which then rose to 3% in 2009 then falling back to 2% in 2010. During 2008 to 2009 the economy experienced _____ and between 2009 and 2010 _____

-inflation -disinflation

Discussions of inequality often focus on annual income inequality.

-permanent income -wealth -spending -intergenerational mobility

Assume the new plant is not a replacement for other outdated plants, but a brand-new production facility. The plant itself is ______ which will be used in conjunction with ______ to produce output _______

-physical capital -other factors of production -that increases GDP for the U.S

In a rich country like the US, why is investing in physical capital both important and yet unlikely to lead to a large increase in economic growth?

-physical capital depreciates over time -capital is subject to diminishing returns

The long-run unemployment rate is not equal to zero because

-the process of matching workers to jobs is not instantaneous -there are structural impediments preventing wages from falling enough to make the quantities of labor supplied and demanded equal

If Cathy's crepe cart grossed $50,000 in profits in 1980 at a CPI of 200, and grossed $100,000 in profits in 1996 at a CPI of 300, what year had the higher inflation-adjusted income and by how much in 1996 dollars?

1996 by $25,000

Suppose the CPI was 250 in 2013 and 260 in 2014. What is the rate of inflation?

4%

Suppose that in Southlandia, frictional unemployment is 2%, structural unemployment is 3%, and cyclical unemployment is 4%. What is the natural rate of unemployment?

5%

A country has 100 million adults, with 3.5 million of them unemployed, 54 million of them employed, and 42.5 million not in the labor force. What is the unemployment rate (approximately)?

6.1%

___________ would contribute to the number of people experiencing permanent unemployment.

A recession that primarily affects new homeowners

What do you think is likely to happen to each country's GDP per person if they both increase their capital per person by 20%?

Both GDP per person will increase

Which of the following scenarios shows an increase in human capital?

Wendy taking an online statistics course to prepare herself for a PhD program in economics

GDP per capita in the countries of Neverland and Everland are 2,00 and 500, respectively. This suggests that, other things being equal, the returns from capital invest would be:

Greater in Everland

If Joshua is applying for a loan, which will give him the better deal: loan 1, a $1,000 loan at 3% real interest rate with 2% inflation, or loan 2, a $1,000 loan at 6% nominal interest rate with 2% inflation?

Loan 1

If Raheem is applying for a loan, which will give him the better deal: loan 1, a $1,000 loan at 5.6% real interest rate with 2.1% inflation, or loan 2, a $1,000 loan at 4.2% nominal interest rate with 1.1% inflation?

Loan 2

Your friend Owen is in a bit of a pessimist. "The word has 7 billion people," he says. "the population is growing too fast. Soon, there will be a food shortage-especially for people in underdeveloped countries. They are too far behind modern times." Using what you've learned about economic growth, why might Owen be wrong?

Potential for technological progress to increase food production enough to keep pace with population growth

Does a change in the average price of water or a change in the average rent for housing have a bigger impact on the CPI

The bigger impact is from rent for housing. Housing accounts for the largest share of a typical households spending, and rent is the largest expense within the housing category

Why does a small difference in economic growth result in a large difference in wealth over time?

The effect of compounding allows growth to build upon previous growth.

Gas price is unchanged. You can observe to determine that the economy is not experiencing inflation?

The price of gas does not tell you enough about inflation. Inflation is an increase in the average price level , and although gas prices may not have risen, prices of most goods and services may have

Why might developing countries grow faster than developed countries?

They might grow faster because developing countries can enjoy catch-up growth

In the absence of money, trade would require

a double coincidence of wants

The working-age population would NOT include:

a student going to school who is 15 years of age.

If your parents earn about 30% more than the average household, according to studies, how much more or less than the average should you expect to make?

about 15% more than the average household

Once a representative basket has been made, the next step is to assess the _____ that the goods in the basket are bought at.

average prices

New ideas can _____, much like the radio, because one person's use of the good _____ impact another person's use of the good.

be freely shared; doesn't

Both the CPI and the GDP deflator measure changes in the prices of goods and services and tend to change in similar ways over time

changes in the CPI reflect changes in the prices of the goods and services in the fixed basket-and so may overstate inflation. Changes in the GDP deflator, however, reflect changes in the prices all domestically produced goods and services

Increasing human capital, physical capital, and labor by 50% and getting a 50% increase in output implies the economy is operating under:

constant returns to scale.

However, the resources no longer used to product cars ______ be used to produce other items.

could

A generalized decrease in the overall level of prices is called:

deflation.

Identify whether the person in the following scenario is employed, unemployed, underemployed, or not in the labor force. Alec has just graduated college with a degree in chemical engineering and has accepted a job offer to work as an environmental engineer. Alec has a week before he starts his actual work and is currently undergoing company training. In this scenario, Alec would be considered _____.

employed

Jonathan is currently enrolled in college full-time, he works part-time

employed

When constructing the basket for measuring the consumer price index, the Bureau of Labor Statistics must measure what people buy and _____ people buy

how much

The factors that determine whether people will invent new ideas and invest in human or physical capital are referred to as:

incentives.

David, a coworker, just read an article about the "poverty trap" in the US during the lunch break he mentions that it is unfortunate that everyone in poverty is stuck there forever. David's observation is

incorrect because many people experience poverty at some point in their lives, particularly when they are young

Which of the following are true?

inflation is more costly if it is unexpected

In early 2019, The Economist reported that Venezuela's GDP had fallen by 50% over just five years. During the same time period, charges of bribery and corruption were piling up upon members of the government even the president. The negative impact of bribery and corruption on growth is primarily due to the impact on______

investment

When ideas can be easily replicated or borrowed, there is _____ incentive to invest in new projects because _____.

less; any gains from the invention will be shared with imitations

Why is it important to consider more than just annual income when assessing inequality?

living standards and the quality of life encompass more than just current income

The inflation rate measured by the personal consumption expenditure deflator, or PCE deflator, is consistently _____ than inflation measured by the consumer price index because the consumer price index _____ account for substitution bias.

lower; does not

Hyperinflation in Zimbabwe running around changing prices on items daily

menu costs

Although there is more opportunity for a business to expand in a poorer country, rich countries see _____ new business ventures because of less corruption and _____ enforcement of property rights.

more; efficient

Sarah has recently graduated in journalism from a prestigious liberal arts college. While she was attending college, she would volunteer at the local animal shelter. While she was in college, Sarah would have been considered _____.

not a part of the labor force

Identify whether the person in the following scenario is employed, unemployed, underemployed, or not in the labor force. Julie just quit her summer job of picking apples and is now in her second week of college, where she is majoring in econometrics. Julie is going to school full time and does some volunteer work on the side. Julie is currently _____.

not in the labor force

One analyst predicts that self-driving cars will ultimately reduce the number of cars that are produced. She argues that because self-driving cars can drive other people rather than sitting in peoples driveways and garages, the US will need to produce fewer cars. She argues that growth will slow because we are producing a decreasing number of cars each year. Do you agree? Why or Why Not? Producing fewer cars, everything else equal, will ____ economic growth.

reduce

During Germany hyperinflation. Workers were reported to be paid multiple times a day. They would then rush to spend it before it was worthless.

shoe-leather costs

A former typewriter repairman entering the job market in 1998 would have difficulty finding work due to _____, as there is no longer a need for typewriter repairs in the economy.

skills mismatch

The overstating of inflation that occurs because people substitute toward goods whose prices rise by less is defined as:

substitution bias.

The equilibrium unemployment rate is

the long-run unemployment rate to which the economy tends to return over time

Therefore, the ultimate impact self-driving cars would have on economic growth is _____

unclear