AP Macro 2

inflation

general increase in the overall price level

B

real GDP measures: A) current output at current prices B) current output at base year prices C) base year output at current prices D) base year output at current exchange rates

peak

real output in the economy is at a high level, unemployment is relatively low and inflation may be high

contractionary

real output in the economy is decreasing and the unemployment rate is rising, inflationary pressures subside

expansionary

real output in the economy is increasing and the unemployment rate is declining. as the economic expansion continues, inflation may continue to accelerate

unemployment rate

represents the percentage of the labor force that cannot find work on acceptable terms

DPI

income that people have to spend or save after personal taxes are subtracted from personal income

C

the unemployment rate is the: A) ratio of unemployed to employed workers B) number of employed workers minus the number or workers who are not in the labor force C) percentage of the labor force that is out of work D) percentage of the total population that is out of work

price index

used to measure price changes in the economy; tused to compare the prices of a given "bundle" or "market basket" of goods and services in one year with the prices of the same "bundle" or "market basket" in another year

C

which of the following best defines national income? A) income received by households less personal taxes B) the before tax income received by households C) all incomes earned by US resource suppliers for their current contributions to production D) the market value of the annual output net of consumption of fixed capital

C

which of the following economic indicators is the best measure of production or output of an economy? A) consumer price index B) unemployment rate C) gross domestic product D) prime rate E) index of leading economic indicators

E

which of the following would cause the unemployment rate to increase? I. a man who quits his to spend more time with his children II. a woman who has not looked for a job in two years and begins looking again III. a woman who quits her job and begins looking for a new job in another city A) I only B) II only C) III only D) I and II only E) I and III only

C

Which of the following would be included in the calculation of the GDP? I. the sale of a used car II. Social Security payments to a retired steelworker III. the purchase of a new home from a builder A) I only B) II only C) III only D) I and II only E) II and III only

A

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is: A) $510 billion B) $490 billion C) $10 billion D) $990 billion

C

Which of the following is included in the calculation of the GDP? I. the cost of cleaning up air and water pollution II. the cost of investing in a share of McDonald's stock III. the cost of catfish sold to a supermarket A)I only B) II only C) III only D) I and II only E) I, II, and III

D

Which of the following would be counted as Investment when calculating GDP? I. the purchase of a computer by an automobile manufacturer II. the purchase of a share of IBM stock by Mr. Guida III. the construction of a new house A) I only B) II only C) I and II only D) I and III only E) II and III only

economic growth

exists when the economy produces increasing amounts of goods and services over the long term

A

a nation's gross domestic product (GDP): A) is the dollar value of the total output produced within the borders of the nation B) is the dollar value of the total output produced by its citizens, regardless of where they are living C) can by found by summing C+In+S+Xn D) is always some amount less than its C+Ig+G+Xn

A

a price index: A) a comparison of the price of a market basket from a fixed point of reference B) a comparison of real GDP is one period relative to another C) the cost of a market basket of goods and services in a base period divided by the cost of the same market basket in another period D) a ratio of real GDP to nominal GDP

D

a recession is a period in which: A) cost push inflation is present B) nominal domestic output falls C) demand pull inflation is present D) real domestic output falls

seasonal unemployment

affects workers who have worked during the past year but are unemployed during other parts of the year due to changes in the weather

D

by summing the values added at each stage in the production of some good we obtain: A) the price of that good B) the total income generated by that good's production C) the total cost (including profits) of that product D) all of the above

C

cost push inflation may be cause by: A) a decline in per unit production costs B) a decrease in wage rates C) a negative supply shock D) an increase in resource availability

pi number

current year prices/base year prices x100

A

cyclical unemployment results from: A) a deficiency of aggregate spending B) the decreasing relative importance of goods and the increasing relative importance of services in the US economy C) the everyday dynamics of a free labor market D) technological change

B

demand pull inflation: A) occurs when prices of resources rise, pushing up costs and the price level B) occurs when total spending exceeds the economy's ability to provide output at the existing price level C) occurs only when the economy has reached its absolute production capacity D) is also called cost push inflation

GDP GNP

do not include: 1. purchases of intermediate goods 2. buying and selling second hand goods 3. buying and selling stocks or bonds 4. money transfers (unemployment compensation, social security payments, certain interest payments by the federal government and persons)

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

depression

economic situation where the level of output falls to especially low levels and unemployment climbs to very high levels relative to the historical average

national income

estimate of the factor cost of production, and it measures the flow of income accruing to the labor and property resources using in producing current output

C

final goods and services refers: A) goods and services that 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, rather than for resale or further processing D) the excess of US exports over US imports

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

C

if the consumer price index falls from 120 to 116 in a particular year, the economy has experienced: A) inflation of 4 percent B) inflation of 3.33 percent C) deflation of 3.33 percent D) deflation of 4 percent

D

in product markets: A) households sell products to business firms B) households sell resources to business firms C) business firms sell resources to households D) business firms sell goods and services to households E) households buy resources from business firms

B

in resource or factor markets: A) households sell products to business firms B) households sell resources to business firms C) business firms sell resources to households D) business firms sell goods and services to households E) households buy resources from business firms

frictional unemployment

includes people who are temporarily between jobs. they may have to quit one job to find another, or they could be trying to find the best opportunity after graduating from high school or college

GNP

includes profits earned by US owned companies overseas and income earned by US citizens working abroad, but does not include profits earned by foreign owned companies in the US or income earned by foreigners working in this country

prime rate

interest rate banks charge their best commercial customers

personal income

national income minus corporate income taxes, undistributed corporate profits, and social security taxes plus transfer payments and interest paid by persons

structural unemployment

involves mismatches between job seekers and job openings. unemployed people who lack skills or have a poor education

A

market economies have been characterized by: A) occasional instability of employment and price levels B) uninterrupted economic growth C) persistent full employment D) declining populations

GDP

market value of all final goods and services produced in a nation in one year

CPI

measure of the average change in prices paid by urban consumers for a "market basket" of goods and services (including food, clothing, shelter, transportation, and prescription drugs)

PPI

measures changes in prices received by producers of commodities or finished goods before those products are sold to individuals or businesses

nation income accounting

measures include net nation product (NNP), national income (NI), personal income (PI), disposable personable income (DPI)

business cycle

measures the ups and downs of economic activity over a period of years; expansion, peak, contraction, trough

B

nominal GDP is: A) the sum of all monetary transactions that occur in the economy in a year B) the sum of all monetary transactions involving final goods and services that occur in the economy in a year C) the amount of production that occurs when the economy is operating at full employment D) money GDP adjusted for inflation

A

nominal GDP was $130 and $150 in years 1 and 2 respectively. Real GDP was $100 and $110 in years 1 and 2 respectively. on the basis of this information we can conclude that: A) the price level increased between years 1 and 2 B) more intermediate goods were produced in year 1 than in year 2 C) the increase in nominal GDP between years 1 and 2 understated the increase in production which occurred D) the price level declined between years 1 and 2

4-6

normal unemployment rate

nominal GDP

not adjusted for price changes

unemployment

occurs when people who are willing and able to work cannot find jobs at satisfactory wages

GDP

only counts final goods and services; it does not count intermediate goods and services such as secondhand goods, and the buying and selling of stocks and security bonds, social security, unemployment compensation, and certain interest payments

cyclical unemployment

rises in a recession. may be caused by too little spending in the economy. people are not buying many goods and services so workers are laid off

unanticipated inflation

savers, lenders, and people on fixed income are hurt; borrowers gain

C

the full employment unemployment rate means an unemployment rate of about: A) 15 percent B) 10 percent C) 4-5 percent D) 2 percent

A

the largest item in the expenditure or flow of a product approach to the GDP is: A) consumer spending B) Gross Private Domestic Investment C) net exports of goods and services D) government purchases of goods and services E) rental payments

D

the largest item in the income or earnings and costs approach to GDP is: A) rental payments B) government expenditures on goods and services C) consumer spending D) wages or compensation of employees E) net interest

trough

the lowest point of real GDP reached during a business cycle

D

the market value of all final goods and services produced in the economy in a given year is the: A) net national product B) national income C) personal income D) gross domestic product E) producer price index

GDP

the most important measurement of production and output

C

the type of unemployment associated with recessions is called: A) frictional unemployment B) structural unemployment C) cyclical unemployment D) seasonal unemployment