Econ 2200 test one

Which of the following is a nondurable good?

a six-pack of beer

national income

all income, including wages, salaries and benefits. profits, rental income and interest.

GDP Deflator

broadest measure of inflation. index of average prices for all goods and services in economy , including consumer goods, investment goods, gov. goods and services, and exports. prices of imports excluded

Nondurable goods

canned soft drinks, frozen pizza, should be thrown out before they are three years or older

services

cannot be stores, consumed at the time and place of purchase, legal, barber and repair service

Increases in ___________ often lead to economic growth.

capital

national income components

compensation of employees, taxes, net interest, rental income, proprietors' income, corporate profits

The largest component of GDP is:

consumption expenditure

Measuring changes in a fixed basket of goods to assess changes in price is a ______ method.

cost of goods index

corporate profits

defined as he income that flows to corporations, adjusted for inventory valuation and capital consumption allowances.

The government decides to subsidize the development of a new communications network. It is acting in its role to promote economic growth by:

enhancing physical and human capital

balanced budget multiplier

equal changes in government spending and taxation lead to an equal change in income, equal to one

net exports of goods and services

equal to exports-imports exports-all times we sell overseas, movies, pharmaceutical goods imports-items we bring into the country, veggies from mexico, cars from japan most imports exceed imports so its negative

MPC + MPS:

equals one

hyperinflation

extremely high rate of inflation, above 100% a year

Absence of enforcement of contracts would encourage economic development, because people would be more willing to incur risks if they did not have to worry about getting sued.

false

By investing heavily in consumption goods, the government promotes a higher level of labor productivity in the United States.

false

Government spending is generally a very unstable component of GDP.

false

If real GDP per capita has decreased, the standard of living in the country has improved

false

Long-run economic growth can be achieved by making better use of underutilized resources.

false

One reason so many people focus on the trade deficit is that if we import more, equilibrium income will rise, ceteris paribus.

false

The goal of unemployment policy is to eliminate frictional unemployment.

false

The multiplier works for increases in spending but not for cuts in spending.

false

The rental income component in the income approach to calculating GDP includes the incomes of real estate agents and brokers.

false

The natural gas deposits found in the United States over the past decade are an example of an increase in:

land and natural resources

Durable goods

products that have an average useful life of at least three years, cars, books, dvd's

Which of the following is NOT included in gross private domestic investment?

purchase of common stock by investors

disinflation

reduction in the rate of inflation

proprietors income

represents current income of all sole proprietorships, partnerships and tax-exempt cooperatives in the country

cyclical unemployment

result of changes in business cycle. business investment or consumer spending declines will effect.

frictional unemployment

short-term unemployment from switching jobs, often voluntarily. natural for our economy

The classical form of the production function states that output is determined by

some function of available labor or capital

inflationary gap

spending reduction necessary to bring and over heated economy back to full employment

full employment

taken to be equal to the natural rate of employment

_____ is the change in consumption associated with a change in income.

the marginal propensity to consume

Which organization determines the beginning and end dates of a recession?

the national bureau of economic research

On-the-job training can lead to an increase in:

the quality of the labor force

A consumer price index of 115 means that prices rose by 15% since the base year.

true

A politician who called a rate of inflation of 15% hyperinflation would be criticized by an economist for using inaccurate terminology.

true

Because GDP excludes nonmarket transactions, the level of economic activity in a country is understated.

true

Child care provided by a nanny is not included in the GDP if the parents pay the nanny under the table.

true

Exports are injections and imports are withdrawals from the domestic spending cycle.

true

Gross private domestic investment is an important determinant of how severe recessions will be mitigated.

true

In the United States, people are counted as employed if they have a job but are having child care problems.

true

It is possible for the unemployment rate at the beginning of a recession to be lower than the unemployment rate at the beginning of a recovery.

true

People often resort to bartering for goods and services during periods of hyperinflation because money is virtually worthless.

true

Schumpeter thought that the capitalist system was doomed by the forces it helped develop.

true

The recessionary gap is equal to the GDP gap divided by the multiplier.

true

There is a positive correlation between economic freedom and high per capita real GDP.

true

To sustain growth beyond the small fluctuations common in the business cycle, an economy's ability to produce must increase.

true

When a high-quality counterfeit bill is circulated, the government ultimately loses.

true

Which is NOT a characteristic of a stable financial system?

unanticipated high inflation

GDP per capita

useful measure of the standard of living of citizens in different countries. GDP/population.

government purchases

wages and salaries of gov. employees, purchase of products and services from private businesses, also includes the purchase of new structures and equipment

catch-up effect

when countries are able to achieve greater productivity for each unit of capital invested because they have the advantage of using technology developed in other countries

Policymakers look at _____________ to compare growth rates over an entire year without seasonal ups and downs.

year-over-year GDP growth rates

net domestic product

GDP-capital consumption allowance

net domestic product

GDP-depreciation or capital consumption allowance. equipment wears out as output is produced

GDP equation

GDP= C+I+G+(X-M)

Which of the following is TRUE within the circular flow of economic activity?

Households are buyers of products and sellers of production factors.

Which of the following statements is CORRECT?

Households are buyers of products and sellers of production factors.

In the simple Keynesian model with no government and foreign sectors, assume that the economy is in equilibrium at an output of $2 billion with a marginal propensity to consume of 0.9. If investment spending decreases by $0.05 billion, what is the new equilibrium output level?

$1.5 billion

If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent?

$1000

If $1,000 of additional spending occurs (from investment, say) and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

$5000

If your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be, assuming the CPI has risen from 110 to 114?

$51818

Last year, Megan's salary was $65,000. The consumer price index increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be?

$68578

(Table) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save?

.5

If income rises from $10,000 to $20,000 and savings increases from $9,000 to $16,000, then the marginal propensity to save is:

.70

If income grows from $3,000 per month to $3,500 per month and consumption rises from $2,800 per month to $3,200 per month, what is the marginal propensity to consume?

.8

The slope of the saving schedule is:

1 minus the marginal propensity to consume.

If the actual growth rate of U.S. GDP was 1.25% from the first quarter to the second quarter, the Bureau of Economic Analysis would report the annualized rate as:

5%

BRIC countries

Brazil, Russia, India and China, all have highest growth rates among major industrialized nations

What does M represent in the following formula? GDP = C + I + G + (X - M)

Imports

In the national income and product accounts system the two main approaches to measuring the size of the economy are:

Income and expenditures

Which statement about chained consumer price index for urban consumers (C-CPI-U) is TRUE?

It does a better job in approximating a cost-of-living index than the CPI.

The price of feed corn would be included in the:

PPI

_____ is a measure of the changes in the average prices received by domestic producers for their output.

PPI

inflation

gradual rise in prices each year

Investment in structures, equipment, software, and net inventory is known as:

gross private domestic investment

rule of 70

how many years takes to double growth rate, equal to 70 divided by the growth rate

economic growth

improves the standard of living of people through higher incomes and greater access to societal resources

personal income

includes all income: wages, salaries and other labor income, proprietors income, rental income, personal interest and dividend income and transfer payments.

rental income

income that flows to individuals engaged in renting real property. does not include the income of real estate agents or brokers, does include the inputed rental value of homes occupied by owners

If the marginal propensity to consume is 0.8, full-employment output is $14 trillion, and current output is $13.5 trillion, then investment spending must _____________________ to reach full-employment output.

increase by .1 trillion

recessionary gap

increase in aggregate spending needed to bring a depressed economy back to full employment; GDP gap divided by multiplier

net interest

interest paid by businesses less the interest they receive from this country and abroad. interest expense is the payment from the use of capital. includes payments form home mortgages, home improvement loans and home equity loans

The natural rate of employment:

is the rate at which the actual inflation rate is equal to people's inflationary expectations.

informal economy

large unmeasured component of our economy. money earned from garage sale that is not reported by IRS. also includes drug deals. babysitting or housekeeping paid under the table is included.

price index

level of a price index, whether CPI(retail), PPI(wholesale) or GDP deflator(average price of all items in GDP)

CPI (consumer price index)

measures average change in prices paid by urban consumers, "cost of living" index

PPI (producer price index)

measures average changes in the prices received by domestic producers for their output. excise taxes are excluded

The conversion formula for the current dollar value to constant dollar value is:

nominal × (base year index / current year index).

Tom is living with his parents. He looks at the help wanted ads but has not replied to any in the past four weeks. Tom is:

not in the labor force

long-run growth

occurs when an economy finds new resources or finds way to use existing resources better. capacity to produce goods and services increases

short-run growth

occurs when an economy makes use of existing but underutilized resources. common when countries are recovering from economic downturn, resources are there but not being used

structural unemployment

opposite of frictional, extended periods of unemployment. caused by changes in the structure of consumer demands or technology. usually end up becoming discouraged

deflation

overall prices in an economy actually fall

compensation of employees

payment for work done, including wages, salaries and benefits. Benefits include social security, medicare and workers' comp

disposible personal income

personal income minus taxes. can either be spent (C) or saved(S) Y=C+S

natural rate of unemployment

price and wages are consistent (level which actual inflation rate is equal to people's inflationary expectations) . where unemployment is either only frictional and structural, or cyclical is zero.