econ 2 - midterm 2 modules 5 - 8

With the introduction of robotics to automotive manufacturing, there have been sweeping changes to the automotive assembly line, management and operations at plants. As an example, in a truck manufacturing plant, identify who would most likely be impacted by this technology change and suffer long term structural unemployment?

An assembly line worker with 10 years of screwing together truck panels and a high school diploma.

Which scenario could you use as an example of frictional unemployment when explaining it to a friend?

An economics professor living and working in California accepts a new position at a college in New Jersey. She takes two months after finishing her current work to wrap things up and move out East.

David's pay last year was $100,000. His pay this year increased to $115,000. The consumer price index increased from 100 to 115 over the same time period. What has happened to David's real income from last year to this year?

David's real income is unchanged.

Which of the following does NOT describe inflation?

It means that the price of every good and service is rising.

Janice has calculated the GDP for 2018 by using the total final goods times the 2018 prices of total goods. If Janice wishes to create a real value GDP value for 2018, what must she do?

Janice must adjust the total value 2018 GDP for inflation.

Which of the following is not an example of structural unemployment?

Loan officers losing jobs during the 2009 recession.

What might shift aggregate demand?

Loss of business confidence.

In 1985 inflation in Israel reached a record 500%. How did this period of high inflation affect market adjustments towards equilibrium price and quantity?

Markets adjusted to equilibrium more erratically and slowly.

Which of the following is the name used to describe the price index that consists of raw materials and intermediate goods?

Producer Price Index

Which of the following descriptions reflects the AD-AS model most accurately?

Real GDP is shown on the horizontal axis and price level is shown on the vertical axis.

What does the US unemployment rate range normally return to as the long-run average?

Somewhere between 4% and 6%.

The mid-1990s saw a rise in the use of mobile phones in the general population. The technology continued to improve in the early 2000s and in the mid-2000s smartphones revolutionized the way people communicated. The technology has changed very rapidly and improved the lives of consumers. With these rapid changes, what would you suspect has happened to the CPI calculation?

The CPI has overstated the cost of living because of quality improvement bias.

Which of the following will affect the steepness of the aggregate supply curve?

The decrease in production costs.

When the federal government calculates the cost of living they use the core inflation index instead of CPI, and use it to make policy decisions. What is one of the reasons to use the core inflation index as opposed to the CPI?

The fluctuations in food and energy prices can be momentary.

The unemployment rate measures:

The percentage of the labor force who do not have a job, but are looking for one.

What does the unemployment rate measure?

The percentage of the labor force who do not have a job, but are looking for one.

For the definition of inflation, which of the following BEST fits?

The price of most goods and services increases by 6% over a 3 year period.

The base year for the price index is

an arbitrary year from which to measure price changes.

In the chart below concerning the shifts in aggregate supply, arrow B represents an economy that is moving in response to ________

an decrease in input prices

The aggregate demand represents total spending on ________.

a nation's domestic output of goods and services

Gross Domestic Product (GDP) is designed to measure:

a nation's total production of final goods and services.

An economic indicator is:

a statistic that helps us understand how the economy is doing.

A price index is

a weighted average price of some type of good or service (e.g. consumer prices).

In macroeconomics, ________ denotes the total quantity of spending on domestic goods and services.

aggregate demand (AD)

One of the important factors supporting economic growth is

an effective system of laws.

If the economy is in a recession, appropriate policies to pursue may include

an income tax cut that shifts the AD curve to the right.

why does inflation increase uncertainly in the market?

because it is harder to stay aware of how one product cost compares to another

Aggregate Demand (AD) is defined as C + I + G + (X-M). C refers to ________.

consumption spending

The prices of which of the following items are included in the GDP deflator?

consumption, investment, government expenditures plus exports minus imports

In the AS-AD model, when actual GDP falls below potential real GDP in the equilibrium of the AD and short-run AS curves, then

cyclical unemployment occurs.

Bill is a construction worker who was laid off because the market for new homes was adversely affected in the recession. Bill's unemployment experience is referred to as

cyclical unemployment.

The consequences of unemployment are likely more serious in developing countries because...

developing countries are more likely to lack unemployment assistance programs.

A long-run process that occurs as a country's potential output increases is the description for

economic growth.

The idea that firms will get the most for their money when they pay wages higher than the equilibrium wage is called:

efficiency-wage theory.

If real GDP is close to or at potential GDP then ________ and if real GDP is not close to potential GDP then ________.

equilibrium occurs in the steep range of AS; equilibrium occurs in the flat range of AS

If the aggregate demand (AD)-aggregate supply (AS) model are equal

equilibrium occurs.

Concerning the four phases in the economic cycle, the area by point A in this graph represents an economic ________.

expansion

tom graduated from college in June but was still looking for work in August. this is an example of

frictional unemployment

which types of unemployment exist at all times and determine the natural rate of unemployment?

frictional unemployment and structural unemployment

Which of the following is included in GDP?

government purchases of labor, goods, and services

Aggregate Demand (AD) is defined as C + I + G + (X-M). G refers to ________.

government spending

Which is the largest expenditure category in the US CPI?

housing

Cyclical unemployment is shown on the aggregate demand-aggregate supply (AD-AS) diagram by

how close the economy is to potential or full employment level of GDP.

With a Real GDP of $15 trillion in 2015 and of $18 trillion in 2016, the real growth would be ________.

20%

which group of people is harmed by the redistribution of purchasing power due to unexpected inflation?

lenders

If an individual was studying the economic policies designed to stimulate the country's economy out of a recession they would be a

macroeconomist.

if you were to look at the CPI calculations based from 1984-1986, what of the following goods would likely be left out of that CPI calculation?

smart phones

After the success of the Apollo space program, in the mid-1970s NASA budget cuts results in a decrease in the number of jobs for aerospace engineers. This was an example of ________.

structural unemployment.

what is excluded from the official calculation of the unemployment rate?

student who are attending school full time and not working

An increase in aggregate demand would cause

the price levels to rise

Consider an economy at full employment. If consumers and firms become less optimistic about the future economy then

unemployment will rise.

In measuring GDP as the sum of all incomes earned in production, we should include

wages and salaries.

A ________ in an AD/AS diagram could explain a decrease in cyclical unemployment.

shift in AS to the right

If the government saw that consumer confidence was low, what step can it take to shift the AD to the right?

Congress can pass tax cuts.

Which of the following BEST describes the effect inflation has on purchasing power in the United States over the past several decades?

$100 today has the same purchasing power as $15 in 1972.

Kim's nominal income is $75,000. If the consumer price index is 75, Kim's real income is ________ in base year prices.

$100,000

If depreciation equals $36 billion, GNP equals $240 billion, and national income is $225 billion, then what is the Net National Product?

$204 billion

In the table below there are three years of a basket of retail goods. From this information calculate the price index of 1990 if the base year in 1980? (round your answer to the nearest whole number)

245

In 2008 the price index was calculated at 165.2 with 2005 as the base year. In 2009 the price index increased to 181.6. What was the inflation from 2008-2009?

9.9%

After a prolonged period of high inflation the government of Atlantia decides to set a target of 0% inflation going forward. As the new assistant economic minister, you are tasked with critiquing this policy. Which criticism of the 0% inflation target is best supported by the economic literature?

A 0% inflation target could lead to deflation.

Typically, if consumer and business confidence is low then ________ and if consumer and business confidence is high then ________.

AD shifts to the left; AD shifts to the right

Which of the following captures all the components of GDP?

C + I + G + (X - M)

In the country of Cardonia, the natural rate of unemployment is 3.5% according to the Ministry of Economics. Last year there was an economic slow down where the actual rate of unemployment increased to 4.5%. Assuming that the unemployment percentages are accurate for Cardonia, what is the likely outcome for the economy of Cardonia?

Cardonia's economy will grow until real GDP is equal to potential real GDP and the unemployment rate equals 3.5%.

By the early 2000s, worker productivity growth spiked as more temporary workers were employed as they looked for more permanent work. How did this affect the natural unemployment rate?

Natural unemployment decreased as fewer workers were without jobs while looking for more permanent jobs.

Which of the following promotes economic growth?

Political stability and property rights protection.

Which of the following statements is true concerning real GDP in the short run?

This is a period of time for real GDP when wages are sticky in response to a change in demand.

Economic growth is

a long-run process that occurs as a country's potential output increases.

Aggregate Demand (AD) is defined as C + I + G + (X-M). M = ________.

import expenditure

Which of the following would cause a positive demand shock (shift to the right) in aggregate demand?

increased consumer confidence and spending.

Aggregate Demand (AD) is defined as C + I + G + (X-M). I refers to ________.

investment spending

If productivity increases from one year to the next,

nominal and real gross domestic product would increase.

Fred is reading through a news article about the nation's GDP. The article mentions as part of its calculations, consumption expenditures. What is included in the GDP calculation of consumption?

nondurable and durable goods

Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered:

out of the labor force

With the economy at full employment, consumers and firms become more optimistic about the future economy and

output will rise.

The term "full employment GDP" is synonymous with which of the following?

potential GDP

An AD/AS model showing equilibrium in the steep section of the aggregate supply curve suggests

potential GDP is being met.

Aggregate supply (AS) denotes, while holding the price of inputs fixed, the ________ that firms choose to produce and ________.

price level for output; GDP

One benefit to falling aggregate demand is that

price levels go down.

the producer price index is based on prices paid for supplies and inputs by

producers of goods and services

When calculating GDP, investment refers to the

purchase of new capital goods like equipment and inventories.

Investment, when calculating GDP, refers to the

purchase of new capital goods like real estate, equipment, and inventories.

Economists typically measure economic growth by tracking

real GDP per capita.

As interest rates rise, the effect on aggregate demand is to

reduce consumer borrowing and consumption spending.

Inflationary pressure in the AS-AD model can be shown as a

rightward shift of the AD curve when the economy is already producing at its potential GDP.

Which of the following is NOT a major component of GDP as measured by the expenditure approach?

taxation

Shifts in the aggregate supply curve can be caused by

technological innovation.

Which of the following would fall in the investment component of GDP?

The amount spent on new factories.

Assume the economy of country C produces hotdogs and buns in the following quantities and prices in 2016 and 2017. Assume also that 2016 is the base year and the real GDP will be calculated using 2016 prices. What is the real GDP 2017? Hot Dogs Buns Quantity Price Quantity Price Year 2016 (base year) 20 million $2 15 million $1 Year 2017 22 million $3 16 million $2

$60 million.

The country of Bolivia had a Gross Domestic Product of $79 billion in 2016 and a population of 11 million people, the GDP per capita would be ________.

$7,182

Calculate the NNP using the figures in the table. What is the NNP? Government Purchases $220 billion Depreciation $35 billion Consumption $575 billion Investment $55 billion Exports $120 billion Imports $110 billion Income receipts from rest of the world $12 billion Income payments to rest of the world $9 billion

$828 billion

Of the following inflation rates, which is most likely to affect consumer behavior?

17%

Typically, if consumer and business confidence is high then ________ and if consumer and business confidence is low then ________.

AD shifts to the right; AD shifts to the left

________ is the idea that only the most efficient workers will depart in response to a wage cut.

Adverse selection of wage cuts

Cross-country comparisons of unemployment rates are difficult for all the following reasons except:

Higher government employment in developed countries.

After getting her degree in Economics, Jeanine went to work for the Bureau of Labor Statistics. She compiles data on the unemployment rate, which serves as an economic indicator. What does this data help Jeanine to understand?

How the economy is doing at a macro level.

Which factor drives economic growth?

Improved technology.

Which of the following things are taken into consideration when using the aggregate demand-aggregate supply (AD-AS) model to illustrate growth and changes in the economy?

Increased labor productivity.

The Krisp Kracker company which makes unique kettle chips for restaurants, clubs, and events, has just lost a large client that made up 55% of its total revenue. Management finds it necessary to reduce staff or wages. This comes only three months after hiring 35 new people to support this big client. While there are rumors of wage reductions in the short run, the 100 employees who have been with the company for the past two years are grumbling that they are more valuable that the new hires which should be let go and the wages not reduced. The situation at Krisp Kracker illustrates which wage stickiness theory best?

Insider-outsider model

If economists design a way to eliminate the new goods bias in CPI calculations, how is the CPI likely to change as a result?

The CPI will grow at a slower rate.

Bob is measuring the GDP in 2018 by using the quantity of each final good and service produced in 2018, multiplied by the price at which the goods and services were sold in 2018. What type of calculation is Bob creating?

The GDP using nominal values.

Which of the following describes the macroeconomy?

The US inflation rate has been under 2% annually over the last 7 years.

Which of the following is unlikely to affect labor productivity?

The frequency of business cycles.

All else equal, how would decreasing unemployment insurance affect the natural rate of unemployment?

The natural rate of unemployment is likely to decrease.

The country of Wachovia has an economy that will double in 144 years. From what you've learned of the power of compound growth what does this mean for Wachovia?

Wachovia has a slow growing economy at a growth rate of .5% per year.

To measure a real increase in wages,

the wages would have to be adjusted for inflation overtime.

In the AS-AD model, cyclical unemployment occurs when

actual GDP falls below potential real GDP in the equilibrium of the AD and short-run AS curves.

with a consumer price index of 179.8 at the end of last year and 186.5 at the end of this year, the country experienced which of the following ?

an inflation rate of 3.59 percent

Inflation makes certain things less valuable in real terms, including:

anything expressed in dollars.

Which of the following is the alternating periods of expansion and contraction in real GDP?

business cycles

Beth has been unemployed for two months from her accounting job. She has interviewed with a number of other firms, but has not received a job offer. Her debt are increasing and at this point she needs to find a job just to cover her expenses at least. She now begins to look for positions in places that pay lower wages that what she would like. What is Beth's experience called in economic terms?

cyclical unemployment

Cyclical unemployment is caused by the ________ for labor ________ during a recession.

demand; moving to the left

If equilibrium occurs in the flat range of the AS curve, then the:

economy is experiencing unemployment.

the idea that firms will get the most for their money when they pay wages higher than the equilibrium wages is called:

efficiency-wage theory

In general, capital deepening results in

greater economic growth.

in the last few decades the car manufacturing sector has found it difficult to compete with foreign car imports. high labor costs is one of the main reasons economist site as the lack of competitiveness for the car manufacturing industry. if there was modest inflation, how could it possibly help the car manufacturing industry in the United States compete with foreign car manufacturers?

it could allow real wages to downwardly adjust more easily

Over the past 50 years, which component of spending has steadily gained as a percentage of the total?

services

The redistribution of purchasing power due to unexpected inflation benefits which group of people?

students with fixed-rate educational loans

to find unemployment, you need to calculate

the number of unemployed workers divided by the labor force

what is the relationship between real GDP and real potential GDP when the economy is at full employment?

the real GDP is equal to real potential GDP

In his Macroeconomics class, Louis is working on a project for which he needs to understand the state of the U.S. economy. Which of the following is an economic indicator that Louis could use to help him with this task?

the unemployment rate

Last year, in calculating the GDP of the United States imports were found to be greater than U.S. export. This is known as a

trade deficit.