Econ 110 Test 2

Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I= $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion Refer to Scenario above. Based on the information above, what is the level of private saving in the economy? A. $3 trillion B. $4 trillion C. $5 trillion D. $8 trillion

A. $3 trillion

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2010, then the value of your grandfather's salary in 2010 dollars is approximately A. $84,775. B. $63,830. C. $37,200. D. $26,280.

A. $84,775.

If real GDP per capita doubles between 2005 and 2020, what is the average annual growth rate of real GDP per capita? A. 4.7% B. 10.5% C. 15% D. 21%

A. 4.7%

The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is A. 5% higher in year 2 than in year 1. B. 105% higher in year 2 than in year 1. C. 5% higher in year 1 than in year 2. D. 105% higher in year 1 than in year 2.

A. 5% higher in year 2 than in year 1.

An increase in the real interest rate will decrease consumption and investment. A. True B. False

A. True

If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy. A. True B. False

A. True

If inflationary expectations are increasing, we would expect that the nominal interest rate would also be increasing, holding all else constant. A. True B. False

A. True

The natural rate of unemployment consists of frictional unemployment plus structural unemployment. A. True B. False

A. True

In a closed economy, which of the following equations reflects investment? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers) A. Y - C - G B. Y - C - T C. Y - T + TR D. C + G -T

A. Y - C - G

If consumers decide to be more frugal and save more out of their income, then this will cause A. a shift in the supply curve for loanable funds to the right. B. a shift in the supply curve for loanable funds to the left. C. a movement to the right along the supply curve for loanable funds. D. a movement to the left along the supply curve for loanable funds.

A. a shift in the supply curve for loanable funds to the right.

Which of the following will increase investment spending in the economy, holding everything else constant? A. an increase in the federal government surplus B. an increase in the budget deficit C. an increase in consumer dissavings D. an increase in transfer payments

A. an increase in the federal government surplus

Financial securities that represent promises to repay a fixed amount of funds are known as A. bonds. B. stocks. C. pension funds. D. insurance premiums.

A. bonds.

When actual inflation is less than expected inflation, A. borrowers lose and lenders gain. B. borrowers gain and lenders lose. C. borrowers and lenders both gain. D. borrowers and lenders both lose.

A. borrowers lose and lenders gain.

Consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket. A. change; over-estimates B. change; under-estimates C. do not change; over-estimates D. do not change; under-estimates

A. change; over-estimates

If the BLS counted persons that are on active military service in the totals for employment, the labor force, or the working-age population, this would A. decrease the measured unemployment rate. B. decrease the measured labor force participation rate. C. decrease the number of persons in the labor force. D. decrease the number of persons in the working-age population.

A. decrease the measured unemployment rate.

A student who just graduated from college but has not found a job would most likely be A. frictionally unemployed. B. structurally unemployed. C. cyclically unemployed. D. seasonally unemployed.

A. frictionally unemployed.

In the United States since the mid-1980s, consumption as a percentage of GDP has A. increased. B. slowly decreased. C. remained the same. D. dropped by more than half.

A. increased.

An advantage of the establishment survey over the household survey of the labor market is that the establishment survey A. is based on actual payrolls, rather than on unverified answers. B. includes the number of self-employed persons. C. includes persons employed at newly opened firms. D. provides an estimate of the number of persons unemployed.

A. is based on actual payrolls, rather than on unverified answers.

The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds. A. lower; greater; greater B. lower; smaller; greater C. greater; greater; greater D. greater; smaller; greater

A. lower; greater; greater

Since 1900, real GDP in the United States has grown A. more rapidly than the population. B. more slowly than the population. C. as rapidly as the population. D. in a random unpredictable manner relative to the population.

A. more rapidly than the population.

If cyclical unemployment is eliminated in the economy, then A. the economy is considered to be at full employment. B. the unemployment rate is below the natural rate of unemployment. C. the unemployment rate is above the natural rate of unemployment. D. the economy is at less than full employment

A. the economy is considered to be at full employment.

The average price of goods and services in the economy is also known as A. the price level. B. the inflation rate. C. a market basket. D. the cost of living

A. the price level

If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on A. the producer price index. B. the consumer price index. C. the GDP deflator. D. the household price index.

A. the producer price index.

To reduce the bias in the consumer price index, the Bureau of Labor Statistics A. updates the market basket every two years, rather than every 10 years. B. updates the market basket every 10 years, rather than every two years. C. incorporates substitutions by consumers when prices of specific products rise rapidly. D. incorporates substitutions by consumers when prices of specific products fall rapidly.

A. updates the market basket every two years, rather than every 10 years.

Refer to Table above. Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals A. $7,400. B. $6,400. C. $5,800. D. 2,440 units

B. $6,400.

Refer to Table above. Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The base year used in calculating real GDP is A. 2008. B. 2009. C. 2010. D. 2011.

B. 2009

Accumulating a greater number of inputs will ensure that an economy will experience economic growth. A. True B. False

B. False

Counting part-time workers who are looking for full-time work as employed overstates the degree of joblessness in the economy. A. True B. False

B. False

Efficiency wage is another name for the minimum wage. A. True B. False

B. False

Nominal income is equal to real income if the CPI is less than 100. A. True B. False

B. False

Potential GDP is the maximum output a firm is capable of producing. A. True B. False

B. False

Residential investment includes spending by firms on office buildings. A. True B. False

B. False

The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household. A. True B. False

B. False

Transfer payments are subtracted from national income to get to personal income. A. True B. False

B. False

The output of Mexican citizens who work in Texas would be included in the A. gross domestic product of Mexico. B. gross national product of Mexico. C. gross national product of the United States. D. net national product of the United States.

B. gross national product of Mexico.

Refer to Figure above. Which of the following is consistent with the graph depicted above? A. An expected recession decreases the profitability of new investment. B. Technological change increases the profitability of new investment. C. The government runs a budget surplus. D. Households become spendthrifts and begin to save less.

B. Technological change increases the profitability of new investment.

An example of business fixed investment spending is A. a purchase of a home by a household. B. a purchase of a computer by an accounting firm. C. a purchase of a bond by General Electric Corporation. D. $200 million of unsold cars at a car dealership

B. a purchase of a computer by an accounting firm.

Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation A. equal to 0 percent. B. greater than 7 percent. C. equal to 7 percent. D. less than 7 percent.

B. greater than 7 percent.

A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements. This will A. increase GDP and increase well being in the economy. B. increase GDP and decrease well being in the economy. C. decrease GDP and increase well being in the economy. D. decrease GDP and decrease well being in the economy.

B. increase GDP and decrease well being in the economy.

Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would A. increase the measured unemployment rate. B. increase the measured labor force participation rate. C. decrease the number of persons in the labor force. D. decrease the number of persons in the working-age population.

B. increase the measured labor force participation rate.

Technological advances generally result in A. decreased incomes. B. increased life expectancy. C. increased infant mortality rates. D. increased average number of hours worked per day.

B. increased life expectancy.

The cost to firms of changing prices A. is small even when there is rapid inflation. B. is called a menu cost. C. does not exist if inflation is perfectly anticipated. D. all of the above

B. is called a menu cost.

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as A. technology. B. labor productivity. C. real GDP. D. human capital.

B. labor productivity.

The advice to "retrain" would be most appropriate for which of the following types of unemployment? A. frictional unemployment B. structural unemployment C. cyclical unemployment D. core unemployment

B. structural unemployment

The unemployment rate is an important economic statistic that can tell us about the health of the economy. If the unemployment rate turns out to be high or higher than anticipated, we would expect A. it is more likely that an incumbent president will be re-elected. B. that stock prices are more likely to fall. C. that jobs are less difficult to find. D. that investors will be more optimistic about the economy.

B. that stock prices are more likely to fall.

Liquidity refers to A. the ease with a stock can be traded for a bond. B. the ease with which a financial security can be traded for cash. C. the number of times a dollar changes hands in the creation of GDP in an economy. D. the number of shares of stock a corporation issues.

B. the ease with which a financial security can be traded for cash.

Suppose that nominal GDP in 2011 was less than real GDP in 2011. Given this information, we know for certain that A. the price level in 2011 was greater than the price level in the base year. B. the price level in 2011 was less than the price level in the base year. C. real GDP in 2011 was less than real GDP in the base year. D. real GDP in 2011 was greater than real GDP in the base year.

B. the price level in 2011 was less than the price level in the base year.

Refer to Table above. Real GDP for Vicuna for 2009 using 2011 as the base year equals A. $4,620. B. $5,100. C. $5,650. D. $5,850.

C. $5,650.

Refer to Table above. The labor force participation rate for this simple economy equals A. (1,000/1,100) × 100. B. (1,000/15,000) × 100. C. (1,100/15,000) × 100. D. (1,100/20,000) × 100.

C. (1,100/15,000) × 100.

Refer to Table above. Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The GDP deflator for 2011 equals A. 92.2. B. 102.6. C. 108.5. D. 109.1.

C. 108.5.

Refer to Table above. Using the table above, what is the approximate average annual growth rate from 2008 to 2011? A. 1% B. 1.5% C. 2% D. 3%

C. 2%

Refer to Table above. Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to A. 1.2 percent. B. 2.0 percent. C. 2.5 percent. D. 4.0 percent.

C. 2.5 percent.

Which of the following statements is true about the U.S. economy? A. Each year, many new jobs are created, but few existing jobs are destroyed, and the unemployed find jobs quickly. B. Each year, few new jobs are created, but few existing jobs are destroyed, keeping unemployment low. C. Each year, many new jobs are created and many existing jobs are destroyed. D. Each year few jobs are created, and therefore it takes the unemployed a long time to find a new job.

C. Each year, many new jobs are created and many existing jobs are destroyed.

Which of the following would increase the unemployment rate? A. a law making it illegal to work more than 35 hours per week B. a cut in unemployment compensation C. an increase in unemployment insurance payments D. a decrease in the minimum wage

C. an increase in unemployment insurance payments

The consumer price index is the A. cost of a market basket of goods and services typically consumed in the base year. B. cost of a market basket of goods and services typically consumed in the current period. C. average of the prices of the goods and services purchased by a typical urban family of four. D. average of the prices of new final goods and services produced in the economy over a period

C. average of the prices of the goods and services purchased by a typical urban family of four.

The response of investment spending to an increase in the government budget deficit is called A. expansionary investment. B. private dissaving. C. crowding out. D. income minus net taxes.

C. crowding out.

Since 1948, the labor force participation rate for adult men has ________ and for adult women has ________. A. increased; increased B. increased; decreased C. decreased; increased D. decreased; decreased

C. decreased; increased

If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion, the growth rate of real GDP between 2010 and 2011 A. is 3.0%. B. is 3.6%. C. is 3.75%. D. cannot be determined from the information given.

C. is 3.75%.

Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will A. increase. B. decrease. C. remain constant. D. not change in a way that can be predicted.

C. remain constant.

What two factors are the keys to determining labor productivity? A. the business cycle and the growth rate of real GDP B. the growth rate of real GDP and the interest rate C. technology and the quantity of capital per hour worked D. the average level of education of the workforce and the price level

C. technology and the quantity of capital per hour worked

Refer to Table above. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals A. $2,200. B. $1,600. C. $1,400. D. $1,200.

D. $1,200

Refer to Table above. Assume the market basket for the consumer price index has three products — Cokes, hamburgers, and CDs — with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals A. 75. B. 93. C. 108. D. 121.

D. 121.

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest? A. -9.5% B. -3.5% C. 1.5% D. 3.5%

D. 3.5%

The nominal GDP of the U.S. in 2010 was approximately $14.6 trillion. This means that A. the value of output in 2010 was around $14.6 trillion. B. total income in 2010 was around $14.6 trillion. C. total spending in 2010 was around $14.6 trillion. D. all of the above are true.

D. All of the above are true.

You earned $30,000 in 1990, and your salary rose to $80,000 in 2011. If the CPI rose from 82 to 202 between 1990 and 2011, which of the following is true? A. There was deflation between 1990 and 2011. B. The purchasing power of your salary fell between 1990 and 2011. C. The purchasing power of your salary remained constant between 1990 and 2011. D. The purchasing power of your salary increased between 1990 and 2011.

D. The purchasing power of your salary increased between 1990 and 2011.

Which of the following transactions represents the purchase of a final good? A. Starbucks purchases coffee beans. B. Delta buys a new European-made jetliner. C. Apple computer buys computer processors from Intel. D. Your father buys a new John Deere riding lawn mower.

D. Your father buys a new John Deere riding lawn mower

Which of the following describes a situation in which the person is hurt by inflation? A. a retiree whose pension is adjusted for inflation B. a person who borrows money during a period when inflation is under-predicted C. a person who lends money during a period when inflation is over-predicted D. a person paid a fixed income during an inflationary period

D. a person paid a fixed income during an inflationary period

Cyclical unemployment is the result of A. a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs. B. the search process of matching workers with jobs. C. the ups and downs in inflation. D. a slowdown in the economy.

D. a slowdown in the economy.

Wage laws cause unemployment because the legal minimum wage is set A. below the market wage, causing labor demand to be greater than labor supply. B. below the market wage, causing labor demand to be less than labor supply C. above the market wage, causing labor demand to be greater than labor supply. D. above the market wage, causing labor demand to be less than labor supply.

D. above the market wage, causing labor demand to be less than labor supply.

Which of the following would encourage economic growth through increases in the capital stock? A. a change from an income tax to a consumption tax B. an increase in household saving C. a decrease in the government deficit D. all of the above

D. all of the above

Which of the following policies would reduce frictional unemployment? A. a decrease in the minimum wage B. a job retraining program C. implementing an unemployment insurance policy D. building an on-line job database that helps workers find jobs

D. building an on-line job database that helps workers find jobs

Gross domestic product understates the total production of final goods and services because of the omission of A. exports. B. inflation. C. intermediate goods. D. household production.

D. household production.

The percent increase in the CPI from one year to the next is a measure of the A. GDP deflator. B. unemployment rate. C. real interest rate. D. inflation rate.

D. inflation rate.

The "new product bias" in the consumer price index refers to the idea that A. consumers switch to new goods when the prices of old goods increase, and the CPI overestimates the cost to consumers. B. consumers switch to old goods when the prices of new goods increase, and the CPI underestimates the cost to consumers. C. consumers prefer new goods, even if they are worse in quality than old goods, and this causes the CPI to underestimate the cost to consumers. D. new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

D. new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

The Bureau of Labor Statistics would categorize a retiree who is not working as A. employed. B. unemployed. C. a discouraged worker. D. out of the labor force.

D. out of the labor force.

A consumer price index of 160 in 1996 with a base year of 1982-1984 would mean that the cost of the market basket A. equaled $160 in 1996. B. equaled $160 in 1983. C. rose 160% from the cost of the market basket in the base year. D. rose 60% from the cost of the market basket in the base year.

D. rose 60% from the cost of the market basket in the base year.

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness? A. inflation B. discouraged workers C. counting people as employed who are working part time, although they would prefer to be working full time D. unemployed persons falsely report themselves to be actively looking for a job

D. unemployed persons falsely report themselves to be actively looking for a job

Real GDP is GDP in a given year A. adjusted only for anticipated inflation. B. adjusted only for unanticipated inflation. C. valued in the prices of that year. D. valued in the prices of the base year.

D. valued in the prices of the base year.

During a business cycle expansion, total production ________ and total employment ________.

increases; decreases

In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means that the BEA A. simply counts the total number of goods produced in the market place and then adds them up. B. values goods at their market prices, multiplies them by the quantity produced, and then adds them up. C. simply counts the total number of goods and services produced in the marketplace and then adds them up. D. values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.