Macroeconomics Test #2

Free Trade-> Specialization of production based on _______________ --> increased efficiency of production--> increased supply of goods at lower prices--> increased _________

1. Comparative advantage 2. Standard of living, GDP, Consumption

Name one of the noneconomic costs of unemployment discussed in the text:

1. increase divorce 2. increase depression 3. increase technology 4. weather

What are the three main categories of consumer goods. list them and check which is the largest

1. services 2. non durable 3. durable

Define and give one example of a nondurable Good.

Food, most clothing items. Because they will last less than 3 years.

Assume Smith voluntarily quit his job to look for a job. His form of unemployment is:

Frictional

What is included in NDP?

GDP -Depreciation (consumption of fixed capital) = NDP

GDP gap

GDP- potential output

Nominal income could rise yet real income could fall if the inflation rate were (greater, less) than the rise in nominal income

Greater

What is including in GDP?

Gross Private Domestic Investment (Net investment-depreciation) Net Exports (Exports- Imports) Government Spending Personal Consumption Expenditures =GDP

Depreciation

Gross private domestic investment- Net private domestic investment

What is included in national income knowing NDP?

NDP + Net foreign factor income - Statistical Discrepancy = National Income

Financial account balance

Sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners

taxes on production and imports

Sales, excise, business property taxes, tariffs that fall on corporations

How do you find a price index?

divide the current year price by the base year price

government purchases

does not include transfers

Value added

dollar worth of a product minus the dollar worth of the material bought and used by the firm

Unemployment rate

number of unemployed/ (number employed + number of unemployed)

A nation's gross domestic product: a. is the dollar value of all final output produced within the borders of the nation b. is the dollar value of all final out produced by its citizens, regardless of where they are living c. can be found by summing C + In + S + Xn d. is always some amount less than C + Ig + G +Xn

A

Economic growth is best defined as an increase in: a. either real GDP or real GDP per capita b nominal GDP c. Total consumption expenditures d. wealth in the economy

A

Excise taxes on imported goods that help shield domestic producers of the good are called: a. protective tariffs b. import quotas c. revenue tariffs d. voluntary export restrictions

A

GDP measured using current prices is called: a. nominal GDP b. real GDP c. constant GDP d. deflated GDP

A

In the Great of Recession of 2007-2009, unemployment rates for men: a. rose faster than those for women b. rose slower than those for women c. were about equal to those for women d. remained steady while those for women rose rapidly

A

Most economists agree that the immediate cause of the majority of cyclical changes in the level of real output is unexpected changes in the: a. level of total spending b. rate of unemployment c. rate of inflation d. stock market price indexes

A

National income accountants define investment to include: a. any increase in business inventories b. the addition of cash to a savings account. c. the purchase of common or preferred stock d. the purchase of any durable good, for example, an automobile or a refrigerator

A

The burden of unemployment is least felt by: a. white-collar workers b. teenagers c. blacks d. males

A

Travel by U.S. citizens within Europe creates a: a. demand for euros and a supply of dollars b. both a supply of dollars and a demand for dollars. c. demand for dollars and a supply of euros d. supply of euros and a demand for dollars

A

Which of the following will be counted in official U.S. GDP figures? a. tax spent to clean up a toxic waste site in Omaha, NE. b. revenue collected by legal marijuana sales in Denver, CO c. the dollar value of time spent in the county's traffic jam in KC d. Sasha paying Janet for a manicure with a home cooked catered meal

A

which of the following would call for outpayments from the US? a. US purchases assets abroad b. foreigners purchase assets in the US

A

Indicate whether each of the following will cause the value of the U.S currency to appreciate or depreciate, all else equal: a. The U.S. reduces tariffs on Mexican products b. Deteriorating political relations reduce American tourism in Mexico. c. American products become much more fashionable to Mexicans.

A: Depreciate B: Appreciate C:Appreciate

Recently net exports fell (became more negative). What is the effect on GDP?

All else equal, GDP fell

Suppose inventories rose by $10 billion in a given year. How would this affect the size of GDP that year? Explain

An increase in inventories means there is an increase in production. This causes a rise in GDP. Assuming the increase in inventories includes final goods not just intermediate goods.

Appreciation of the Mexican peso will: a. make Mexico's exports and imports both more expensive b. make Mexico's exports more expensive and its imports less expensive c. make Mexico's exports less expensive and its imports more expensive d. increase Mexican exports

B

The United States' most important trading partner quantitatively is: a. China b. Canada c. Mexico d. Japan

B

The base year is 2005, and the GDP price index in 2004 is 92.0. This implies that the: A. output in 2005 was higher than in 2004 b. prices in 2005 was higher than in 2004 c. output in 2005 was lower than in 2004 d. prices in 2005 was lower than in 2004

B

U.S. Imports represent two flows: A. An outflow of goods or services, and an outflow of payments B. An inflow of goods or services, and an outflow of payments C. an outflow of goods or services, and an inflow of payments d. an inflow of goods or services, and an inflow of payments

B

Which of the following creates a supply of Canadian dollars in foreign exchange markets? a. a Frenchman redeems a bond issued by a Canadian manufacturer b. a Canadian exporter buys insurance from a U.S. firm c. an American student takes a summer trip to Canada d. a U.S. importer buys 500 cases of Canadian maple syrup

B

Which of the following represents an income flow in the circular flow of domestic output and national income? a. net exports b. undistributed corporate profits c. government spending on defense d. investment expenditures

B

Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a (n): a. protective tariff b. export subsidy c. import quota d. voluntary export restriction

C

Government purchases would include expenditures for payments of: a. food stamps b. college tuition payments for low income students c. salaries for public school teachers

C

Search unemployment (time spent looking for a job) is likely a type of: a. cyclical unemployment b. hidden unemployment c. frictional unemployment d. structural unemployment

C

Shankman has lost her job in a Massachusetts textile plant because of import competition. She intends to take a short course in electronics and move to California where she anticipates that a new job will be available. We can say that Shankman is face with: a. secular unemployment b. cyclical unemployment c. structural unemployment d. frictional unemployment

C

Which is an example of a non-tariff barrier (NTB)? a. an export subsidy b. an excise tax on the physical volume of imported goods c. box-by-box inspection requirements for imported fruit d. an excise tax on the dollar value of imported goods

C

Which of the following do national income accountants consider to be investment? a. the purchase of an automobile for private b. nonbusiness use c. the purchase of a new house

C

What items would we add to get national income? pg 158

Compensation of employees Rents Interest Proprietors' Income Corporate profits Taxes on production and imports

The largest component of total expenditures in the US is:

Consumption

Common argument often raised to present the case for protectionism included the following, except: a. protecting infant industries until they mature b. protection against foreign suppliers' dumping c. raising domestic employment in specific industries d. reducing the price of the product to consumers.

D

Declines in stock prices measured by the Dow Jones average: a. are a major cause of recessions. b. usually reduce saving and increase consumption spending c. usually increase investment and reduce net exports d. sometimes precede recessions; sometimes do not

D

During periods of "full employment" the: a. burden of unemployment is quite evenly distributed among males and females, blacks and whites, and young and old workers b. unemployment rate for teenagers is below the rate for the labor force as a whole c. unemployment rate for women is considerably lower than that for men d. unemployment rate for blacks is more than twice the rate for whites

D

French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be: a. supplying dollars and also supplying euros in the foreign exchange market b. demanding dollars and also demanding euros in the foreign exchange market c. supplying dollars and demanding euros in the foreign exchange market d. supplying euros and demanding dollars in the foreign exchange market

D

GDP is: a.the monetary value of all goods and services (final, intermediate, and non-market) produced in a year b. total resource income less taxes, saving, and spending on exports. c. the economic value of all economic resources used in the production of a year's output d. the market value of all final goods and services produced within a nation in a specific

D

Historically, real GDP has increased less rapidly than nominal GDP because: a. price indices have not reflected improvements in product quality b. the general price level has declined c. technological progress has resulted in more efficient production d. the general price level has increased

D

Relatively rapid U.S. growth between 2001 and 2007, contributed to large U.S trade deficits by: a. increasing U.s. national income, which decreased U.S. exports b. reducing real interest rates in the United States c. increasing U.S. tax revenues and reducing the Federal budget deficit d. increasing U.S. national income, which increased U.S. imports

D

The argument for free international trade is that it will: a. reduce economic growth rates in the industrial economies b. reduce employment in developing nations c. eliminate world poverty d. increase living standards of all trading nations

D

The concept of net domestic investment refers to: a. the amount of machinery and equipment used up in producing the GDP in a specific year. b. the difference between the market value and book value of outstanding capital stock c. gross domestic investment less net exports d. total investment less the amount of investment goods used up in producing the year's output

D

Transfer payments are: a. excluded when calculating GDP because they only reflect inflation b. excluded when calculating GDP because they do not reflect current production c. included when calculating GDP because they are a category of investment spending d. included when calculating GDP because they increase the disposable income of recipients.

D

United States exports of goods and services (on national income account basis) are about: a. 20 percent of U.S. GDP b. 4 percent of U.S. GDP c. 28 percent of U.S. GDP d. 14 percent of U.S. GDP

D

When an economy's production capacity is expanding: a. nominal GDP, but not necessarily real GDP, is rising b. net exports is always a positive amount c. DI exceeds PI d. domestic investment exceeds depreciation

D

When tariffs on imported products are removed by a nation, it will result in: a. higher prices and lower quantities consumed b. higher prices and higher quantities consumed c. lower prices and lower quantities consumed d. lower prices and higher quantities consumed

D

Which of the following represents an income flow in the circular flow of domestic output and national income? a. net exports b. investment expenditures c. government spending on defense d. interest

D interest wages profit- undistributed corporate profits rent

Potential GDP

Real GDP at full employment

Suppose Smith pays $100 dollars to Jones. We can say with certainty that the GDP has increased by $100. T/F

False

National income accountants define investment to include: a. any increase in new structures (buildings) used by businesses b. the addition of cash to a savings account c. the purchase of common or preferred stock d. the purchase of any durable good, for example, an automobile or refrigerator

A- keyword is new

Agree or disagree and explain: A. A country that grows faster than its major trading partners can expect the international value of its currency to depreciate. B. A country's currency will depreciate if its inflation rate is greater than that of its trading partners.

A. Agree. Exports will exceed imports. B. Agree. Exports will exceed imports

Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percent of potential GDP is: a. 4 % b. 8% c. 10% d. 2%

B

By summing the dollar value of all market transactions in the economy we would: a. be determining the market value of all resources used in the production process. b. obtain a sum substantially larger than the GDP c. be determining value added for the economy d. be measuring GDP

B

GDP tends to overstate economic well being because it takes into account: a. improvements in product quality over time b. Expenditures undertaken to correct pollution c. illegal activities of individuals and businesses d. nonmarket activities, such as the productive work of homemakers

B

Historically, real GDP has increased less rapidly than nominal GDP because: a. price indices have not reflected improvements in product quality b. the general price level has increased c. technological progress has resulted in more efficient production d. the general price level has declined

B

If income rises rapidly in the United States and U.S. preferences for foreign goods strengthen, we would expect: a. the dollar to appreciate in value b. the dollar to depreciate in value c. the dollar price of foreign monies to decrease d. U.S. exports to increase

B

If the U.S. unemployment rate is 9 percent, we can infer that: a. the economy is in the expansion phase of the business cycle. b. potential GDP is in excess of actual GDP c. actual GDP is in excess of potential GDP d. actual GDP is equal to potential GDP

B

In recent years the United States has: a. exported more goods and services than it has imported b. imported more goods and services than it has exported c. realized an approximate balance in its imports and exports. d. experienced a falling absolute dollar amount of imports and a rising absolute dollar amount of exports

B

In the theory of comparative advantage, a good should be produced in that nation where: a. the production possibilities line lies further to the right than the trading possibilities line b. its cost is least in terms of alternative goods that might otherwise be produced c. its absolute cost in terms of real resources used is least d. its absolute money cost of production is least

B

In the value-added approach, which item would not be counted a. steel to make a car, b. a theater ticket, c. fertilizer bought by a farmer

B

a licensing requirement, or unreasonable standard pertaining to the product quality and safety for a product that is imported into a country, are examples of: a. protective tariffs b. nontariff barriers c. voluntary export restrictions d. quotas on imported products

B

The vast majority of countries engaged in international trade specialize in production based on absolute advantage. T/F

False

Who benefits and who loses from protectionist policies?

Benefits- Owners in that industry, and workers Hurts- Buyers and investors- prices will increase

Depreciation is all of the following, except: a. the difference between GDP and NDP b. the difference between gross investment and net investment c. the accumulation of capital stock d. the consumption of fixed capital

C

In 1933, net private domestic investment was a minus $6.0 billion. this means that: a. gross private domestic investment exceeded depreciation by $6.0 billion b. the economy was expanding in that year. c. the production of 1933's GDP used up more capital goods than were produced in that year. d. the economy produced no capital goods at all in 1933

C

Insufficient total spending in the economy results in: a. frictional unemployment b. structural unemployment c. cyclical unemployment d. seasonal unemployment

C

Most of the trade of the United States is with: a. India and China b. Japan and China c. Industrially advanced nations d. the nations of eastern europe

C

National income accountants can avoid multiple counting by: a. including transfers in their calculations b. counting both intermediate and final goods. c. only counting final goods d. dividing by a price index

C

Nominal GDP differs from real GDP because: a. Nominal GDP is based on current 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

Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect: a. the price of German bicycles to increase in the Unite States. b. employment to decrease in the German bicycle industry c. employment to decrease in the U.S. bicycle industry d. profits to rise in the U.S. bicycle industry

C

The Great Recession that started in 2007 was triggered by shocks in which of the following economic sectors? a. gold market and stock market b. international trade and foreign exchange markets c. real estate and financial markets d. consumer and government spending

C

The Trade Adjustment Assistance Act is focused mainly on assisting: a. U.S. firms to establish exports markets around the world b. other nations to become familiar with, and adjust to , U.S. products c. Workers displaced by imports or plant relocation's abroad d. Businesses who wish to globalize and compete in the world market

C

The full employment unemployment rate for the United States economy is generally considered to be: a. 2 percent of the labor force b. 3 percent of the labor force c. 4 to 5 percent of the labor force d. 6 to 7 percent of the labor force

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 principal concept behind comparative advantage is that a nation should: a. maximize its volume of trade with other nations b. use tariffs and quotas to protect the production of vital products for the nation c. concentrate production on those products for which it has the lowest domestic opportunity cost d. strive to be self-sufficient in the production of essential goods and services

C

The unemployment rate of: a. women is generally less than that of men. b. whites is roughly equal to that of blacks c. white-collar workers is less than that of blue-collar workers. d. teenagers is equal to that of adults

C

Which of the following is a measure of economic growth that is most useful for comparing living standards? a. growth in nominal GDP b. Decreases in the rate of unemployment c. Increases in real GDP per capita d. Increases in real GDP

C

The term "final goods and services" refers to: a. goods and services which are unsold and therefore added to inventories b. goods and services whose value has been adjusted for changes in the price level c. goods and services purchased by ultimate users, not for resale or further processing d. the excess of U.S. exports over U.S. imports

C.

In terms of individual nations, the largest U.S. trade deficit is with: a. Japan b. Mexico c. China

C. China

What items would we add to arrive at Corporate profits? pg 158

Corporate Income taxes Dividends Undistributed corporate profits (retained earnings)

What effect would a deficit in the U.s. trade balance have on the international value of the dollar?

Decrease, supply of the dollar will increase more than demand, therefore the price of the dollar will decrease.

Describe labor force

Employed and unemployed seeking work. does not include discouraged workers

Protective tariffs

Excise taxes on imported goods to "protect" domestic producers

Net exports

Exports - imports

If the economy adds to its inventory of goods during some year this amount should be __________ in calculating that year's GDP.

Included

What is included in Personal income knowing national income?

National Income - social security contributions - Corporate income taxes - undistributed corporate profits - taxes on production and imports + transfer payments = personal income

The smallest component of total expenditures in the US is:

Net exports

How do you find real GDP

Nominal GDP divided by price level index

What is subtracted from personal income to find disposable income?

Personal Income - personal taxes = Disposable income

Explain why we must divide nominal income by price index to get a variable we can use to measure production more accurately.

Nominal income does not account for the increase/decrease in prices over the years, so we pick a base year to measure production without the variable of price change

Government Purchases

Purchases by government at all levels of final goods and services

The one key variable we use to measure the business cycle is ______________

Real GDP

Growth or recovery

Real GDP is rising and unemployment is falling

What are the four stages of the business cycle? what phase are we in now? why are we in this phase?

Recession-> Trough->growth and recovery-> peak we are in growth and recovery. Because of an increase in GDP and decrease in unemployment rate.

Dumping

Selling goods in a foreign market at less than cost

In the "Petition of the Candle makers" the French workers sought protection from which foreign rival?

Sun

why don't we count intermediate goods in GDP expenditure accounting?

That would be double counting since the price of the intermediate goods is included in the price of the final goods.

What three countries are apart of NAFTA and what does it stand for?

United States, Mexico, Canada North American Free Trade Agreement

Why aren't the value of stocks and bonds bought and sold included in GDP for a given year?

They are not production

If the quality of goods rises, it is likely that GDP measurements from one year to the next will result in an understatement of GDP as a measure of well being. T/F

True

In recent years the United States has exported more services abroad than it has imported. T/F

True

In the treatment of US exports and imports, national income accountants add exports, but subtract imports, in calculating GDP. T/F

True

Research studies indicate that US consumers lose more from tariffs than US producers gain. T/F

True

Transfer payments such as social security payment are counted in disposable income. T/F

True

Current account surplus

U.S. exports exceed U.S. imports

Do discourage workers cause the unemployment rate to be underestimated or overestimated in our economy? explain

Underestimated. discouraged workers are not currently looking for a job so they are not included in the unemployment rate, however they would accept a job if they were offered.

Indicate whether each of the following creates a demand for or supply of euro in foreign exchange markets a. general motors decides to build an assembly plant in Germany b. A french student comes to the United States to Spend four years studying at BC. c. It is widely expected that the dollar will depreciate in the near future.

a increase demand euros b. increase supply euros c. increase demand euros

Give one major reason for Frictional unemployment.

a major reason is that people might be in the process of looking for a new job. they might not like their current job.

National income accountants define investment to include: a. any increase in capital goods used by businesses b. the addition of cash to a savings account the purchase of common or preferred stock d. the purchase of any durable good, for example, an automobile or a refrigerator

a.

Nominal GDP was $10,624 billion in year 1 and the GDP price index was 104. Nominal GDP was $11,246 in year 2 and the GDP price index (GDP deflator) was 106. a. what was real GDP in year 1? b. what was real GDP in year 2? c. what phase was the business cycle in during year 2?

a. 10,624/1.04= $10,215 b. 11,246/1.06= $10,609 c. Growth and recovery

Suppose the natural rate of unemployment in a particular year is 4.8% and the actual rate of unemployment is 8.3%. a. Use Okun's law to determine the size of the GDP gap in percentage point terms. b. If potential GDP is $10T in that year, how much output is being lost due to cyclical unemployment

a. 8.3-4.8= 3.5 percentage points b. ???

Classify by type of unemployment: a. Edwina just graduated and in spite of her best effort, she cannot find a job. b. Wal-Mart develops an app that helps you locate items in the store and answers questions about future availability. Wal-Mart fires all greeters. c. Atchison Casting lays off 100 workers. Explain briefly how it could be either of two categories of unemployment.

a. Frictional b. Structural c. Structural- if replaced by robots Cyclical- if due to recession

Trade deficit

amount by which imports exceed exports

Intermediate Good

an example is iron ore in the production of steel

Tariff

an excise tax on an imported good

frictional unemployment

associated with entering or re-entering the labor market

In national income accounting, consumption expenditures include: a. purchases of both new and used consumer goods b. consumer durable goods and consumer non-durable goods, but not services c. consumer durable goods, consumer non-durable goods, and services d. changes in business inventories

c

National income

generated by resource suppliers in producing the GDP

Which of the following goods are usually intermediate goods and which are usually final goods? running shoes, cotton fibers, watches, coal, textbooks, lumber

intermediate: cotton fibers, coal, lumber final: running shoes, watches, textbooks

depreciation of the dollar

it takes more dollars than before to buy a euro

non-tariff barriers

licensing requirements, unreasonable quality standards, and the like designed to impede imports.

Capital and financial account

measures purchases of assets of Americans abroad and of foreigners in the U.S.

Current Account

records exports and imports of goods and services, net investment income and net transfers

In recessions, when the demand for workers drops, wages tend to (fall, remain fairly stable)

remain fairly stable

comparative advantage

results in specialization and hence lower costs