eco exam 2

Which of the following would likely NOT cause inflation?

Consumer confidence goes down

If the price index is 200, how much did a $4 Big Mac (today) cost in the base year?

$2.00

If you have $100,000 in a retirement account growing 10% per year on average, how much will this be worth in 35 years when you retire?

$3,200,000

Segways are produced in New Hampshire using $2,000 in supplies and sold for $6,000. Each Segway sold contributes _____ to U.S. GDP.

$6,000

If nominal GDP increases by 10% but inflation is 8%, what is the change in real GDP?

+2%

If Jeff receives a 10% raise at work, but the inflation rate is 5%, what is his nominal wage increase?

10%

When the price index changes from 200 to 220 in one year, what is the inflation rate?

10%

Which of the following items would NOT be included in 'Investment' in the GDP calculation?

100 shares of a company stock

Strawberries increased in price by 50% over the last 10 years, but the overall prices in the economy rose by 30% over the same period. The real increase in the price of strawberries is:

20%

in which year did the us economy reach its last trough in the business cycle

2009

If a town has 60 employed persons, 20 unemployed persons, and 20 persons not in the labor force, the unemployment rate is:

25%

Suppose you receive a stock tip that allows you to earn a 14% annual return. At this constant rate, about how long will it take to double your money?

5 years

If the price of a basket of goods increases from $50 to $53 in one year, what is the inflation rate?

6%

India's economy has doubled in size over the last 10 years. At what average rate is it growing each year?

7%

If the price index is currently 60, and prices rise by 20% over the next 5 years, what would price index be in 5 years?

72

If a town has 60 employed persons, 20 unemployed persons, and 20 persons not in the labor force, the labor force participation rate is:

80%

GDP per capita

A country's GDP divided by its population. GDP per capita provides a useful measure of a country's relative standard of living.

deflation

A decline in overall prices throughout the economy. This is the opposite of inflation.

Stable financial system

A functioning and stable monetary system ensures investment is undertaken when the opportunity arises

inflation

A general rise in prices throughout the economy. It is a measure of changes in the cost of living.

gross domestic product (GDP)

A measure of the economy's total output; it is the most widely reported value in the national income and product accounts (NIPA) and is equal to the total market value of all final goods and services produced by resources in a given year.

double-dip recession

A recession that begins after only a short period of economic recovery from the previous recession.

disinflation

A reduction in the rate of inflation. An economy experiencing disinflation still faces inflation, but at a declining rate.

Enforcement of contracts:

A strong legal system

national income

All income, including wages, salaries and benefits, profits (for sole proprietors, partnerships, and corporations), rental income, and interest.

business cycles

Alternating increases and decreases in economic activity that are typically punctuated by periods of recession and recovery.

hyperinflation

An extremely high rate of inflation; above 100% per year.

GDP deflator

An index of the average prices for all goods and services in the economy, including consumer goods, investment goods, government goods and services, and exports. It is the broadest measure of inflation in the national income and product accounts (NIPA).

The consumer price index (CPI)

An index of the average prices paid by urban consumers for a typical market basket of consumer goods and services.

producer price index (PPI)

An index of the average prices received by domestic producers for their output.

What is the equation representing GDP using the expenditures approach?

C + I + G + X - M

Which approach to economic thinking was predominant before the Great Depression?

Classical

Which type of economist would most likely support no government involvement at all?

Classical Economist

Which of the following is not an issue studied in macroeconomics?

Coca-cola expands overseas.

Which of the following decisions would be a macroeconomic policy?

Congress deciding to raise the minimum age to receive Social Security

Strong consumer demand:

Consumers spend more money, demand increases, and prices rise.

catch-up effect

Countries with smaller starting levels of capital experience larger benefits from increased capital, allowing these countries to grow faster than countries with abundant capital.

discouraged workers

Discouraged workers are the portion of marginally attached workers who have given up actively looking for work and, as a result, are not counted as unemployed.

diminishing returns to capital

Each additional unit of capital provides a smaller increase in output than the previous unit of capital.

Recovery:

Economic activity picks up and the economy grows.

Which of the following persons is considered unemployed?

Emily has not worked for 6 months, but still applies for jobs every week

Protection of property rights:

Ensuring that monetary rewards are provided to innovators

net exports

Exports minus imports for the current period. Exports include all goods and services we sell abroad, while imports include all goods and services we buy from other countries.

Technology:

Funding research via grants and the establishment of major government research labs

GDP-PPP:

GDP adjusted for cost of living relative to a base country

personal consumption expenditures

Goods and services purchased by residents of the United States, whether individuals or businesses; they include durable goods, nondurable goods, and services.

Which of the following is not a policy goal of government?

High interest rates

productivity

How effectively inputs are converted into outputs. Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output. Productivity and living standards are closely related.

circular flow diagram

Illustrates how households and firms interact through product and resource markets and shows that economic aggregates can be determined by examining either spending flows or income flows to households.

investment in human capital

Improvements to the labor force from investments in skills, knowledge, and the overall quality of workers and their productivity.

informal economy

Includes all transactions that are conducted but are not licensed and/or generate income that is not reported to the government (for tax collection).

government spending

Includes the wages and salaries of government employees (federal, state, and local); the purchase of products and services from private businesses and the rest of the world; and government purchases of new structures and equipment.

What are the "twin evils" of macroeconomics?

Inflation and unemployment

Promoting free and competitive markets:

International trade allows for specialization and gains from trade, and competitive markets ensure firms do not exploit market power, their ability to set prices for goods and services in a market

gross private domestic investment (GPDI)

Investments in such things as structures (residential and nonresidential), equipment, and software, and changes in private inventories.

Which type of economist would most likely support a government stimulus package during a recession?

Keynesian

Long-Run Growth Involves Expanding Capacity

Long-run growth occurs when an economy finds new resources or improved ways to use existing resources.

The main assumption in the Classical model of growth is:

Markets are well-functioning and prices adjust quickly

production function

Measures the output that is produced using various combinations of inputs and a fixed level of technology.

Which type of economist would most likely support a gradual increase in the money supply and no large spending?

Monetarist

How does one become a member of the Federal Reserve Board?

Must be appointed by the President

Your IKEA furniture (a Swedish company) is produced in Poland. The value of this furniture is counted as:

Neither U.S. GDP nor U.S. GNP

Which of the following components is not used to measure GDP using the income approach?

Net exports

Recession:

Occurs when the economy runs out of

Which of the following persons is considered part of the labor force?

Paul, who is a senior in high school and works part-time on weekends at Boomers

Rule of 70

Provides an estimate of the number of years for a value to double, and is calculated as 70 divided by the annual growth rate.

Human capital:

Providing subsidized public college education, financial aid grants, and loans

real GDP per capita

Real GDP divided by population. Provides a rough estimate of a country's standard of living.

Economic growth is typically measured by:

Real GDP growth

Short-Run Growth Involves a Fixed Capacity

Short-run growth occurs when an economy makes use of existing but underutilized resources.

yield curve

Shows the relationship between the interest rate earned on a bond (measured on the vertical axis) and the length of time until the bond's maturity date (shown on the horizontal axis).

compounding

The ability of growth to build on previous growth. It allows variables such as income and GDP (as well as debt) to increase significantly over time.

price level

The absolute level of a price index, whether the consumer price index (CPI; retail prices), the producer price index (PPI; wholesale prices), or the GDP deflator (average price of all items in GDP).

Physical capital:

The building and maintenance of the country's public capital (infrastructure), which includes roads, bridges, airports, power plants, and telecommunications networks

capital-to-labor ratio

The capital employed per worker. A higher ratio means higher labor productivity and, as a result, higher wages.

Peak

The economy is operating at its capacity.

Trough

The economy reaches the depth of the recession.

Government printing money:

The government prints money to finance its borrowing, more money is chasing a relatively fixed amount of goods and services, and therefore prices rise.

natural rate of unemployment

The level of unemployment at which price and wage decisions are consistent; a level at which the actual inflation rate is equal to people's inflationary expectations and where cyclical unemployment is zero.

infrastructure

The public capital of a nation, including transportation networks, power-generating plants and transmission facilities, public education institutions, and other intangible resources such as protection of property rights and a stable monetary environment.

labor force

The total number of those employed and unemployed. The unemployment rate is the number of unemployed divided by the labor force, expressed as a percent.

real GDP

The total value of final goods and services produced in a country in a year measured using prices in a base year.

When hyperinflation occurs, which of the following would not occur?

The value of one's savings rises quickly.

When the economy hits the bottom of the business cycle, this is called a:

Trough

structural unemployment

Unemployment caused by changes in the structure of consumer demands or technology. It means that demand for some products declines and the skills of this industry's workers often become obsolete as well. This results in an extended bout of unemployment while new skills are developed.

frictional unemployment

Unemployment resulting from workers who voluntarily quit their jobs to search for better positions, or are moving to new jobs but may still take several days or weeks before they can report to their new employers.

cyclical unemployment

Unemployment that results from changes in the business cycle, and where public policymakers can have their greatest impact by keeping the economy on a steady, low-inflationary, solid growth path.

economic growth

Usually measured by the annual percentage change in real GDP, reflecting an improvement in the standard of living.

Supply shocks on key inputs:

When prices for goods with inelastic demand (such as food or oil) rise, the higher prices are passed on to other industries and to consumers.

underemployed workers

Workers who are forced to take jobs that do not fully utilize their education, background, or skills. Underemployed workers often hold part-time jobs.

marginally attached workers

Workers who were available for work and actively looked for it during the last 12 months, but not in the last 4 weeks.

If Kazakhstan grows at 5% per year and Germany grows at 3% per year, does this make a difference in the long run?

Yes, because a 2% difference in growth is substantial over time with compounding

A business cycle recovery that doesn't reach its long-term trend can lead to:

a double dip recession

Inflation is measured by a price index based on:

a representative basket of goods and services

The major components of the NIPA can be found in either of two ways:

by adding up the income in the economy or by adding up spending.

The largest component of GDP using the expenditures approach is:

consumption

If Henry gets laid off from a high paying job and temporarily works at Publix, he is considered:

employed

The largest component of GDP using the income approach is:

employee compensation

What type of government policy involves changing income tax rates?

fiscal policy

he natural rate of unemployment is the sum of:

frictional and structural unemployment

If Casey hates his boss and quits, but then finds a new job two weeks later, Casey would be classified as _____ during the two weeks he was out of work.

frictionally unemployed

Which of the following would least likely contribute to economic growth?

high population growth

If Charlie's hourly wage rate increases from $10 to $11, but the price level rises from 50 to 55, how does his real wage change?

his real wage does not change

What does GDP not include?

intermediate goods

The natural rate of unemployment or nonaccelerating inflation rate of unemployment (NAIRU)

is the rate of unemployment that exists when prices and wages are equal to people's expectations. At the natural rate of unemployment, the economy is at "full employment."

The national income and product accounts (NIPA)

let economists judge our nation's economic performance, compare U.S. income and output to that of other nations, and track the economy's condition over the course of the business cycle

f a slowdown in China's economy causes U.S. economic growth to slow, this would be a:

macroeconomic issue

What type of government policy involves changing interest rates?

monetary policy

Homer is fired from the power plant and goes back to school to earn a college degree. Homer is considered:

not part of the labor force

Short-run growth

occurs when an economy makes use of existing or underutilized resources, and is shown as a movement from inside a PPF toward the PPF (such as from point a to point b).

Long-run growth

requires an expansion of production capacity through an increase in resources and/or technology, and is shown by a shift of the PPF (such as from PPFA to PPFB).

When someone is considered underemployed, this means s/he is:

working a low-paying job until a better job is found