Test 2 Macro
In what way(s) does GDP per capita not provide an accurate representation of living standards?
-GDP per capita does not account for changes in environmental quality. -GDP per capita does not account for how people distribute their time between work and leisure. -GDP per capita does not measure production that occurs outside of the market economy.
Among the major spending categories that make up GDP, gross private domestic investment (GPDI) is much more volatile than personal consumption expenditures over the business cycle. Choose the options that provide examples that may explain this volatility.
-Restaurant chains are less likely to open a new franchise when sales are down. -Individuals are less likely to purchase new homes when the economy is performing poorly.
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.
A domestically manufactured personal computer
consumption
A ticket to a local sporting event.
consumption
Cab fare for personal use
consumption
Ice cream
consumption
The largest component of GDP is
consumption expenditure.
Noah Count, Inc., recently paid out dividends to stockholders
corporate profits
Brock Lee used to work at Munch n' Munchies Restaurant serving fun family fare. Business at Munch n' Munchies has been slow because the major employer in town has laid off a large number of people. There simply was not enough work to keep Brock Lee on the payroll at Munch n' Munchies. Which term describes Brock's type of unemployment?
cyclical
Which type of unemployment do policy makers seek to control?
cyclical
An example of frictional unemployment is:
new graduates looking for a job but not yet finding work
the market value of all final goods and services produced by resources located in a particular country in a given year
nominal GDP
When the National Activity Index is equal to zero, this infers that the economy is growing
on par with long‑term economic growth
A business cycle is
the periodic fluctuation of economic activity.
GDP calculated using the income approach, including adjustment, will be GDP calculated using the expenditure approach.
the same as
What is the Misery Index?
the unemployment rate plus the inflation rate
Real GDP per capita is NOT an adequate measure of
the well-being of each person in an economy.
Which organization determines the beginning and end dates of a recession?
National Bureau of Economic Research
A frequently used measure of inflation is the:
Consumer Price Index
According to the table, the GDP for 2010 wasGDP Expenditures for 2010
$14,592.3 billion.
If C = $1,000, I = $500, G = $800, X = $400, and M = $600, what is the value of GDP?
$2,100
Suppose that the consumer price index in Eastlandia rises from 150 to 159 over the past year, and that the city sets its car registration prices so that real prices stay the same. If the cost to register a car was $50 last year, how much would it cost this year, in nominal terms?
$53
Exterminators Plus is an owner‑operated business.
proprietor's income
GDP divided by population
GDP per capita
The peak of a business cycle is followed by
a downturn or recession.
Use the table to answer the questions. Round your answers to the nearest cent. What is the GDP per person (per capita) for country A? What is the GDP per person (per capita) for country B? Which country has the largest average GDP per person?
25000 6250 country A
Which of the statements is the best description of inflation?
An increase in the overall price level has occurred.
Considering just the U.S., how are GDP and GNP related?
GDP = GNP - (output of U.S. citizens living abroad) + (output of foreign nationals living in the U.S.)
According to the circular flow model, income is equal to spending. The money that people spend to purchase goods and services is sales revenues for the business sector. Businesses distribute this income to the inputs (factors) of production. Which of the following are included as inputs (factors) of production?
Labor, land, capital, and entrepreneurship
Which of these causes inflation?
The government printing too much money
. Pat, a confirmed chocoholic, notices that a favorite candy bar shrank in size, but its price stayed the same.
causes inflation to be understated
Simon Kuznets
devised the gross national product as a way of measuring a nation's economic output.
A domestically manufactured business computer
investment
Bugs B Dead, Inc., pays its mortgage promptly every month.
net interest
If an economy experiences deflation, then
the aggregate price level is declining.
1. Inflation is a
general rise in prices.
Suppose that the CPI in 2013 was 250 and the CPI in 2014 was 260. What is the rate of inflation in this economy?
4.0%
Mos Quito works as an exterminator for Bugs B Dead, Inc.
compensation of employees
Suppose an economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.
trough
Inflation and unemployment are sometimes called the twin evils of the macroeconomy.
true
Structural unemployment would result from a furniture manufacturer closing a U.S. plant to make its products in China.
true
Individuals who are involuntarily working part‑time are considered
underemployed.
By excluding the groups identified in the previous questions, the U.S. Bureau of Labor Statistics calculation methods
understate the true level of unemployment.
To be considered unemployed, one must not be working and must have actively looked for work in the past 4 weeks. This definition _____ the unemployment rate.
understates
After a financial crisis hits the country of Arcadia, 99 million people become unemployed. If 6565 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.
unemployment rate:
A public school teacher's salary
government purchases
Which of the choices is most directly related to cyclical unemployment?
recessions
A dollhouse sold abroad
net exports
GDP per capita provides a rough measure of a country's standard of living relative to other countries. GDP per capita is measured as
total output divided by the population.
If a bundle of goods used to calculate the consumer price index rises from $80 to $86 over a one-year period, what is the inflation rate for that year?
7.5%
Which type of economist would be least supportive of attempts to build a new high-speed railway network by raising taxes on gasoline?
A classical economist
Suppose Jollyland has a population of 1,000 people and a GDP of $1 million, while Follyland has a population of 8,000 people and a GDP of $8 million. Which country has a higher GDP per capita?
Both countries have the same GDP per capita.
Identifies recessions with a considerable lag, making it less useful for designing policy:
Business Cycle Dating Committee
Uses updated or revised information to determine phases of the business cycle:
Business Cycle Dating Committee
Circular Flow Diagram
Businesses buy resources and sell products whereas households buy products and sell resources.
.The accompanying table lists the values for gross domestic product (GDP), consumption (C), gross private domestic investment (I), government spending (G), and net exports (X - M) for each given year. First the value of each category is given in billions of dollars, then the value of each category is given as a percentage of GDP.
Consumption has increased as a percentage of GDP from 1965 to 2015, whereas government purchases and net exports have declined. The most volatile category of spending is net exports .
When Mr. Wilson worked full time, he paid a service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP?
GDP falls as a result of this change.
Suppose that GDP is $50 million in 2015 but falls to $48 million in 2016, and that no changes in personal consumption expenditures, gross private domestic investment, and government spending are recorded. What must have happened to net exports to cause this change?
From 2015 to 2016, the difference between exports and imports must have fallen by $2 million.
GDP adjusted for differences in the cost of living in different countries
GDP PPP
In Vintland, wild‑caught oysters are being replaced with farmed oysters, which have fewer negative effects and many more significant benefits. However, the production efficiency of farmed oysters has driven down the price of oysters so significantly that wild‑caught oysters can no longer compete. After six months, everybody has switched to the cheaper and better farmed oysters. Assume that Vintland consumes the same quantity of oysters now as they did six months ago. Please select the choice that best describes the short‑run effects of this industrial change on Vintland's GDP and its standard of living
GDP decreases and standard of living increases.
Suppose one has data for the following categories: net interest, government spending, corporate profits, net exports, gross private domestic investment, rental income, and personal consumption expenditures. Which measure of GDP can be calculated?
GDP using the expenditures approach.
the market value of all final goods and services produced by resources owned by citizens of a particular country in a given year
GNP
In 2018, the tiny country of Equatorial Guinea had the highest GDP per capita in Africa, according to the CIA's World Factbook. Equatorial Guineas' GDP per capita is over $30,000 per year, which is higher than that of more developed countries, including Morocco, Egypt, and South Africa. However, Equatorial Guinea also has extreme poverty. Half of its population lacks clean drinking water, and it has one of the highest infant mortality rates in the world." How can extreme poverty and a lack of basic necessities be common in a country that has the highest GDP per capita in the region?
Income is not spread evenly across the country, and its leaders may engage in corrupt activities.
Currently national income and production statistics do little to account for the environmental benefits or harmful impacts of economic activity. Suppose that a new method of calculating gross domestic product (GDP) was implemented to account for environmental factors. The new method allows for a reduction in GDP as a result of the severity of environmental degradation in a country. If this method is used, which of the following countries might experience the greatest adjustment to their GDP calculation?
India
GDP and GNP are two different measures of the overall value of production in an economy. Suppose that a country's GDP is much greater than its GNP. What does that mean in terms of investment in and out of the country?
Investment of foreign companies in the country is greater than investment of domestic companies in other countries.
Gross domestic product (GDP) is the most widely reported value in the national income and product accounts. GDP measures an economy's total output.
Measurements of GDP do not include the value of intermediate goods to avoid double counting.
Government spending, as a percentage of GDP, tends to increase during recessions and decrease during times of economic expansion. Why does government spending tend to change, depending on the phase of the business cycle?
More people seek government benefits during recessions, causing the government to spend more during these periods.
Does a good job identifying recessions in the current time frame:
National Activity Index
Established by the Federal Reserve Bank of Chicago:
National Activity Index
Uses a weighted average of over 80 economic indicators to identify business cycle trends:
National Activity Index
What is the difference between real and nominal gross domestic product (GDP)?
Nominal GDP for a given year is measured in dollars of that year, whereas real GDP is measured in dollars of some base year.
Which of the following characteristics about Econoville could be determined based on its GDP?
None of the above can be determined based on Econoville's GDP.
A ticket for the X Games bought from a person on a street corner
Not included in GDP because of double-counting
Which is true if a nation is currently experiencing full employment?
The rate of cyclical unemployment is 0%
From 2015 to 2016, the overall price level rose from 200 to 220. Over the same period, tuition rates at the local community college rose from $100 to $115 per credit hour. What can be concluded from the rise in tuition relative to overall inflation?
Tuition rates increased at a faster rate than inflation.
After graduating from college in 2010, Art Major's starting salary is Suppose Art Major has a cost of living adjustment (COLA) clause, or an escalator clause, in his labor contract so that he will be able to maintain this same level of purchasing power in real terms in 2011 and 2012. Using the information in the table, how much will Art Major earn in 2011 and 2012 if his salary keeps up with inflation? Round your answers to the nearest dollar.
What is Art Major's salary in 2011? What is Art Major's salary in 2012?
The table shows the cost of a fixed basket of goods that a typical urban consumer would buy in the economy of Kindleberger. The base period for the consumer price index (CPI) is the year 2000. Please specify answers to two decimal places.
What is the CPI for 2000? 100 What is the CPI for 2011? 55.2 What is the CPI for 2012? 82.5
The value of cars that the Ford Motor Company produces in a German plant is
a part of U.S. GNP.
Business cycles are officially dated by the National Bureau of Economic Research (NBER), which is tasked with dating "turning points." Turning points are times at which the economy switches from peak to downturn or from trough to recovery. A key problem with the way the NBER dates turning points is that turning points are dated
after events have started
Which of the statements is the best description of a business cycle?
alternating periods of increasing and decreasing economic output
. Business cycles can be described
as fluctuations from the economy's long‑term growth trend.
Mary and Bob replace their old minivan with a new one. The new van costs 15% more than the old van, but the new model has many updated features like a camera to assist with backing up, GPS, and better fuel economy.
causes inflation to be overstated
Sam loves bagels, but bagels are becoming more expensive. Sam replaces bagels with muffins in the breakfast routine because muffins remain relatively cheap.
causes inflation to be overstated
A 55-cent taco
consumption
cyclical unemployment occurs when:
demand is insufficient to keep businesses fully operating.
Inflation increases purchasing power because wages typically rise with the prices of goods.
false
When a business cycle reaches the trough, the economy is usually operating at its capacity.
false
When the National Activity Index is positive, this means that the economyis growing
faster than long‑term economic growth.
The U.S. gross domestic product is equal to the total market value of all
final goods and services produced by resources in the United States.
In 2008, the rate of inflation was 2%, which then rose to 3% in 2009 before falling back to 2% in 2010. Between 2008 and 2009, the economy experienced _____ and between 2009 and 2010, the economy experienced _____.
inflation; disinflation
We are MOST likely to see a recession if interest rates on long-term bonds are
lower than interest rates on short-term bonds.
This group, consisting of individuals who would like to work but have not looked for work during the past four weeks, is included among
marginally attached workers.
Noah Count, Inc., collects $2,000 in sales tax every month.
miscellaneous adjustments
during a the economy is operating at its capacity.
peak
The four phases of business cycles are
peaks, troughs, expansions, and recessions.
Inflation is considered a tax on savings. This is because the:
purchasing power of savings declines as inflation rises.
GDP adjusted to base year prices
real GDP
economic activity begins to pick up.
recovery
Critics of how GDP is measured argue that it fails to fully account for "intangibles" in knowledge‑based goods. For example, the values of books are counted in the year they were produced. However, when a book is lent out in a library or resold in the used book market, it does not add to GDP, despite the benefits and knowledge it provides to readers. What might be some problems associated with trying to include intangibles in GDP?
-The value of an intangible is subjective and varies from person to person. -It is difficult to place a value on something that is intangible. -It is difficult to identify a precise time when intangibles produce value.
Suppose that an economy consists of only two individuals. William has $1970$1970 available to spend on goods. He decides to purchase $850$850 worth of produce from Krista in the current quarter. No other economic activity takes place during the current quarter. Using this information, answer the questions. For the current quarter, what is the economy's income? For the current quarter, what is the economy's expenditure? In an economy, how are income and expenditure related?
850 850 They are equal.
Some people believe that the government should guarantee its citizens a basic standard of living by raising the minimum wage, providing housing assistance to the poor, and offering health care coverage to everyone. What type of economist is most likely to favor this view?
A Keynesian economist
Which of the following is least likely to result in inflation?
A reduction in consumer confidence.
Business cycles are alternating increases and decreases in economic activity divided into four phases; peak, recession, trough, and recovery. Which statement regarding the recovery phase of the business cycle is true?
An economy in the recovery phase of the business cycle can have a lower GDP and a higher unemployment rate than the preceding recession.
At which of the following stages is the unemployment rate likely to be highest?
At the very start of an economic recovery.
What event was a major influence on the development of macroeconomics?
Great Depression
Anna Graham is the new Treasury Secretary, and she is trying to interpret some inflation measures. In year one, the aggregate price level increased by 99% and in year two, the aggregate price level decreased by 33%. Which statement accurately characterizes the changes in the nation's price level?
In year one, the economy is experiencing inflation. In year two, the economy is experiencing deflation.
A new building for Tony Hawk Industries
Included in GDP
A new skateboard you buy for your niece
Included in GDP
Old Navy purchases mannequins to display clothes
Included in GDP
The commission paid to the seller of a previously-owned collectors' skateboard
Included in GDP
Honda's assembly and sale of cars in the U.S.
Included in U.S. GDP
Which statement describes the informal economy?
It is largely unmeasured.
Suppose that the stock market rises significantly over the next year, making investors wealthier and more optimistic about the economy while raising the overall level of consumption. Is this increase in consumer confidence a microeconomic or a macroeconomic issue?
Macroeconomic
A previously-owned collectors' skateboard
Not included in GDP because of double-counting
A used copy of the Tony Hawk video game
Not included in GDP because of double-counting
A used skateboard you buy for your brother
Not included in GDP because of double-counting
Wheels used to produce a skateboard that will be sold new
Not included in GDP because of double-counting
GM's assembly and sale of cars in Mexico
Not included in U.S. GDP
Ocean Spray purchases plastic to make bottles
Not included in U.S. GDP
resale of used textbooks to college students
Not included in U.S. GDP
sale of wheat to Mrs. Baird's Bakery
Not included in U.S. GDP
Consider the information about the economy of Pakistan. Note that the currency of Pakistan is the rupee. The government purchases: 2.902.90 trillions of rupees. Individuals consume: 9.709.70 trillions of rupees. Individuals save: 5.105.10 trillions of rupees. Businesses invest: 1.651.65 trillions of rupees. Foreigners spend: 0.540.54 trillions of rupees to purchase Pakistani firms.Pakistan imports: 2.332.33 trillions of rupees. Pakistan exports: 1.271.27 trillions of rupees. Calculate Pakistan's GDP. Assume that the values are all current and no conversions need to be made. Give your answer in terms of trillions of rupees, and round to two decimals.
Pakistan's GDP: 13.19 trillions of rupees
The gross domestic product (GDP) of China has grown at around 10% annually for most of the last 20 years. However, in recent years, the growth rate has fallen to around 6% annually. This is still much higher than the growth rate of U.S. GDP, which is about 2% annually.If prices of goods and services in China fall due to slower growth, what impact will this have on U.S. GDP?
Slower growth in China will cause Americans to purchase more goods from China, which will decrease the GDP of the United States.
Consider the GDP deflator and real GDP, given in thousands of dollars, for the country of Economica. The base year, or base period, is year 3. For the given years, calculate the nominal GDP. Round your answers to the nearest dollar.
What is the nominal GDP for year 1? What is the nominal GDP for year 2? What is the nominal GDP for year 3?
Individuals who want to work, but have given up searching for a job because of limited prospects, are known as
discouraged workers.
Chris is an avid runner, loyal to one particular brand of running shoe. She buys a new pair of the same shoe every few months. The price of the shoes has doubled in the last 15 years.
does not cause inflation to be overstated or understated
U.S. business cycles since 1950 have shown
expansions to be longer than recessions.
Business cycles are common in emerging economies but not in developed economies.
false
Business cycles last for approximately nine months.
false
Beau Tye decides to quit his job as a waiter in Pensacola, Florida, in order to pursue his dream of becoming an actor in Hollywood. Acting jobs exist, but he has not yet found one. Which term describes Beau's type of unemployment?
frictional
A jobless recovery means that
gross domestic product (GDP) increases while there is no increase in employment.
The four types of spending in GDP are personal consumer spending, _____ private domestic investment, government spending, and _____.
gross; net exports
For a good or service to be counted in a given year's gross domestic product (GDP), what four criteria must be met?
have a market value, be a final good or service, be produced within a given country, and be produced within a certain time frame
If the inflation rate was 1% in 2014, 3% in 2015, and 2% in 2016, this economy experienced ____ from 2014 to 2015, and ____ from 2015 to 2016.
inflation; disinflation
Which item would be included in the GDP accounts?
paying a $50 consultation fee over the phone with a psychic adviser
economic growth slows down or turns to negative.
recession
Anita House bought a duplex to earn additional income.
rental income
When the National Activity Index is negative, this means that the economy is growing
slower than long-term economic growth
GDP can be found by adding up either all of the _____ or all of the _____ in the economy.
spending; income
Anna Prentice has worked for years fixing broken typewriters. She is laid off from her job as fewer and fewer people use typewriters. She is looking for work but cannot find a job in her area of specialty. Which term describes Anna's type of unemployment?
structural
the economy reaches the bottom of the cycle.
trough