ECON Exam 2 Review
Suppose Mack's wage was $7.00 an hour in 2001 and was $12.00 per hour in 2012. The CPI was 94 in 2001 and 201 in 2012. The 2001 wage in terms of 2012 dollars is
(CPI in present year/CPI in past year) X price of earlier year ---- 201/94 X 7 = 14.97
The formula for the CPI is
(Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at base period prices) × 100.
real income formula
(nominal income/CPI) x 100
Consumers in Beachland consume only two goods, sodas and DVDs. If they spend $10 on sodas and $90 on DVDs a month, how many sodas and DVDs are in their CPI market basket if the price of a soda is $1 and the price of a DVD is $9.
10 sodas and 10 DVDs
A ham and cheese sandwich at the local deli costs $4.99 in 2005. If the CPI in 2005 was 90.0 and the CPI today is 121.0, the equivalent price for the ham and cheese sandwich today is
6.71 Equation: 121 / 90 =1.34 x 4.99 = 6.71
If your real income in base year prices is $50,000, then if the CPI is 170, what is your nominal income?
85,000 50,000 x 170/100
Consider the business cycle, and then choose the statement that is correct.
A business cycle is periodic but irregular.
In 1994, the Bureau of Labor Statistics started to report
B. alternative measures of the unemployment rate that include narrower measures of the labor market. C alternative measures of the unemployment rate that include broader measures of the labor market. B and C are both correct
Income Approach formula
GDP (expenditure approach) minus Statistical discrepancy. In 2015, So the income approach to calculating GDP is equal to $17.8 trillion minus(negative $ 0.3 trillion), which is $18.1 trillion.
Expenditure Approach Formula
GDP = C + I + G - Net Export
statistical discrepancy formula
GDP Expenditure approach = GDP income approach + x x= SDF
Depreciation formula
GDP income approach = Wages + Indirect taxes less subsidies + Interest, rent, and profit +X X= Depreciation
GNP (Gross National Product)
GDP+Net factor income from abroad.
National income
GNP−Depreciation - Statistical deprecany
GDP increased at an annual rate of 0.7 percent in the final quarter of 2015. Government expenditure grew at the same 0.7 percent rate, but consumption expenditure grew at a rate of 2.2 percent. Investment and net exports shrank. Source: BEA News Release, January 29, 2016 Use the figure to indicate the flows in which the items in the news clip occur. How can GDP increase by 0.7 percent if consumption expenditure increased at a 2.2 percent rate?
It is possible for GDP to increase by only 0.7 percent when consumption expenditure grew at a 2.2 percent rate because _______. the sum of investment and net exports shrank
_______ published The General Theory of Employment, Interest, and Money in _______. His theory was that ______.
John Maynard Keynes; 1936 too little private spending is the cause of depression and recession
Nominal GDP formula
Price x Quantity in same year
Nominal income formula
Real income x CPI/100
Canada reported that in August 2012, the Canadian labor force was 19.3 million, employment was 17.8 million, and the working-age population was 28.4 million. What was the Canadian unemployment rate and labor force participation rate in August 2012?
The Canadian unemployment rate in August 2012 was -7.8 percent. The Canadian labor force participation rate in August 2012 was -68 percent.
Consider the demand for labor, and then choose the statement that is correct.
The real wage rate influences the quantity of labor demanded because what matters to firms is how much output they must sell to earn the dollars they pay the workers.
Consider what is included in the measurement of GDP, and then choose the correct statement.
The underground economy, which is not included in GDP is the part of the economy that is hidden from the view of the government.
Suppose the population of Timmy Town is 1000 people and the working
There is not enough information provided to calculate the unemployment rate.
According the Keynesian macroeconomic model, which of the following was responsible for starting the Great Depression?
Too little private spending.
The figure shows the flows of expenditure and income on Lotus Island. In 2016, R was $12 billion; W was $40 billion; U was $12 billion; J was $16 billion; and Z was $2 billion. Calculate total expenditure and total income.
Total expenditure is the sum of C, I, G, and NX. In Figure 1, C is the flow W; I is the flow J; G is the flow U; NX is the flow Z. So total expenditure equals W+X+U+Z, which is $70 billion Total income = Total expenditure which is $70 billion
GDP in the United States increased between 2016 and 2017. Which of the following could NOT account for this increase?
We paid lower prices for our goods and services and production remained constant.
On July 1, the minimum wage will rise in Washington D.C., Los Angeles County, Chicago, and in cities in California, Kentucky, Maryland, and Oregon. San Francisco's minimum wage will rise to $13.00 an hour and Chicago's to $10.50. Source: The Wall Street Journal, July 1, 2016 Explain why some part-time workers, low-skilled workers, and youth workers will gain and why unemployed teenagers will find it hard to get jobs.
When the minimum wage rate is raised, firms will ______. hire only those workers who can produce output that is worth the value of the new minimum wage rate As a result, _______. job experience may help some part-time, low-skilled, and youth workers to keep their jobs, but teenagers with no experience will have difficulty finding jobs
labor force + not in labor force
Working age population
net taxes formula
Y=C+S+NT.
Which of the following is included in the measure of U.S. GDP?
a Hershey's Kiss produced and sold in the United States
The amount of job-search unemployment increases when ______.
a prolonged structural slump occurs
When using the income approach to measure GDP at market prices, in addition to summing all factor incomes it is necessary to ______.
add indirect taxes less subsidies to convert aggregate income from factor cost to market prices
U-4, U-5 and U-6 are
all broader measures of the unemployment rate.
The expenditure approach to measuring U.S. GDP equals ______.
all expenditure on final goods and services produced in the United States in a given time period
The increase in the average unemployment rate in the 1970s was the result of
an increase in the birth rate in the late 1940s and early 1950s.
An economy produces only fun and food. The table shows the prices and the quantities of fun and food produced in 2016 and 2017. The base year is 2016. Potential GDP in 2016 is $270 and it grew by 1 percent in 2017. The economy is in ______ because ______ between 2016 and 2017.
an expansion; real GDP is increasing
According to the production function, as the quantity of labor employed increases, real GDP increases
at a decreasing rate.
______ macroeconomics is the view that the market economy works well, that aggregate fluctuations are a natural consequence of an expanding economy, and that government intervention cannot improve the efficiency of the market
classical
When the economy goes into recession, the biggest increase in unemployment is _______.
cyclical because jobs are lost in many industries as they cut production
The fall in net exports ______.
decreases GDP
labor force formula
employed + unemployed
If the real wage rate is at the full-employment equilibrium level, real GDP is ______.
equal to potential GDP, which is efficient but is not the most that can be produced
Core inflation
excludes prices of food and energy
U.S. real GDP
excludes the value of underground production and leisure time.
net exports formula
exports - imports
Net exports of goods and services increase when ______.
exports of good and services increase and imports of goods and services decrease
Classical macroeconomics _______.
fell into disrepute during the Great Depression
Gross domestic product is the market value of all the ______ in a given time period.
final goods and services produced by all firms located in the United States
Since 2008, the U.S. labor force participation rate for men has ________ and for women has ________.
gone down; gone down
Which of the following goods and services are omitted from GDP?
household production
Which of the following are included in interest income? i) payments made for the use of land ii) income paid to households for loans they make iii) payments made by households for their borrowing
ii and iii only.
Saving equals ______.
income minus consumption expenditure minus net taxes
In comparing the magnitudes of the components of GDP according to the expenditure approach, we see that in the United States
investment is less than government expenditure on goods and services.
The value of the CPI in the base period ______.
is 100 no matter what reference base period is chosen
Economists agree that the CPI
is a possibly biased measure of the cost of living
The following statements about the business cycle are correct except ______.
it is a regular predictable cycle in real GDP around potential GDP
A structural boom ______.
lowers the natural unemployment rate because new jobs are found quickly
Gross Domestic Product measures the
market value of the final goods and services produced in a given year within a country.
The Classical macroeconomic model proposes that
markets work efficiently to produce the best macroeconomic outcomes.
If Jose is 22 years old, is available to work but does not have a job and made no specific efforts to find a job for the previous month, Jose is classified in the Current Population Survey as
not in the labor force.
The natural unemployment rate is
not known with certainty.
Real GDP per person is not an accurate measure of the standard of living because it ______.
omits the goods and services that people produce for themselves
Suppose the Bureau of Labor Statistics uses Ballpark Franks as the hot dogs used when calculating the consumer price index. During 2012, Oscar Mayer aggressively reduces prices. Consumers respond by purchasing more Oscar Mayer and less Ballpark Franks. The 2012 CPI is likely to
overstate the average prices paid by consumers.
The Consumer Price Index (CPI) measures the changes of the
prices paid by consumers for a fixed market basket of consumer goods and services.
Gross Domestic Product is equal to the market value of all the final goods and services ________ in a given period of time.
produced within a country
Which of the following is an example of investment?
purchase of bookshelves by barnes and nobles
To find the cost of the CPI market basket in the current period we have to multiply the
quantities in the CPI market basket by the current period prices.
A marginally attached worker is
someone who does not have a job but is available and willing to work but has not made specific efforts to find a job during the past 4 weeks.
The economy is at full employment when all unemployment is _______.
structural and frictional
Job rationing creates a ______.
surplus of labor
A ______ is a final good and ______ is an intermediate good.
tank of gasoline bought by you; jet fuel bought by Southwest Airlines
Over the past two decades, the unemployment rates in
the Eurozone have been greater than U.S. unemployment rates.
Gross national product is ______.
the market value of all the final goods and services produced anywhere in the world in a given time period by the factors of production supplied by the residents of that country
When the real wage rate is above the full-employment equilibrium level, ______.
the natural unemployment rate increases
In a market with job rationing, ______.
the quantity of labor supplied persistently exceeds the quantity demanded
A main reason for the low unemployment rate from 1995 through most of the 2000s was because of
the rapid development of the Internet industry and other new technologies.
If the money wage rate increased from $35.00 to $36.40 an hour and consumer prices rose by 4 percent, we would expect ______ people to try to find a job and employed people to want to work ______ hours. The ______ would ______.
the same number of; the same number of quantity of labor supplied; remain the same
Potential GDP is the value of real GDP when _______.
the unemployment rate equals the natural unemployment rate
If the BLS included all marginally attached workers as being unemployed, the _______ would be _______.
unemployment rate; higher
To calculate GDP it is necessary to
use the market price to place a dollar value on each good produced.
The BLS counts Jody as being unemployed if she _______.
wants a job and is willing to take a job but after searching last week cannot find a job
During the 2008-09 recession, the U-6 measure of the unemployment rate
which counts marginally attached workers and discouraged workers as unemployed, reached 17 percent.
On Coral Island in 2014, the labor force is 12,000, the unemployment rate is 10 percent, and the labor force participation rate is 60 percent. During 2015, 200 unemployed people found jobs and the working-age population increased by 1,000. The total number of people in the labor force did not change. Calculate the working-age population, the unemployment rate, and the labor force participation rate at the end of 2015.
working-age population is 21,000 unemployment rate - 8.3 percent labor force participation rate - 57.1 percent
A marginally attached worker is a person who _______.
doesn't work, is available and willing to work, but hasn't looked for a job recently
When the unemployment rate_______ the natural unemployment rate, real GDP is _______ potential GDP and the output gap is _______.
exceeds; below; negative
The circular flow diagram includes the following players:
households, firms, government, rest of the world.
Which of the following will increase the natural unemployment rate? i) a minimum wage set above the equilibrium wage. ii) efficiency wages iii) union - negotiated waged
i, ii and iii.
he bias in the CPI leads to ______ in government outlays and to ______ in taxes.
increases; decreases
The slope of the production function becomes _______ steep as the quantity of _____ increases because of diminishing returns.
less; labor
Suppose the CPI in 1983 is 100 and the CPI this year is 172. These values for the CPI mean that
typically, a good whose price was $100 in 1983 had a price of $172 this year.
