Econ 101 cullivan Midterm 2

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2, except that business inventories increased by $10 billion. GDP in year 2 is _____.

$210 billion

If real GDP per person was equal to $2,000 in 1900 and grew at a 1 percent annual rate, what would be the value of real GDP per person 100 years later?

$5,410

Which of the following is the correct way to calculate the unemployment rate?

(unemployed/labor force) x 100

Use the following table to answer the question below. GDP figures are in billions of dollars. Year Nominal GDP Real GDP Price Index 1 5,200 4,800 -- 2 5,500 -- 112 3 5,750 5,000 -- What is the GDP price index in year 1?

108.3

A nation's average annual real GDP growth rate is 5%. Based on the "rule of 72," the approximate number of years that it would take for this nation's real GDP to double is

14.4 years.

A nation's average annual real GDP growth rate is 3%. Based on the "rule of 72," the approximate number of years that it would take for this nation's real GDP to double is

24 years.

Use the following table to answer the next question. Year Alta Zorn Alta Zorn (Real GDP) (Real GDP) (Population) (Population) 1 $2,000 $150,000 200 500 2 2,100 152,000 202 505 3 2,200 154,000 210 508 Between years 1 and 2, real GDP per capita grew by approximately __________ percent in Alta.

4

The total population of an economy is 175 million, the labor force is 125 million, and the number of employed workers is 117 million. The unemployment rate for this economy is

6%.

Over a 10-year period, the Consumer Price Index doubled. On the basis of this information and using the rule of 72, we can say that the average annual rate of inflation over this period was approximately

7%.

The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is

9 million.

Suppose there are two economies, Alpha and Beta, that have the same production possibilities frontiers. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future

Beta will experience greater economic growth than Alpha.

Which of the following statements is correct?

For a given real interest rate, the nominal interest must increase if expected inflation increases.

In year 1, the Consumer Price Index was 120 and the average nominal income was $30,000. In year 2, the Consumer Price Index was 125 and the average nominal level of income was $32,000. What happened to real income from year 1 to year 2?

It rose by $600.

If labor market institutions change so that it becomes easier to find a job, and unemployed people are unemployed for smaller durations of time, what would happen to the natural rate of unemployment?

It would decrease.

Environmental pollution is accounted for in _____.

None of these

The selection of which point on the production possibilities frontier is most likely to result in the largest increase in economic growth over time?

Point 1

What do government purchases include in national income accounting?

Purchases by federal, state, and local governments

Which of the following is an example of an intermediate good?

The lumber produced by Boise Cascade and sold to a builder of old houses

Which of the following is not a component of gross investment?

The purchase of 100 shares of AT&T by a retired business executive.

Suppose Canada has a population of 30 million people and a labor force participation rate of 2/3. Furthermore, suppose the natural rate of unemployment in Canada is 7%. If the current number of unemployed people is 1.4 million people, what can we conclude about Canada's economy?

There is no cyclical unemployment present in the economy.

Suppose that inventories were $40 billion in 2012 and $50 billion in 2013. In 2013, national income accountants would _____.

add $10 billion to other elements of investment in calculating total investment

Nominal GDP is the market value of _____.

all final goods and services produced in an economy in a given year

Use the following diagram to answer the next question. The most likely cause for a shift in the production possibilities frontier from AB to CD is

an increase in the quantity and quality of labor resources.

Curve (a) is the initial frontier for the economy, and the nation is initially producing combination P. A shift from curve (a) to curve (b) suggests that the economy can then increase its production of capital goods

and consumer goods simultaneously, except at the point where the curve intersects the vertical axis.

The unemployed are those people who

are not employed but are seeking work.

Real GDP per capita is a

better measure of the physical environment than output.

The recurrent ups and downs in the level of economic activity extending over several years are referred to as

business cycles.

GDP can be calculated by summing _____.

consumption, investment, government purchases, and net exports

The cost of a higher living standard in the future is giving up

current consumption.

The consumption of fixed capital in each year's production is called _____.

depreciation

he principle that if the amount of labor and other inputs is held constant, then the greater the amount of capital in use, the less an additional unit of capital adds to production is called the principle of

diminishing returns to capital.

In the expenditures approach of national income accounting, C, I, and G include expenditures for _____.

domestically-produced, as well as imported, goods and services

In the expansion phase of a business cycle

employment and output increase.

A trough in the business cycle occurs when

employment and output reach their lowest levels.

The value of corporate stocks and bonds traded in a given year is _____.

excluded from the calculation of GDP because it does not represent new production

"Net foreign factor income" in the national income accounts refers to the difference between the _____.

income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the U.S.

Usually an abundance of natural resources ______ labor productivity.

increases

The U.S. produces and sells millions of different products. To aggregate them together into a single measure of domestic output, the quantity of each good produced is weighted by its _____.

market price

When gross investment is positive, net investment _____.

may be either positive or negative

The presence of discouraged workers

may cause the official unemployment rate to understate the true amount of unemployment.

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result, the

official unemployment rate will remain unchanged.

Economic growth can best be portrayed as a(n)

outward shift of the production possibilities frontier.

If an economy produces 100 pencils and 100 pens, and pencils sell for twice as much as pens, _____.

pencils are weighted as twice as important in the economy compared to pens

When a firm builds a new factory, this is an example of an investment in

physical capital.

To increase future living standards by pursuing higher current rates of investment spending, an economy must

reduce current rates of consumption spending.

If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, its real GDP per capita will

remain constant.

Consumption of fixed capital (depreciation) can be determined by _____.

subtracting net investment from gross investment

The inflation rate measures the percentage growth rate of

the CPI from one year to the next.

Which of the following measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?

the Consumer Price Index

Which measure of inflation would include consumer goods and capital goods?

the GDP Price Index

Net foreign factor income is _____.

the difference between the income people in a country receive from resources owned in foreign countries and the income people in foreign countries receive from resources owned domestically

Nominal GDP is _____.

the sum of all monetary transactions involving final goods and services that occur in the economy in a year

Human capital is

the talents, training, and education of workers.

GDP tends to overstate economic well-being because it takes into account _____.

total spending to deal with the adverse health effects of some products

The "rule of 72" is a formula for determining the approximate number of

years that it would take for a value (like real GDP) to double.