Econ exaM 2
The graph shows two points A and B on the consumption function, C, of a small country Tynika. Marginal Propensity to Consume (MPC) is
.5 (find slope of line)
If the MPS is .22, the MPC is
.78
If consumption is $30,000 when income is $35,000, and consumption increases to $36,000 when income increases to $43,000, the MPC is
0.75.
$Billions Durable goods 800 Nonresidential investment 400 Federal purchases of goods 300 Exports 400 State and local purchases of goods 200 Residential investment 50 Services 500 Imports 250 Change in business inventories −25 Nondurable goods 700 Personal consumption expenditures in billions of dollars are The value for net exports in billions of dollars is
2,000, 150
If Logan received a $2,500 bonus and his MPS is 0.20, his consumption rises by $________ and his saving rises by $________.
2,000; 500
In the economy of Macroland 60.3 percent of the population is employed, while the unemployment rate is 6.0 percent. Calculate the labor force participation rate . Labor Force Participation Rate =
64.1
In the economy of Macroland 60.3 percent of the population is employed, while the unemployment rate is 6 percent. Calculate the labor force participation rate
64.1 (100-6)=94 (60.3/.94)=64.1
The relationship between interest rate (r) and planned investment (I) is given by the following investment function. I = 1500−40r Determine the value of planned investment when the interest rate is 77 percent (r = 77).
I = 1,220
ssume there are no taxes. The equation for the consumption function is given to be: C = 100100 + 0.780.78Y, where Y represents aggregate income. Determine the equation for the saving function:
S = - 100 + . 22Y
Higher interest rates are likely to
decrease consumer spending and increase consumer saving.
If a private company builds a toll road to connect Nashville and Memphis, it will _______________ this years's GDP
increase
On average, nations in Europe pay higher unemployment benefits for longer periods of time than does the United States. The increased size and duration of unemployment benefits can be expected to
increase frictional unemployment.
Suppose Jerry's MPC decreases. At income Y1, Jerry's
consumption will be less than his income.
Disposable income
increases when income increases
An increase in the overall price level is
inflation
In 2016 final sales equal $350 billion and the change in business inventories is minus−$60 billion. GDP in 2016
is $290 billion.
All else equal, increasing interest rates will likely decrease the level of planned investment spending. This change in planned investment spending occurs because higher interest rates mean that
it is more expensive to borrow money to pay for projects
If the minimum legal working age is lowered from 16 to 14, the labor force participation rate
may increase, decrease, or not change
If the minimum legal working age is loweredlowered from 16 to 14, the labor force participation rate
may increase, decrease, or not change.
Estimates for the ________ rate of unemployment that routinely occurs in the United States range from 4 to 6 percent.
natural
If company A successfully launches a hostile take over of Company B in which it purchases all the assets of Company B it will _________ the current year's GDP
not change
Cheryl graduated from college a month ago and is now without work. She accepted a job that will start next month. Today, Cheryl is
not in the labor force
Your college bookstore receives a shipment of new economics texts for $60,000. This transaction is
not included in GDP calculation, since books bought by the bookstore are intermediate goods.
Which of the following is not a component of gross domestic product?
purchases by consumers of used goods
Which of the following is an example of an intermediate good?
the pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to
Which of the following would not be counted in 2016's GDP?
the value of a 2008 boat you purchase from a boat dealer in 2016
Which of the following is not included in 2016's GDP?
the value of a motor that is used in the production of a lawn mower
If the economy is in the midst of a prolonged recessionrecession, the labor force participation rate
will decrease
If the economy is in the midst of a prolonged recession, the labor force participation rate
will decrease
If the federal minimum wage is abolished, the labor force participation rate ____________.
will decrease
If the federal minimum wage is abolished, the labor force participation rate
will decrease.
If the federal government decreases the duration of unemployment benefits from a high of 99 weeks to a maximum of 26 weeks, the labor force participation rate
will increase
If the federal government decreasesdecreases the duration of unemployment benefits from a highhigh of 9999 weeks to a maximummaximum of 2626 weeks, the labor force participation rate
will increase
If the federal government increases the minimum age requirement for collecting Social Security benefits, the labor force participation rate
will increase
If the federal government increasesincreases the minimum age requirement for collecting Social Security benefits, the labor force participation rate ____________.
will increase
If you save $80 when you experience a $400 rise in your income
your MPC is 0.80
The population of a small island nation age 16 or older is 50,000. The size of the labor force is 40,000. The number of people employed is 35,000. The unemployment rate for this nation is
12.5%. (35,000-40,000)/40,000
The population of a small island nation age 16 or older is 50,000. The size of the labor force is 40,000. The number of people employed is 35,000. The labor force participation rate for this nation is
80.0% (40/50)
The relationship between net investment and GDP is given by,
GDP - consumption - government - exports + imports - depreciation
The equation for GDP using the expenditure approach is
GDP = C + I + G + EX− IM.
At equilibrium, the part of consumption that is dependent on income equals
$1,000 billion
The Canadian economy can be characterized by Equation 9.2. EQUATION 9.2: C = 500 + .5Yd Taxes = 600 Equilibrium Output = $4,000 Refer to Equation 9.2. At equilibrium, the sum of investment and government purchases in Canada is
$1,800
The aggregate consumption function is C = 800 + .8Yd. If income is $2,000 and net taxes are $500, consumption equals
$2,000
The following national income accounting data for the year 2009 are available for a country. All data are in billion dollars. Category Value Personal Consumption Expenditure $8,400.00 Residential Investment 720.00 Nonresidential Investment 1,080.00 Government Purchases 2,400.00 Changes in Business Inventories 30.00 Net Exports −600.00 For this country, GDP = billion and Final Sales =
12,030. 12,000
The population of a small island nation age 16 or older is 50,000. The size of the labor force is 40,000. The number of people employed is 35,000. The unemployment rate for this nation is
12.5%
In a simple economy, suppose that all income is either compensation of employees or profits. Suppose also that there are no indirect taxes. All data are in billions of dollars. Consumption 8,500.00 Gross investment 3,200.00 Depreciation 1,462.00 Profits 2,192.25 Exports 850.00 Compensation of employees 10,961.25 Government purchases 3,000.00 Direct taxes 1,150.00 Saving 3,503.00 Imports 935.00 Using the expenditure approach, GDP is _________ billion Using the income approach, GDP is _________ billion
14,615.00, 14,615.00
Labor force participation rate 75% Total population 16 years of age and older 200 million Unemployment rate 10%
15 million.
The equation for a consumption function in a simple economy, where there are no taxes, is given by C = 200 0.72Y, where Y denotes aggregate income. Autonomous consumption is... MPC is...
200, .72
Suppose that in the year 2015, Oceanaire, Inc. planned to produce 500,000 units of its lightweight scuba tanks. Of the 500,000 it planned to produce, a total of 35,000 units would be added to the inventory at its new plant in Arizona. Also assume that these units have been selling at a price of $250 each and that the price has been constant over time. Suppose further that this year the firm built a new plant for $6 million and acquired $ 2.5 million worth of equipment. It had no other investment projects, and to avoid complications, assume no depreciation. Now suppose that at the end of the year, Oceanaire had produced 500,000 units but had only sold 450,000 units and that inventories now contained 50,000 units more than they had at the beginning of the year. At $250 each, that means that the firm added $12,500,000 in new inventory. This year Oceanaire actually invested... Oceanaire planned to invest... Oceanaire should produce...
21,000 17,250 less output next year since it needs to reduce its unplanned investment.
If the natural rate of unemployment (frix + structural) is 4.04.0% and the economy has a 7.07.0% rate of unemployment, then what is the cyclical rate of unemployment?
3
If the natural rate of unemployment is 4.0% and the economy has a 7.0% rate of unemployment, then what is the cyclical rate of unemployment?
3.0 percent
If Lily's consumption function is of the form [C = 100 + 0.8Y], her saving equals zero at an income level of
500
In March, 2006 the labor department of the country of Jobland determined that the size of the labor force was 100100 million out of which 9292 million were employed. In May 2006, the labor department determined that 1.01.0 million people became "discouraged workers" in April. Jobland unemployment rate in March Jobland unemployment rate in April
8, 7.1
In March, 2006 the labor department of the country of Jobland determined that the size of the labor force was 100100 million out of which 9292 million were employed. In May 2006, the labor department determined that 1.01.0 million people became "discouraged workers" in April. Assuming that no new jobs were created between March and April, calculate the unemployment rate for March and April. Jobland unemployment rate in March = Jobland unemployment rate in April =
8, 7.1
Employed 14,000 people Unemployed 3,000 people Not in the Labor Force 4,000 people The labor-force participation rate is
80.9%
Employed 14,000 people Unemployed 3,000 people Not in the Labor Force 4,000 people The employment rate is
82.4%
Aggregate Income ($ billion) 0 Aggregate Consumption ($ billion) 80 The equation for the aggregate consumption function is
C = 80 + 0.9Y.
After government is added to the incomeminus−expenditure model, the formula for the aggregate consumption function is
C = a + b(Y− T)
If government purchases increased by $100 billion but GDP remained the same, which of the following could have occurred if everything else remains unchanged?
Gross private domestic investment decreased by $100 billion
Which of the following best describes the relationship between aggregate expenditure and real GDP ?
If aggregate expenditure falls short of real GDP, inventories will accumulate and real GDP and aggregate income will fall in future.
In this economy, 0.5 represents the
MPS. and MPC.
If you earn additional $500 in disposable income one week for painting your neighbors house,
The total of your consumption and saving will increase by $500.
Anissa makes custom bird houses in her garage and she buys all her supplies from a local lumber yard. Last year she purchased $4,500 worth of supplies and produced 2,500 bird houses. She sold all 2,500 bird houses to a local craft store for $20 each. The craft store sold all the bird houses to customers for $40 each. For the total bird house production, calculate the value added of Anissa and of the craft store.
The value added of Anissa is $45,500 The value added of the craft store is $50,000
Frictional unemployment is generally a short-run condition in the labor market and structural unemployment is generally a long-run condition.
True
Labor Force 150.0 million (year 2000) 168.0 million (year 2010) Employment 127.5 million (year 2000) 139.0 million (year 2010)
Unemployment Rate for 2000 =15% Unemployment Rate for 2010 = 17.3%
Consider the following model of a very simple economy. Household saving and investment behavior depend in part on wealth (accumulated savings and inheritance). In the late 1990s many were concerned with very large increases in stock values (a form of wealth) and its possible effect on saving and investment. The following consumption function incorporates wealth (W) as a determinant of consumption. We have the following information on consumption (C) and investment (I): bullet• C = 45 + 0.75Y + 0.10W bullet• I = 100 bullet• W = 800 We are ignoring the fact that saving adds to the stock of wealth. Calculate the values of equilibrium Y, C, and saving (S). (Enter your responses as integers.) Suppose that wealth increases by 6060 percent. Calculate the values of equilibrium Y, C, and S
Y=900 I=800 S=100 New Y = $1,092 New C = $992 New S = $100 As a result of the wealth accumulation, GDP increases
When the government sector is included in the incomeminus−expenditure model, the equation for aggregate income is
Y = C + I + G
Suppose you purchase a new car for $40,000 during this year and a pizza for $15.00. Assume that a car may be used over a period of 55 years, while a pizza is used up immediately. But both of these goods are counted as consumption in GDP calculation in the year in which you make the transaction. This is considered to be an "error" in national income accounting, because One likely way that the GDP accounting of the car may be improved is by counting
a car is a durable good that provides service over many years, $8000 or 20.00 percent of the car's price for each of the next 5 year's GDP calculation as a valuation of the service provided by the car.
Which of the following is an example of a final good or service?
a computer purchased by Federal Express to track shipments
In 2016, the city of Canfield collected $500,000 in taxes and spent $450,000. In 2016, the city of Canfield had a
budget surplus of $50,000
The small island nation of Kaboom is a simple economy with no government, no taxes, and no imports or exports. Kaboomers (citizens of Kaboom) are creatures of habit. They have a rule that everyone saves exactly 40 percent of income. Assume that planned investment is fixed and remains at 225 million Kaboomian dollars. Further assume that autonomous consumption (independent of Y) is zero, so consumption (C) is MPC times Upper YMPC×Y. The following data are estimates for the island of Kaboom: bullet• Real GNP (Y): 422 million Kaboomian dollars bullet• Planned investment spending (I):225 million Kaboomian dollars You are asked by the business editor of the Explosive Times, the local newspaper, to predict the economic events of the next few months. Based on the data given, you predict inventories will _______ and the level of real GNP will________ Things will stop changing when________ aboom's economy will reach equilibrium when its real GNP =_______ Kaboomian dollars
decrease, increase, saving equals investment, 563 million
Since GNP exceeds GDP, it can be concluded that foreign production by U.S. firms _________ U.S. production by foreign firms. For countries having a significant fraction of domestic production occurring in foreign-owned facilities, the GDP will likely ________ GNP
exceeds, exceed
The spending and taxing policies used by the government to influence the economy refer to
fiscal policy
The portion of unemployment that is due to the normal turnover in the labor market is called
frictional unemployment.
Net investment equals
gross investment minus depreciation.
Assuming there is no foreign trade in the economy, equilibrium is achieved when government purchases equal
saving plus net taxes minus investment.
Jerry's ________ equals ________ at income level Y1.
saving; zero
Tony has just graduated from college and has now applied for a full time position where he is currently working part−time. This causes the unemployment rate to ________ and the labor minus−force participation rate to ________.
stay the same; stay the same
A textile firm closes a plant in Massachusetts and transfers production to a plant in South Carolina, where the firm can take advantage of cheaper labor. The plant supervisor at the Massachusetts plant is given the opportunity to move to South Carolina to become the plant supervisor at that plant. He turns down this opportunity because of family obligations. While he is searching for a new job he would be classified as
structurally unemployed.
The number of people unemployed equals
the labor force minus the number of people employed.
If the labor market becomes more efficient so that the unemployed are more quickly matched with jobs, then
the natural rate of unemployment will decrease.
