Macroeconomics Test 2

If personal consumption = $100, investment = $25,government purchases = $25, imports = $20, and exports = $10, then GDP=

$140 (100 + 25 + 25 + [10-20])

Last year, Megan's salary was $65,000. The CPI increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be?

$68,578 (115/109 x 65,000)

According to the table, what is this country's net exports?

-$35 (40-75)

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the:

circular flow diagram.

The natural rate of employment:

is the employment rate where the economy is producing at the optimal level of output.

Full employment, as defined by this book:

is the natural rate of unemployment.

Inflation has significant long-run effects on the economy in that:

it reduces the standard of living

If a country increased its saving rate,

its current consumption would have to fall, and its future consumption possibilities will rise (both a and d will occur)

In the long run, the most important determinant of a nation's standard of living is

its rate of productivity growth

In a country that has an unstable government or judiciary, would you expect to see more entrepreneurial activity, or less?

less, because of an unreliable infrastructure for protecting property rights

A price index:

measures changes in the prices of a particular bundle of goods and services from one period to another

An economic policymaker discovers that structural unemployment has been rising relative to the other types of unemployment. She should recommend:

more funding for jobs retraining to get workers into growing industries.

French perfume that is purchased in the United States is accounted for in which expenditure category of U.S. GDP?

net exports

Nominal GDP differs from real GDP in that

nominal GDP is measured in current year prices, while real GDP is measured in base year prices

How much the economy can produce at its natural rate of output depends on

technology, the quantity of available natural resources, the productivity of labor, and the stock of available capital (All of the above)

High rates of saving and investment in a country

tend to increase economic growth but do not guarantee it, will result in greater economic growth if they are accompanied by advances in technology than if they are not, or will result in greater economic growth if they are accompanied by more investment in human capital than if they are not. (will result in all of the above except a)

In the United States, our principal measure of inflation is:

the CPI

Measures of employment and prices have been estimated on a monthly basis only since:

the Great Depression

Other things being equal, the higher the rate of savings across countries,

the higher the rate of change of real GDP per capita

The standard of living will decline if

the rate of population growth exceeds the rate of growth of real GDP

The nation's gross domestic product (GDP) is equal to:

the total market value of all final goods and services produced by resources in the United States.

The labor force is defined as:

the total number of those employed and unemployed.

In the Great Depression, ______ out of ______ people in the labor force had jobs.

three; four

Which of the following is not considered a factor payment?

transfer payments

Which of the following is not included in government purchases?

transfer payments

The CPI does not include which of the following items?

property taxes

Economic growth is usually measured by the annual percent change in

real GDP per capita

Economists typically measure economic growth by tracking

real GDP per capita

Which phase of the business cycle occurs immediately before a trough?

recession

An economy's production possibilities curve will shift outward over time if

technological progress occurs, or the productivity of labor increases (either a or d)

Economic growth tends to be greater in countries where

the government effectively protects property rights, more resources are devoted to research and development, there is greater freedom to trade freely (any of the above is true)

The unemployment rate is:

the number of unemployed divided by the labor force.

An example of an intermediate product is

the purchase of tires by Ford Motor Company to put on its Ford Explorers, the purchase of wood by a home construction firm, the purchase of leather by a shoe manufacturer. (All of the above)

Scott has a Ph.D. in sociology and drives a taxicab for a living. Scott is categorized as:

underemployed

Business cycles

vary in duration and intensity

If the labor force is 20 million and the total employed is 18 million,what is the unemployment rate?

10%

The nation of Workovia has a population of 15 million, of which 10 million are in the labor force and 9 million are working. Workovia's unemployment rate is:

10%

Suppose the market basket of goods costs $10,000 in 1999, the reference or base period, and that same basket of goods now costs $11,200. What is the CPI for today?

112.0 (11,200/10,000 x 100)

Suppose the Bureau of Labor Statistics collects the data presented in the following table: Year Cost of Basket 2007 $200 2008 $230 2009 $250 If 2007 is the base year, then the CPI for 2009 is:

125

(Table) According to the table, what is the unemployment rate of this economy?

14.3%

(Table) According to the table, if 50 discouraged workers suddenly decide to start actively seeking employment again, what will be the unemployment rate of this economy?

25%

(Table) According to the table, what is the labor force of this economy?

350

Last year the CPI was 115 and this year's CPI is 125. The rate of inflation is:

8.7% (125-115/109 x 100)

_____ is a decline in overall prices throughout the economy (the opposite of inflation).

Deflation

A limited resource base is no obstacle to economic growth.

False

"Jobless recovery" was a recent phenomenon during the recession of 2001 because the early rate of employment increase was well below average for past recoveries.

True

Along the production possibilities curve, the economy is producing at its potential output, sometimes called its natural level of output.

True

An increase in labor input does not necessarily increase output per capita.

True

Economic growth is a complex process involving many important factors, no one of which completely dominates.

True

Education is both a consequence of economic growth and a cause of economic growth.

True

Fixed investments include all spending on capital goods as well as on residential construction.

True

Free-trade policies will tend to increase the value of total output in an economy.

True

Greater stocks of land, labor, or capital can shift the production possibilities curve outward.

True

Human welfare is greatly influenced by long-term changes in a nation's capacity to produce goods and services.

True

If we counted the value of intermediate goods as well as the full value of the final products in GDP, we would be double counting.

True

In boom periods, expenditures on consumer durables often increase more than expenditures on nondurables.

True

Personal consumption expenditures are goods and services purchased by residents of the United States.

True

Technological advances involve both invention and innovation.

True

Technological advances, even without any change in the quantity or quality of the labor resources used, tend to lead to economic growth.

True

Trade can make economies more productive, even if individual enterprises don't become more efficient.

True

Which is a primary goal of macroeconomic policy?

achieving low inflation

Included in the investment category under the expenditure approach to GDP accounting is (are)

additions to inventory, machines and tools, and newly constructed residential housing (All of the above)

Gross domestic product is a measure of:

an economy's total output.

Reduced levels of illiteracy

are, in part, both a cause of economic growth and caused by economic growth

What is an example of a final good?

bacon purchased at a grocery store

Alternating increases and decreases in economic activity are known as:

business cycles

Investment in human capital

can be acquired through on-the-job training, and is an important source of economic growth (is characterized by both b and c)

Marge got a 5% raise while the rate of inflation was 6%. Marge's standard of living:

fell by about 1%

GDP is calculated including

final products but not intermediate products

Investment includes

fixed investment plus additions to business inventories

A primary goal of macroeconomic policy is to achieve:

full employment

Which of the following is considered a factor that contributes to economic growth?

government protection of property rights, increased specialization of labor, research and development, improved efficiencies through economies of scale (all of the above)

The total market value of all final goods and services produced by resources in the United States is called:

gross domestic product

Which of the following benefits from an unanticipated rise in the inflation rate?

homeowners with fixed-rate mortgages

Other things equal, if a recession gets worse, the number of discouraged workers __________ and the number of those in the labor force _____________.

increases; decreases

The main reason why people were unemployed in the United States in 2009 was because they:

lost their job

Total spending in an economy is the sum of:

personal consumption + gross private investment + government + net exports (exports minus imports)

_____ unemployment is most easily reduced by public policy measures.

Cyclical

_____ unemployment is the result of changes in the business cycle.

Cyclical

Natural unemployment occurs when:

cyclical unemployment is zero

According to the table, what is this country's GDP?

$1,365 (900 + 300 + 200 + [40-75])

If the United States imported $1.5 billion worth of goods and services and sold $2.9 billion worth of goods and services outside its borders, net exports would equal

$1.4 billion

Which of the following statements is incorrect?

Economic growth rates tend to be lower in countries where property rights are better enforced by government

A recession is always followed by a depression.

False

Both the initial development process and the sustained growth of an economy are dependent on a large natural resource base.

False

Economic growth is usually measured by the annual percent change in the nominal output of goods and services per capita.

False

Following the expenditure method, GDP = C + I + G + X.

False

If the quantity of physical capital in a country increases at the same time that the quantity or quality of labor resources used falls, that country would experience economic growth as a result.

False

Macroeconomics studies economic activity from the level of one individual or firm.

False

The correlation between per capita output and the proportion of the population that is unable to read and write is small.

False

The distinction between whether a good is durable or nondurable is clear and easy to apply.

False

_____ unemployment includes workers who voluntarily quit their jobs to search for better positions.

Frictional

The event that stimulated the U.S. government's commitment to tracking the economy's health through a national income accounting system was the:

Great Depression.

Which of the following statements is correct?

Households supply both labor and non-labor resources.

Which organization dates business cycles?

National Bureau of Economic Research

Personal consumption expenditures are over 70% of GDP, while gross private domestic investments are nearly 11% of GDP.

Personal consumption expenditures; gross private domestic investments

Which is an example of hyperinflation?

Prices rise by 250% per year

Macroeconomics focuses on issues such as economic growth, the output of the entire economy, and inflation rates.

True

One of the most important determinants of economic growth is the saving rate.

True

Which of the following is not included in the calculated gross domestic product?

a construction firm's purchase of lumber to build a four-bedroom home

Which of the following would be included in the GDP calculations?

a hamburger purchase by a hungry restaurant patron

Disposable income is

a measure of the income households have to spend after paying taxes

Economists define inflation as:

a sustained increase in the general price level

Which group is helped by inflation?

debtors

A decrease in the price level is known as:

deflation

From 1999 to 2002, the Japanese inflation rates were, respectively, -0.3%, -0.6%, -0.7%, and -0.7%. During this time, the Japanese economy experienced:

deflation

If the cost of a typical market basket in 2018 is 400, the cost of a typical market basket in 2019 is 410, and the cost of a typical market basket in 2020 is 415, then the economy is experiencing:

disinflation

Which category of consumption spending tends to be the most unstable over the business cycle?

durable consumer goods

A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle in order are

expansion, peak, contraction, and trough

We can be certain that net exports fall if

exports fall and imports rise

Net exports are

exports minus imports.

An increase of the inflation rate from 10% to 100% is called:

hyperinflation

Per capita real output would tend to rise, other things being equal,

if the labor force participation rate in the country rose

Which one of the following will cause the production possibilities curve to shift outward?

improved public education, improved health care systems and larger budgets for research, development, and exploration (All of the above)

The unemployment rate:

is one of the most important statistics for policymakers.

The contractionary phase of the business cycle is characterized by

reduced output and increased unemployment

GDP can be found either by adding up all of the spending or all of the income in the economy

spending; income

Disposable personal income can be either spent or saved.

spent; saved

As a result of ______ unemployment, workers' jobs may become obsolete, and they will need additional training to find new jobs.

structural

Due to the invention of the ATMs, many bank tellers lost their jobs. This is an example of:

structural unemployment

In the income approach to measuring GDP, factor payments do not include

wages and salaries for the use of labor services, rent for land, interest payments for the use of capital goods, or profits for entrepreneurs (All of the above)

Frictional unemployment is unemployment due to:

workers moving between jobs

To be in the labor force, all of the following must be true except:

you can be retired