ECON 2105 Review Chapter 5-8

If planned investment falls by $1,000 and the MPC is 0.75, the total effect on the economy is a decrease of _____ in income or output

$4,000

GDP does not include

- Government transfer payments (Social Security benefits, veteran's disability stipends, etc.). - Interest payments on government debt

Who is unaffected by inflation?

-Workers whose wages have escalator clauses - Social Security recipients whose benefits are adjusted with inflation - Banks that properly anticipate inflation

BLS reports

-number of people employed. -number of people unemployed. -size of the labor force

If income rises from $8,000 to $12,000 and investment increases from $7,000 to $10,000, then MPS is ____ and MPC is

0.25; 0.75

If there are 1,500 people in the population; 800 are employed; and 100 are unemployed, what is the unemployment rate?

11.1%

If there are 1,600 people in the population; 1,100 are employed; and 200 are unemployed, what is the unemployment rate?

15.4

Bistro Belle Vie employs 4 waiters, each working 8 hours, to serve total of 64 tables. What is the per hour productivity of each waiter?

2 tables per hour

If the consumer price index (CPI) was 90 in 2017, 100 in 2018, and 105 in 2019, then the base year must be:

2018

If the consumer price index (CPI) was 80 in 2017, 90 in 2018, 100 in 2019, and 110 in 2020, then the base year must be

2019

People are counted as unemployed if they do not have a job but are available for work and have been actively seeking work for the previous _____ weeks

4

Bistro Belle Vie employs 3 waiters, each working 6 hours, to serve total of 72 tables. What is the per hour productivity of each waiter?

4 tables per hour

If the current year's consumer price index is 228 and last year's consumer price index was 218, then the rate of inflation is:

4.59

If Susan's salary was $42,000 last year, and this year she receives a cost-of-living increase tied to the consumer price index (CPI), what will her salary be this year assuming the CPI has risen from 104 to 112?

45,230

If frictional unemployment is 2%, structural unemployment is 3%, and cyclical unemployment is 4%, the natural rate of unemployment is

5%

If Sandra's salary was $50,000 last year, and this year she receives a cost-of-living increase tied to the GDP deflator, what will her salary be this year assuming the GDP deflator has risen from 110 to 114?

51,818

Find the equilibrium level of output (Y) for the economy, where the consumption function is given as C=150+0.6Y and the Planned Investment= 60?

525

Expansion or boom

: the period in the business cycle from a trough up to a peak during which output and employment grow

Which of the following are generally not counted in GDP?

All of the above are not generally included in GDP.

Inflation can be measured by all of the following except the

All of these answers are used to measure inflation.

Which price index calculates the prices for urban consumers paid on fixed basket of goods and services?

CPI

CPI (Consumer Price Index) formula

CPI = (Cost in current period ÷ Cost in base period) X 100

unemployment is the result of changes in the business cycle.

Cyclical

What is unemployment is the focus of public policy?

Cyclical unemployment

Which of the following is a type of unemployment that is due to business cycles?

Cyclical unemployment

Donny, of Donny's Doughnuts, bakes and sells 100 dozen doughnuts a day using one mixer and one fryer. His rival, Sunshine, of Sunshine's Doughnuts, produces 180 dozen doughnuts a day using two mixers and two fryers. Both shops use the exact same technology to make doughnuts and have the same number of workers and the same size building. Donny and Sunshine both increase their capital equipment by one mixer and one fryer. Which shop will benefit the most from its expansion?

Donny, because his workers are more productive per unit of capital and currently have less available capital to work with.

Government consumption and gross investment:

Expenditures by federal, state, and local governments for final goods and services

Examples of Not in the labor force

Full-time students, Retirees, Individuals in institutions, Stay at hope persons to take care of children, Discouraged job seekers

Which of these is NOT used to calculate GDP as part of the income approach?

Government Consumption

Inflation formula

Growth rate of the money supply (%) + Growth rate of the output velocity of money (%) − Growth rate of real GDP

MPC (marginal propensity to consume)

IS THE FRACTION OF A CHANGE IN INCOME THAT IS CONSUMED /SPENT (ΔC/ΔY)

MPS (marginal propensity to save)

IS THE FRACTION OF A CHANGE IN INCOME THAT IS SAVED (ΔS/ΔY)

Which of the following is NOT a contributor to output and productivity growth of a nation?

Price controls

Gross Domestic Product (GDP)

THE TOTAL MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED BY RESOURCES IN A COUNTRY IN A GIVEN YEAR

Actual vs Natural rate of Unemployment

The natural rate of unemployment has fallen from over 6% to less than 5% over the past 40 years largely due to improvements in labor market efficiencies.

A Japanese automaker produces $1 million worth of automobiles in its factory in the United States. How much of that is added to the GNP of the United States?

USD 0,00

Suppose in 2018 the United States had consumption worth $13 trillion, investment worth $5 trillion, and government spending worth $3 trillion, with $2 trillion in exports and $3 trillion imports. What was its GDP per capita, assuming there were 400 million residents?

USD 50,000

unemployed person

a member of the labor force available for work who has actively sought employment during the previous 4 weeks

A transfer payment is

a one-way payment to a person or organization which has given or exchanged no goods or services for it

not in the labor force

a person who is not looking for work because he or she does not want a job or has given up looking

Depression

a prolonged and deep recession

If the MPC = 0.8 and income rises (ΔY) by $5,000, what is the a) MPS and increase in b) saving, and c) consumption?

a) 0.2; b) ,000; c) 4,000

Inflation is defined as _

an increase in the overall price level

The multiplier effect occurs when

an initial amount of spending/investment causes income to grow by a larger amount based on the multiplier

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%

creditors gain at the expense of debtors

Nominal output is measured in ________ dollars and real output is measured in ________ dollars

current; base year

Who benefits from inflation?

debtors (borrowers)

Suppose that anticipated inflation is 5 % for the coming year, with loan contracts set at 9% with the expectation of a 4% return after inflation. If the actual inflation rate at the end of the year is 6%

debtors gain at the expense of creditors

The consumption component of GDP includes spending on __________

durable goods, nondurable goods, and services

labor force equation

employed + unemployed

Bour phases of the business cycle

expansion, peak, contraction, trough

Wages, interest, and dividends flow out of ________ and into _

firms; households

What types of unemployment are unavoidable?

frictional and structural

Contraction, recession, or slump

The period in the business cycle from a peak down to a trough during which output and employment fall

Georgia health is intending to conduct additional business investments. Which of the following conditions may POSTPONE their investment?

higher interest rates

Other things equal, if a recession gets worse, the number of discouraged workers _____, and the number of those in the labor force __

increases; decreases

The _____ is the state of an economy at which there are no pressures pushing the economy to a higher or lower level of output

macroeconomic equilibrium

Suppose an economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.

Trough

Productivity is key driver of

wages and incomes

Unemployement rate equation

𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 ÷ 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 + 𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 = 𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 ÷ 𝐿𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒

The multiplier equation

1 / (1 − MPC ) or 1/MPS

What is the multiplier if the marginal propensity to consume is 0.6?

2.5

Gross National Product (GNP)

THE MARKET VALUE OF ALL GOODS AND SERVICES PRODUCED DOMESTICALLY AND ABROAD USING RESOURCES SUPPLIED BY A COUNTRY'S CITIZENS

Productivity

measures how effectively inputs are converted to outputs

Which item would be included in the GDP accounts?

paying a $50 consultation fee over the phone with a doctor

employed

people are currently holding a job in the economy, either full time or part time

Frictional unemployment

results from workers who voluntarily quit to search for a better position (usually short term).

Inventory might be lower than planned if

sales are stronger than expected

The greater the MPC, the higher

the spending multiplier

labor force

the total number of workers, including both the employed and the unemployed

Recession

two consecutive quarters of decline

Who is harmed by inflation?

People living on fixed incomes see their purchasing power decline with inflation. Creditors (lenders) see the real value of their loan repayments fall

What phase of the business cycle does the headline "Consumer Confidence at Highest Level in Three Years" suggest?

Recovery

Which of the following transactions should not be included in the calculation of GDP?

Sharon receives $100 in food stamp

A paragraph from the report discussed in the UN Department of Economic and Social Affairs states that "With the rapid technological advancement of recent years, computers are increasingly encroaching on domains that were previously considered exclusively human. The astonishing progress in such areas as artificial intelligence (AI), robotics, 3D printing and genetics has enabled computers to perform the tasks of architects, medical doctors, music composers and even a 16th century Dutch master of painting. Nearly every day brings news of remarkable feats achieved by computers or robots, and with them a gnawing question: Will machines edge us out of brain jobs?" What type of unemployment is discussed in the UN report?

Structural

The local Chevrolet dealership has an increase in inventory of 25 cars in 2006. In 2007, it sells all 25 cars. Which of the following statements is correct

The value of the cars in inventory will be counted as part of 2006 GDP, and the value of the cars sold in 2007 will not increase 2007 GDP.

In the circular flow diagram

Total expenditures are equal to total receipts (payments)

Structural unemployment

is caused by changes in structure of economy, consumer demand or technology (usually lasts longer)

Cyclical unemployment

is caused by fluctuations in the business cycle (e.g., recessions).

Labor productivity

is the ratio of the output of goods and services to the labor hours used to produce that output