Econ exam 2

(Table: Lemonade and Cookies) Use Table: Lemonade and Cookies. Assume that an economy produces only lemonade and cookies. If 2014 is the base year, real GDP in 2014 was: A) $400. B) $420. C) $425. D) $445.

D

inflation rate=

(Price index in year 2 - price index in year 1)/(Price index in year 1) x 100

cpi=

(cost of mb in given year/cost of mb in by) x 100

cpi inflation=

(cpi in later yr-cpi in earlier yr)/Cpi in earlier yr) x 100

(Figure 7-1: Circular-Flow Model) Use Figure 7-1: Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is a decrease in exports, holding everything else constant, which outcome is likely to occur? A) a decrease in the nominal GDP B) an increase in the real GDP C) a decrease in the unemployment rate D) an increase in the inflation rate

A

(Table: Lemonade and Cookies) Use Table: Lemonade and Cookies. Assume that an economy produces only lemonade and cookies. Assuming 2013 was the base year, the growth rate of real GDP from 2013 to 2014 was _____%. A) 5 B) 10 C) 11.25 D) 20

A

Anna recently moved to Boston with her husband Joe, who has a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is: A) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) counted as employed since she is likely to receive a job offer soon.

A

Government borrowing is: A) the amount of funds raised by government in financial markets. B) government spending on goods and services. C) government tax revenues. D) the amount of funds raised by government in the financial markets, government spending on goods and services, and government tax revenues.

A

In a market basket of goods: A) the quantities stay constant and the prices may change. B) the quantities may change and the prices are held constant. C) both the prices and the quantities are held constant. D) both the prices and the quantities may change.

A

In an open economy, government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, GDP was $100 billion, and investment spending was $10 billion. As a result, there was: A) a net capital inflow of $10 billion. B) capital inflows of $10 billion and capital outflows of $20 billion. C) a trade surplus of $20 billion and a financial deficit of $20 billion. D) a net capital outflow of $10 billion.

A

One difference between a closed and an open economy is that: A) in the latter, foreign savings complement domestic savings in financing investment spending. B) in the latter, the government is more open to the idea of financing investment spending than in the former. C) in the former, foreign savings complement domestic savings in financing investment spending. D) in the former, foreign savings finance more investment spending than in the latter.

A

When hyperinflation forces Emily to visit her bank very frequently to keep her cash holdings to a minimum, economists say that Emily has a: A) shoe-leather cost. B) menu cost. C) unit-of-account cost. D) Fisher effect.

A

When the dollar value of the Swiss franc was very high following the financial crisis in 2008: A) Swiss exports were more expensive in the United States. B) Swiss exports were less expensive in the United States. C) the Swiss National Bank sold Swiss francs to increase its value. D) the Swiss National Bank bought francs to decrease its value.

A

(Table: Employment Data) Use Table: Employment Data. The labor force is _____million. A) 33 B) 32 C) 31 D) 22

B

(Table: Lemonade and Cookies) Use Table: Lemonade and Cookies. Assume that an economy produces only lemonade and cookies. Assuming that 2014 was the base year, the growth rate of real GDP from 2013 to 2014 was: A) -5%. B) 4.7%. C) 11.25%. D) 20%.

B

(Table: Lemonade and Cookies) Use Table: Lemonade and Cookies. Assume that an economy produces only lemonade and cookies. If 2013 is the base year, real GDP in 2014 was: A) $400. B) $420. C) $425. D) $445.

B

A survey reveals that, on a small island, 40 people have jobs, 10 people are not working but are looking for jobs, and 30 people are neither working nor looking for work. The unemployment rate on the island is _____%. A) 12.5 B) 20 C) 25 D) 50

B

An example of structural unemployment is a(n): A) autoworker who is temporarily laid off because of a decline in sales. B) geologist who is permanently laid off because of an increase in wages won by labor unions. C) worker at a fast-food restaurant who quits work and attends college. D) real estate agent who leaves a job in Texas and searches for a similar, higher-paying job in California.

B

If money income remains the same while the average price level doubles: A) nominal income will fall. B) real income will fall. C) interest rates will fall. D) purchasing power will increase.

B

If the interest rate in the market for loanable funds is above the equilibrium rate: A) there is a shortage of loanable funds. B) savings exceed investment spending. C) the quantity demanded of loanable funds exceeds the quantity supplied. D) consumption is smaller than savings.

B

Physical capital is purchased through investment spending, which in turn is MOSTLY financed out of: A) taxes. B) savings. C) import tariffs. D) consumption expenditure.

B

Shoe-leather costs are the: A) effect of inflation on the prices of food, clothes, and other necessities. B) increased cost of transactions due to inflation. C) high price of leather goods. D) effect of inflation on transportation costs.

B

Suppose that the United States and European Union are the only trading partners in the world. If interest rates in the United States are significantly lower than those in the European Union, we would expect the: A) supply of the dollar to fall, appreciating the dollar. B) demand for the dollar to fall, depreciating the dollar. C) supply of euros to increase, depreciating the euro. D) demand for euros to decrease, depreciating the euro.

B

Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The real rate of interest is _____%. A) 3 B) 4 C) 10 D) 7

B

The _____ is MOST widely used to measure inflation in the United States. A) producer price index B) consumer price index C) GDP deflator D) national income account

B

The calculation of GDP does NOT include the value of: A) Firestone tires sold at your local garage. B) Bridgestone tires purchased by Ford Motor Co. C) Goodyear tires purchased by the United States Secret Service. D) Michelin tires purchased by Canadian car collectors.

B

The introduction of ATMs reduced the: A) menu costs of inflation. B) shoe-leather costs of inflation. C) unit-of-account costs of inflation. D) amount of seigniorage.

B

The rate of unemployment when the economy is at full employment is: A) zero. B) the natural rate. C) the structural rate. D) less than the full employment rate of unemployment.

B

The savings-investment spending identity says that: A) each person in the economy must invest as much as he or she saves. B) savings and investment spending are always equal for the economy as a whole. C) savings must equal government investment for the economy as a whole. D) each person in the economy must save as much as he or she invests.

B

To be counted as unemployed one must A) have had a job previously. B) be out of work and be actively looking for a job during the past four weeks. C) have had a job before and be actively looking for work. D) be actively looking for a job and have at least a high-school diploma or its equivalent.

B

To help increase investment spending, the gov can A) lower taxes on consumption so that disposable income rises. B) lower taxes on the returns from savings so that total savings increase and the interest rate falls. C) raise taxes on the returns from bonds while lowering taxes on stock dividends. D) lower taxes on investment spending while raising taxes on savings so that total tax revenue remains constant.

B

When a Japanese investor buys stock in General Motors, the _____ account is affected. A) current B) financial C) reserve D) foreign exchange

B

When hyperinflation forces Pedro to change the price stickers on the books in his bookstore very frequently to keep up with the aggregate price level, economists say that Pedro has a: A) shoe-leather cost. B) menu cost. C) unit-of-account cost. D) debt deflation.

B

When the economy is at full employment, _____ is zero. A) unemployment B) cyclical unemployment C) frictional unemployment D) the natural rate of unemployment

B

Which example illustrates consumption expenditure? A) Samantha bought an oven for her cooking show on Food Network. B) Stephanie bought a laptop for her brother. C) Jim purchased 200 shares of Google stock. D) Herman Smith spent $1,500 to buy a used car for his son.

B

Which statement is TRUE? A) The number of people not working but who have looked for work in the past year is equal to the number of unemployed people. B) The labor force is the total number of people working plus those who are unemployed. C) The unemployment rate is the number of people unemployed expressed as a percentage of the population. D) The labor force is the same as the population.

B

The Fisher effect states that the: A) nominal rate of interest is unaffected by the change in expected inflation. B) nominal rate of interest is unaffected by the change in unexpected inflation. C) expected real rate of interest is unaffected by the change in expected inflation. D) expected real rate of interest increases by one percentage point for each percentage change in expected inflation.

C

(Figure 7-1: Circular-Flow Model) Use Figure 7-1: Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is a decrease in consumer spending, holding everything else constant, which outcome is likely to occur? A) an increase in nominal GDP B) an increase in real GDP C) an increase in the unemployment rate D) an increase in the inflation rate

C

(Table: CPI) Use Table: CPI. Suppose only bread, laptops, and movies are produced in this economy. Calculate the consumer price index of 2012, using 2008 as the base year. A) 81.9 B) 100 C) 75.8 D) 95

C

(Table: Lemonade and Cookies) Use Table: Lemonade and Cookies. Assume that an economy produces only lemonade and cookies. The growth rate of nominal GDP from 2013 to 2014 was _____%. A) 5 B) 10 C) 11.25 D) 45

C

(Table: The Consumer Price Index (CPI)) Use Table: The Consumer Price Index (CPI). The consumer price index in 2009 was 212.2. In 2010, it was 216.7. What was the rate of inflation from 2009 to 2010? A) 12.2% B) 4.5% C) 2.1% D) 16.7%

C

(Table: The Consumer Price Index (CPI)) Use Table: The Consumer Price Index (CPI). The inflation rate between 2011 and 2012 was _____%. A) 10 B) 3.7 C) 1.4 D) 24.6

C

A bank makes a loan for one year. The nominal annual interest rate is 7.5%. The real rate is 4%. Over the course of the year, overall prices increase by 4%. This rate of inflation hurt the _____ because the actual rate of inflation was _____ than the anticipated rate. A) borrower; lower B) borrower; higher C) lender; higher D) lender; lower

C

If private savings increase, the _____ loanable funds will _____, interest rates will _____, and the amount of borrowing will _____. A) demand for; increase; increase; increase B) demand for; decrease; decrease; decrease C) supply of; increase; decrease; increase D) supply of; decrease; increase; decrease

C

If the United States imports more goods from Japan than it exports to Japan, how will the difference be financed? A) U.S. consumers will borrow money from domestic banks. B) The United States will buy more Japanese assets. C) The United States will sell assets, generating a liability that obligates Americans to pay for those imports in the future. D) The United States will sell assets to the Japanese, which would reduce its liabilities.

C

In an open economy, GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. How much is national saving? A) $4 trillion B) $3.5 trillion C) $2 trillion D) $5.5 trillion

C

Internet employment agencies have simplified the job search for the applicants. They have also led to a(n) _____ unemployment. A) increase in frictional B) increase in cyclical C) decrease in frictional D) decrease in structural

C

Suppose that interest rates rise in the United States. We expect capital _____ to/from the United States and the U.S. dollar price of foreign currencies to _____, all other things equal. A) outflows; fall B) outflows; rise C) inflows; fall D) inflows; rise

C

Suppose that the market basket for the university student price index (USPI) consists of 5 textbooks and 100 gallons of gasoline. In 2010, the base year for this index, textbooks cost $50 each and gasoline costs $1 per gallon. In 2011, textbooks cost $80 each and gasoline costs $3 per gallon. The USPI for 2011 is: A) 100. B) 150. C) 200. D) 250.

C

The National Bureau of Economic Research announced that the U.S. economic recession that began in December of 2007 hit a trough in June of 2009. During that period, which type of unemployment increased for sure? A) frictional B) natural C) cyclical D) structural

C

The national income and product accounts are calculated by the: A) Congressional Budget Office. B) Federal Reserve. C) Bureau of Economic Analysis. D) Office of Management and Budget

C

The natural rate of unemployment is: A) the rate during recessions. B) equal to the sum of frictional and cyclical unemployment. C) equal to the sum of frictional and structural unemployment. D) cyclical unemployment less frictional unemployment.

C

The total of the values added at every stage of production for a good leads to the: A) total cost of the labor used to produce the good. B) prices of the factors of production used to produce the good. C) final value of the good. D) intermediate value of the good.

C

Unanticipated inflation: A) helps those on fixed incomes. B) hurts borrowers and helps lenders. C) helps borrowers and hurts lenders. D) causes interest rates to decrease.

C

Unit-of-account costs refer to the: A) increase in prices during inflation. B) decrease in the value of money during inflation. C) loss of the reliability of money as a relative unit of measurement. D) increased costs of servicing bank accounts during inflation.

C

Which example is a LIKELY response to inflation? A) People choose to carry higher money balances. B) People tend to make fewer transactions. C) People tend to make more transactions. D) People tend to hold on to fewer interest-bearing assets.

C

(Table: Lemonade and Cookies) Use Table: Lemonade and Cookies. Assume that an economy produces only lemonade and cookies. The growth of nominal GDP from 2013 to 2014 was due to approximately a _____% increase in prices and approximately a _____% increase in aggregate output. A) 11.25; 0 B) 0; 45 C) 5; 11.25 D) 6.25; 5

D

A recent college graduate with a major in economics attends a job fair but has not yet found a job. This graduate is counted as a _____ unemployed worker. A) structurally B) seasonally C) cyclically D) frictionally

D

Choose the best answer. A price index: A) always includes a base year. B) measures the cost of purchasing a market basket of output across different years. C) is normalized to 100 for the base year. D) always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.

D

Crowding out hampers the economy by: A) decreasing government borrowing. B) decreasing consumption. C) increasing private borrowing. D) reducing private investment spending on physical capital.

D

If the U.S. dollar appreciates, we do NOT expect that: A) Americans will buy more foreign currency. B) Americans will buy more goods from abroad. C) U.S. exports to other countries will decline. D) Americans will buy fewer goods from abroad.

D

In an open economy, GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. How much is investment spending? A) $2 trillion B) $3 trillion C) $3.5 trillion D) $4 trillion

D

Sam, who is 55 years old and has been a steelworker for 30 years, is unemployed because the steel plant in his town closed and moved to Mexico. Sam is _____ unemployed. A) cyclically B) permanently C) frictionally D) structurally

D

Structural unemployment CANNOT be caused by: A) minimum wages. B) labor unions. C) efficiency wages. D) fluctuations in the business cycle.

D

Structural unemployment consists of people who are unemployed because of: A) temporary changes in jobs. B) there being more labor demanded than there is labor supplied. C) the time it takes for employers and workers to find each other. D) there being more job hunters than there are jobs.

D

The labor force is the total: A) number of people employed. B) population. C) number of people in the population of working age. D) number of people who are employed or unemployed.

D

The national accounts do NOT keep track of: A) the spending of consumers and the government. B) the sales of producers. C) business investment. D) exchange rates.

D

Which asset would NOT be included in the U.S. financial account? A) a Japanese factory purchased by a U.S. company B) U.S. stock sold to someone in Japan C) a Japanese bond sold to someone in the United States D) a Chinese video game imported into the United States

D

Which item would NOT be included in this year's GDP? A) the production of a television show B) the purchase of a new hybrid truck C) the hiring of a new schoolteacher D) the purchase of your neighbor's house, which was built in 1994

D

gdp deflator=

Nominal GDP/Real GDP x 100