Econ 201 #2
Which type of price index theory uses base year's quantities?
Laspeyres
Which type of price index theory uses current year's quantities?
Paasche
The Federal Open Market Committee (FOMC) is composed of
Presidents of 5 Federal Reserve regional banks and the Board of Governors.
the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.
Presidents of 5 Federal Reserve regional banks and the Board of Governors.
Suppose the Consumer Price Index is 143.6. What does that number mean?
Prices rose 43.6 percent over the reference base period, on average.
Which of the following is consistent with classical growth theory?
Real GDP per person will never permanently increase.
Two methods of measuring GDP are
The income approach and the expenditure approach.
If Nike, an American corporation, produces sneakers in Thailand this would (Who receives GDP)
add to Thailand's GDP but not to U.S. GDP.
"Those borrowers who most desperately want loans are the ones who are least able to repay the loans," is an example of:
adverse selection.
Borrowers like (per class notes): -all of the answers are true. -high risk. -borrowing large amounts of loans. -locking up money on long-term loans.
all of the above
The definition of M2 includes -savings deposits -time deposits -M1 - all of the above
all of the above
The term "business cycle" most closely refers to the
alternating periods of expansions and recessions.
Discouraged workers ________ counted as officially unemployed because they ________.
are not; are not actively seeking work
Which of the following is NOT part of the expenditure approach to measuring GDP? a) gross domestic investment b) net interest c) personal consumption expenditures d) net exports of goods and services
b) net interest
Personal consumption expenditures include all of the following EXCEPT spending on a) consumer durable goods b) new housing c) consumer nondurable goods d) consumer services
b) new housing
Which of the following is NOT included in real GDP? a) production of goods that last more than one year, such as television sets b) production in the home c) production of goods that do not last more than one year, such as gasoline d) production of services, such as the services of doctors
b) production in the home
Money is created by
banks making loans.
According to the law of diminishing returns, an additional unit of
labor produces less output than the previous unit.
The wage rate will fall if the
labor supply curve shifts rightward and the labor demand curve does not shift.
Because of the biases in calculating the CPI, actual inflation is
less than the measured inflation rate by about 1 percent per year.
A price floor results in
results in a surplus if the floor price is higher than the equilibrium price.
An increase in the working-age population results in a
rightward shift of the supply of labor curve and an increase in potential GDP.
Greater optimism about the expected profits from investment projects
shifts the demand for loanable funds curve rightward.
If new capital or technology increases labor productivity, the supply of labor ________ and the demand for labor ________.
stays the same; increases
During periods of inflation, which function of money is most severely affected?
store of value
When you keep money in a change jar to be used later, what function is it fulfilling?
store of value.
Other things remaining the same, the greater the expected profit,
the greater the amount of investment.
GDP declines during
the movement from peak to trough.
When calculating GDP, underground economic activity is
the part of the economy purposely hidden.
The term "capital," as used in macroeconomics, refers to
the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.
A market is allocatively efficient if
the sum of the consumer surplus and the producer surplus has been maximized
real GDP per hour of labor or real GDP per worker.
the unemployment rate equals the natural unemployment rate.
Potential GDP is
the value of production when all the nation's resources are fully employed.
Real Gross Domestic Product is
the value of total production linked back to the prices of a single year.
Intermediate goods are excluded from GDP because
their inclusion would involve double counting
The employment-to-population ratio is defined as
total employment divided by the working-age population then multiplied by 100.
In the computation of GDP, Social Security payments count as
transfer payments and are not included in GDP.
Question -- Given the following: Consumption of fixed capital (depreciation) $1,257 Rents $120 Indirect business taxes less subsidies $682 Social security contributions $800 Corporate income taxes $500 Undistributed Corporate Profits-retained earnings $274 Transfer payments $2,000 Personal income taxes $1,500 Compensation of employees (wages) $7,650 Net interest $571 Profits-(Corporate and Proprietors Income) $1,668 Personal Consumption expenditures $8,000 Gross private domestic investment $1,855 Government purchases $1,843 Net Exports (X-M) $300 Statistical discrepancy $50 What is Net Domestic Income at factor prices
$10,009
Given the following: Consumption of fixed capital (depreciation) $1,257 Rents $120 Indirect business taxes less subsidies $682 Social security contributions $800 Corporate income taxes $500 Undistributed Corporate Profits-retained earnings $274 Transfer payments $2,000 Personal income taxes $1,500 Compensation of employees (wages) $7,650 Net interest $571 Profits-(Corporate and Proprietors Income) $1,668 Personal Consumption expenditures $8,000 Gross private domestic investment $1,855 Government purchases $1,843 Net Exports (X-M) $300 Statistical discrepancy $50 What is GDP (Expenditure Approach)?
$11,998
Using the Rule of 70, if the country of Flowerdom's current growth rate of real GDP per person was 7 percent a year, how long would it take the country's real GDP per person to double?
10 years
In a country with a working-age population of 130 million, 90 million workers are employed and 10 million workers are unemployed. What is the unemployment rate?
10.0 percent
Suppose there are currently 100 people unemployed, 1500 people employed, and 2000 people in the working age population. The labor force participation rate equals 100 times
1600/2000.
Over the last 100 years, the average U.S. growth rate in real GDP per person was about
2 percent per year.
Given the following:Given the following: population- 4,500,000 Less than 16 years old-500,000 unemployed but actively seeking work-100,000 philosophers---(non working) 50,000 house-husbands/housewives (non employed)-20,000 discouraged workers-10,000 people in institutions-30,000 full time students (non working)-100,000 full time workers-3,000,000 part time workers-690,000 Given the information in the questions above, what is the unemployment rate?
2.6%
If the CPI basket of goods cost $200 in the reference base period and $450 in a later year, the CPI in the later year equals
225.
Year---- Nominal Income-- Price Index1990---- 9800-------- 991991---- 10000-------- 951992---- 15000------- 1001993---- 17000------- 1101994---- 23000------- 1151995---- 33000------- 123Calculate the cumulative change in inflation, nominal income, and real income from 1990 to 1995. Just compare year 1990 to 1995 (ignore the other years).
24%, 237%, 171%
If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate?
5 percent
If the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the unemployment rate is
9.1 percent.
Given the following:Given the following: population- 4,500,000 Less than 16 years old-500,000 unemployed but actively seeking work-100,000 philosophers---(non working) 50,000 house-husbands/housewives (non employed)-20,000 discouraged workers-10,000 people in institutions-30,000 full time students (non working)-100,000 full time workers-3,000,000 part time workers-690,000 Given the information in the question above, what is the employment-to-population ratio?
92.9%
Consumer surplus (for a single exchange) is defined as the demand price minus the supply price. (TRUE OR FALSE)
False
Expansionary monetary policy:
Fights Recession
The legislation that began the ERA of Deregulation and phased out Regulation Q was (per class notes):
Banking Act of 1980 (DIDMCA).
GDP equals (equation)
C + I + G + (X - M).
Which type of price index theory averages the base year and current year's quantities?
Fisher's Mean
U6 measure of unemployment is approximately _______ the U3 measure of unemployment.
Double
Producer surplus (for a single exchange) is defined as the exchange price minus the supply price. (TRUE OR FALSE)
True
Which of the following can be described as involving indirect finance (per class notes)?
You make a deposit at a bank.
Suppose the CPI last year is 121 and the CPI this year is 137. The correct method to calculate the inflation rate is
[(137 - 121)/121] × 100 = 13.2.
Cyclical unemployment occurs when
a business cycle recession decreases employment.
An example of "investment" in computing real GDP using the expenditure approach is the purchase of
a new set of tools by an auto mechanic, for use in repairing cars.
Deflation represents:
a reduction in the aggregate price level.
The underground economy exists for all of the following reasons EXCEPT the a) desire to maintain accurate records of economic transactions. b) avoidance of taxes. c)production of illegal goods. d) avoidance of government regulation
a) desire to maintain accurate records of economic transactions.
In our loanable funds model, households will choose to save more if a) current disposable income increases. b) income is expected to decrease in the future. c) Both answers A and B are correct. d) Neither answer A nor B is correct.
c) Both answers A and B are correct.
Which of the following items is NOT a part of gross private domestic investment? a)net additions to inventory b)purchase of equipment for a new wing on a factory c)purchase of a share of IBM stock d) purchase of a new house
c) purchase of a share of IBM stock
The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the ________.
classical growth theory
The consumer price index (CPI)
compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.
What expression equals GDP
compensation of employees + net interest + rental income + depreciation + corporate profits + proprietors' income + indirect taxes - subsidies
The largest component of national income is
compensation of employees.
Expenditure Approach
consumption + investment + government expenditure + exports - imports.
M1 includes
currency, checking deposits, and travelers checks.
Unemployment caused by the fluctuation of the business cycle is called ________ unemployment.
cyclical
Real GDP can be criticized as a measure of economic welfare because it a) does not take account of the degradation of environmental quality. b) does not include the value of products produced in the household. c) does not include leisure time available to a society. d) All of the answers in this question are correct.
d) All of the answers in this question are correct.
Which of the following changes causes reported GDP to increase when, in fact, total production is unchanged? a) The legalization of previously illegal activities. b) A shift from household production to market production c) Neither of the above will cause reported GDP to increase when total production does not change. d) Both answers A and B are correct
d) Both answers A and B are correct
GDP equals a) the value of the aggregate production in a country during a given time period. b) aggregate income c) aggregate expenditure d) all of the above
d) all of the above
Which of the following is NOT part of GDP calculated using the expenditure approach? a) expenditures by the federal government for national defense b)General Motors' purchases of new capital equipment c)the purchase of new homes by consumers d)Social Security payments made to the elderly
d)Social Security payments made to the elderly
Depreciation is defined as the
decrease in the stock of capital due to wear and tear.
The difference between gross investment and net investment is
depreciation
Economists distinguish real GDP from nominal GDP to
determine whether real production has changed.
The decreasing slope of a production function reflects
diminishing returns.
The demand for loanable funds curve is
downward sloping when plotted against the real interest rate.
Net exports of goods and services equal the
exports of goods and services minus the imports of goods and services.
Gross domestic product is a measure of the total value of all
final goods and services produced in an economy over a period of time.
The business cycle refers to
fluctuations in the level of real GDP around potential GDP.
The three types of unemployment are
frictional, structural, and cyclical.
The "double coincidence of wants" problem is
resolved by the use of money.
Because of a bank merger, Ms. Davis lost her position as Vice President and had to seek work with other banks. Ms. Davis has the skills necessary to find a new job, thus she is best considered as
frictionally unemployed.
We are interested in long-term growth primarily because it brings
higher standards of living.
The ________ the expected profit, the greater is the ________.
higher; investment demand
Members of the Federal Reserve system's Board of Governors
hold 14-year staggered terms.
If the population increases in our growth model, then potential GDP ________ and employment ________.
increases; increases
An expansion occurs when the level of real GDP is
increasing
The gap between real GDP per person in Africa and real GDP per person in the United States has been
increasing.
If a bank's net worth is negative, then the bank definitely is
insolvent.
Goods and services used as inputs by another firm are called
intermediate goods.
In the national income accounts, the purchase of a new house counts as
investment
The labor force participation rate is calculated as the
labor force divided by the working age population then multiplied by 100.
A trough is the
lower turning point of a business cycle when an expansion begins.
Gross domestic product is the total ________ produced within a country in a given time period.
market value of all final goods and services
The functions of money are
medium of exchange, unit of account, store of value, and standard of deferred value.
The most important function of money is its role as:
medium of exchange.
The sum of currency in circulation and bank reserves is the ________.
monetary base
"Being careless with fire because you have fire insurance," is an example of:
moral hazard.
The biases in the CPI include the
new goods, quality change, and substitution biases.
Frictional unemployment comes about because of
normal labor market turnover.
The word "final" in the definition of GDP refers to
not counting intermediate goods or services.
Marginally attached workers fall into which of the following population categories?
not in the labor force
During a recession, the ________.
number of marginally attached workers increases
Price indexes can overstate inflation because they
omit some quality improvements.
Full employment occurs
only if the unemployment rate is equal to the natural rate of unemployment.
In 2006, Ozzie purchased a 1999 Ford Escort from his neighbor for his son, purchased a 1999 "one owner" Camry from Larchmont Toyota for his wife, bought a 2006 new Ford for himself, and sold his 1993 Dodge Caravan to his teenage nephew. Which, if any, of these transactions will be included in GDP in 2004?
only the purchase of the Ford
Which of the following is a tool that is most used by the Fed to control the quantity of money?
open market operations
The most important tool of the FED is:
open market operations.
The unemployment rate measures the percentage of
people in the labor force who can't find a job.
In the expenditure approach to GDP, the largest component is
personal consumption expenditures.
All of the following contribute to labor productivity growth EXCEPT: - population growth - human capital growth -Technollogical advances -physical capital growth
population growth.
Labor growth depends mainly on ________ and labor productivity growth depends mainly on ________.
population growth; technological advances
If depreciation is less than gross investment, then net investment is
positive
U.S. investment is financed from
private saving, government budget surpluses, and borrowing from the rest of the world.
The currently used method for calculating the CPI
probably overstates inflation by about 1 percentage point.
Economists define investment as the
purchase of equipment, plants, and inventories.
In the labor market, an increase in labor productivity ________ the real wage rate and ________ the level of employment.
raises; increases
Labor productivity is
real GDP per hour of labor or real GDP per worker.
Ms. Krupsky has shorthand and typing skills and still finds herself unemployed. In today's economy, Ms. Krupsky is an example of what type of unemployment?
structural unemployment
When the automobile replaced horse-drawn carriages as the principal means of transportation, firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby increasing
structural unemployment
Substitution bias in the CPI refers to the fact that the CPI
takes no account of the substitution of goods by consumers when relative prices change.
Neoclassical growth theory attributes economic growth to
technological change.
Pollution is a by-product of some production processes, so on this count real GDP as measured
tends to overstate economic welfare.
Looking at inflation rates in the United States since the 1970s we see that
the 1970s experienced the highest inflation rates.
Monetary policy is controlled by
the Federal Reserve.
The series of ups and downs the economy tends to move in is called
the business cycle.
If a rich country grows at a faster rate than a poor one, then
the gap in their standard of living will widen over time.
Your instructor holds the view that the too big to fail risk: -is true for all of the answers. -is a concept that regulators ignore at great risk to the financial system. -is the wrong focus among policy makers and politicians who should be focused in systemic risk factors. -will always exist among financial firms.
true for all answers
The ________ is calculated as the number of people ________ divided by the labor force multiplied by 100.
unemployment rate; unemployed
The Consumer Price Index is a measure of the average of the prices paid by ________ for a fixed basket of consumer goods and services.
urban consumers
An increase in ________ will shift the supply of loanable funds curve ________.
wealth; leftward
The labor force is defined as
workers with jobs and unemployed workers.
