Econ midterm 2 (ch5-7)
(Table) According to the table, what is this country's GDP? Personal consumption expenditures$900 Personal taxes$180 Government expenditures$300 Exports$40 Imports$75 Interest income$60 Depreciation$50 Gross private domestic investment$200
$1,365
Suppose Koshiro has a wage contract subject to an escalator clause. He earned $22 per hour last year. In the same year, the consumer price index rose from 120.0 to 126.0. Based on the given information, what should his new wage be?
$23.10 per hour
GDP is $4.5 trillion in 2010. If the GDP deflator is 100 in 2000 and is 118 in 2010, what is real GDP?
$3.8 trillion (4.5 Trillion/118)*100
A sheep ranch produces $50 worth of wool. A suit manufacturer produces $60 worth of suits. A retail outlet sells a suit to a customer for $70. The change in GDP would be:
$70
Price Index Formula
(Cost of Basket this Year/Cost of Basket in Base Year) x 100
CPI formula
(expenditures in the current year/expenditures in the base year) x 100
Calculate nominal GDP given GDP deflator and real GDP
(gdp deflator * real GDP)/100
What causes inflation?
1. Demand rises faster than supply 2. Rapid increase in the money stock 3. increase of the price of inputs
Suppose that the GDP of Oregon today is exactly twice what it was 37 years ago. What was the average annual growth for Oregon over this time period? Round your answer to one digit after the decimal. average annual growth for Oregon:
1.9 (70/x=37)
There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is the size of Marketstan's labor force?
10 million
If instead the growth rate is 7%, the doubling time for the economy is
10 years (70/7)
If the labor force is 20 million and the total employed is 18 million, what is the unemployment rate?
10%
The city of Relaxville has 20,000 residents, of which 8,000 are working full-time, 6,000 are working part-time, 2,000 are unemployed, and 4,000 are not in the labor force. What is the unemployment rate in Relaxville?
12.5%
Suppose the price of a fixed basket of goods is $500 in 2018 and $530 in 2022. If the price index in 2018 was 150, what is the price index in 2022 based on the fixed basket of goods?
159
Suppose that the GDP of California increases by 4.0% each year. How long will it take for the GDP of California to double? Round your answer to one digit after the decimal. duration for California's GDP to double:
17.5 years (70/4)
What is the GDP per person (per capita) for a country with a GDP of 2.5 trillion and a population of 100 million?
25,000 (2.5 trillion divided by 100 million)
Suppose George is collecting pension benefits that are tied to the CPI via an escalator clause. If George received a payment of $25,000 last year, and the CPI increased from 300 to 306 over the past year, how much will George receive this year?`
25,500
Suppose the growth rate of the economy is 2%. The size of the economy roughly doubles every
35 years (70/2)
Last year, the consumer price index (CPI) was 115 while the consumer price index for this year is 125. The rate of inflation is:
8.7
After a financial crisis hits the country of Cinfuria, 6 million people become unemployed. If 55 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.
9.84
After graduating from college in 2010, Art Major's starting salary is $30,757.00. Suppose Art Major has a cost of living adjustment (COLA) clause, or an escalator clause, in his labor contract so that he will be able to maintain this same level of purchasing power in real terms in 2011 and 2012. Using the information in the table, how much will Art Major earn in 2011 and 2012 if his salary keeps up with inflation? Round your answers to the nearest dollar. 2010- 102.77 2011- 104.29 2012- 111.17
= Starting salary x (CPI in 2011 / CPI in 2010) 31212 = 2011 salary x (CPI in 2012 / CPI in 2011) 32786
Which of the statements is the best description of inflation?
An increase in the overall price level has occurred.
GDP Income Approach
Compensation of employees + rents + corporate profits + net interest +...
Anna Conda is currently on a hiking vacation in the Amazon jungle from her part‑time job as a herpetologist at the San Diego Zoo.
Employed
Beau Tye decides to quit his job as a waiter in Pensacola, Florida, in order to pursue his dream of becoming an actor in Hollywood. Acting jobs exist, but he has not yet found one.
Frictional Unemployment
Ravi has been in a long-distance relationship over the past year. If Ravi quits his job and searches for a new job to live closer to his significant other, what type of unemployment would this represent?
Frictional Unemployment
Formula for GPD expendures
GDP = C + I + G + (X-M)
In what way(s) does GDP per capita not provide an accurate representation of living standards?
GDP per capita does not account for how people distribute their time between work and leisure., GDP per capita does not account for changes in environmental quality, and GDP per capita does not measure production that occurs outside of the market economy.
In the past you shoveled snow yourself. But, after more than seven feet of snow has fallen in the city in less than a month, you got tired of removing snow, so you hire a professional snow removal service this year. As a result, what would be the change in GDP with other things being equal?
GDP will increase
Which of these is true within the circular flow of economic activity?
Households are buyers of products and sellers of production factors.
Honda's assembly and sale of cars in the U.S.
Included in U.S. GDP
What is the difference between real and nominal gross domestic product (GDP)?
Nominal GDP for a given year is measured in dollars of that year, whereas real GDP is measured in dollars of some base year.
Formula for Real GDP
Nominal GDP/GDP Deflator x 100
A previously-owned collectors' skateboard
Not included in U.S. GDP
A ticket for the X Games bought from a person on a street corner
Not included in U.S. GDP
A used copy of the Tony Hawk video game
Not included in U.S. GDP
A used skateboard you buy for your brother
Not included in U.S. GDP
GM's assembly and sale of cars in Mexico
Not included in U.S. GDP
Ocean Spray purchases plastic to make bottles
Not included in U.S. GDP
Wheels used to produce a skateboard that will be sold new
Not included in U.S. GDP
The simple circular flow diagram shows that economic aggregates can be calculated either by the _____ flows in the product market or by the _____ flowing to households in the resource market.
Spending, income
Total production of an economy can be found either by adding up all of the ____ or all of the _____ in the economy
Spending: income
Which is true if a nation is currently experiencing full employment?
The rate of cyclical unemployment is 0%
Bonnie Ann Clyde has not had any work at all for six months despite the fact that she has been filling out at least eight job applications each day.
Unemployed
John brags to his dad that his $44,500 starting salary as a computer programmer is much higher than his dad's $28,000 starting salary some years ago. If the consumer price index the year John begins work is 170.5 while the consumer price index the year his dad started work was 107.8, Dave is: a) correct; adjusting for price changes, his salary is more than his dad's salary. b) incorrect; adjusting for quantity changes, his salary is less than his dad's salary. c) correct; adjusting for quantity changes, his salary is more than his dad's salary. d) incorrect; adjusting for price changes, his salary is less than his dad's salary.
a
Martin purchases 500 shares of stock in ABC Company at a price of $10 per share. He pays his stock broker a commission of $50 for helping with the transaction. How much does GDP change as a result of Martin's commission payment? a) GDP rises by $50. b) GDP rises by $5,050. c) GDP rises by $5,000. d) There is no change in GDP.
a
Rocky Gap Furniture hires ten employees working eight hours each to produce 125 rocking chairs. What is the productivity of these workers? 1.56 chairs per hour 62.5 chairs 3.15 chairs per hour 12.5 chairs
a
Valeria received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of these is true?' a) Valeria is losing purchasing power by 2%. b) Inflation has no impact on purchasing power. c) Valeria's purchasing power will rise by 2%. d) Valeria's purchasing power will rise by 7%.
a
Which of the choices is most directly related to cyclical unemployment? a) recessions b) the age distribution of the country c) an increase in the number of new college graduates looking for work d) an increased use of the Internet for job searches
a
Which of these changes would likely not result in an increase in the output per worker in a country? a large increase in a country's population an improvement in the country's educational system a small increase in a country's physical capital with no change in population technological innovations in a country's manufacturing industries
a
Which of these is a source of increases in productivity? All of these answers are correct. research and development improvements in labor quality capital investment
a
if a country's population increases at a slower rate than the growth in its real GDP: a. GDP per capita has increased. b. average output per person has decreased. c. the standard of living in the country has declined. d. the country's rate of inflation has decreased.
a
CPI (Consumer Price Index)
an index of the cost of all goods and services to a typical consumer
All of these are considered sources of long-run growth EXCEPT: increases in capital. increases in demand. improvements in technology. increases in productivity.
b
If you hire a lawn service to mow your grass, the money you pay for the service is included in the GDP, whereas if you mow your own lawn, the value of this service is not included in the GDP. This fact represents a criticism of the GDP's focus on: a) final values of goods and services. b) market-produced goods and services. c) avoidance of double counting. d) domestic versus national product.
b
Over the past century, when worker productivity rose: a. fewer public goods were available. b. real wages rose. c. capital fell. d. nominal prices rose.
b
Alternating periods of macroeconomic expansion and contraction are known as:
business cycles.
Which of these is NOT an effective tool used by government to promote economic growth? investing in infrastructure and human capital a strong legal system to enforce contracts trade barriers to protect domestic industries a stable currency and financial system
c
Which statement about long-run economic growth is true? It is easier to achieve than short-run economic growth. It is likely to occur when obstacles preventing resources from being used are reduced. It is likely to occur when the capacity to produce goods and services increases. It occurs when an economy makes use of underutilized resources.
c
The largest category when using the income approach to calculate GDP is:
compensation of employees.
_____ is a measure of the change in average prices paid by urban consumers for a typical market basket of goods and services.
consumer price index
A 55-cent taco
consumption
A domestically manufactured personal computer
consumption
A ticket to a local sporting event.
consumption
Ice cream
consumption
Which of these components is used to measure GDP using the income approach?
corporate profits
Economic growth is important to understand because a) understanding economic growth is key to getting a banking job after graduation. b) growth guarantees that the rich get richer and the poor get poorer. c) income equality cannot exist without growth. d) it is closely tied to standard of living.
d
Economic growth is most accurately measured by changes in a) the capital stock. b) nominal GDP. c) wages. d) real GDP.
d
Human capital refers to: the infrastructure of a nation. funds firms raise by selling stocks and bonds. equipment, buildings, and inventories. skills, knowledge, and quality of workers.
d
Increases in _____ often lead to economic growth. public goods the money supply government regulations capital
d
If Chuck gets laid off from a high paying job and temporarily works as an Uber driver, he is considered:
employed
Patents and copyrights ________ economic growth.
encourage
A competitive market system _____ economic growth.
encourages
Free trade _______ economic growth.
encourages
In a simple circular flow diagram, total spending on goods and services in the product market:
equals the total income earned in the resource market.
A public school teacher's salary
government purchases
For a good or service to be counted in a given year's gross domestic product (GDP), what four criteria must be met?
have a market value, be a final good or service, be produced within a given country, and be produced within a certain time frame
As a general rule, the more capital employed with workers, the _____ their productivity and the _____ their earnings.
higher, higher
An improvement in adult literacy
human capital
An increase in the college student population
human capital
A new building for Tony Hawk Industries
included in U.S. GDP
A new skateboard you buy for your niece
included in U.S. GDP
Old Navy purchases mannequins to display clothes
included in U.S. GDP
The commission paid to the seller of a previously-owned collectors' skateboard
included in U.S. GDP
Other things equal, if a recession gets worse, the number of discouraged workers _____, and the number of those in the labor force _____.
increases; decreases
A domestically manufactured business computer
investment
Countries that have lower scores in the Index of Economic Freedom typically have _____ growth rates and _____ GDP per capita.
lower, lower
A dollhouse sold abroad
net exports
unemployment rate formula
number of unemployed/labor force x 100
Bill Loney does not have a job nor does he intend to look for one.
out of labor force
Brighton Early is a student. He has no job outside of the home but spends five hours each week mowing the lawn and maintaining his yard. He is happy with his situation and is not looking for more work.
out of labor force
For living standards to rise,________ must grow faster than the population.
output
The acquisition of computers by companies
physical capital
The standard of living is calculated as:
real GDP/population.
Command‑based systems ________ economic growth.
restrict
Protectionist trade policies ______ economic growth.
restrict
Businesses ____ and _____, whereas households ______ and ________ .
sell products, buy resources, sell resources, buy products
New distribution techniques
technology
The development of smaller mp3 players
technology
Real GDP
the production of goods and services valued at constant prices
Nominal GDP
the production of goods and services valued at current prices
What is the Misery Index?
the unemployment rate plus the inflation rate
What is the GDP per person for a country with a GDP of 6 trillion and a population of 960 million?
6,250 (6 trillion divided by 960 million)
resale of used textbooks to college students
Not included in U.S. GDP
sale of wheat to Mrs. Baird's Bakery
Not included in U.S. GDP
Ruritania produces Widgets and Gizmos. If all of its factors of production are committed to making widgets exclusively, it can make 8 million units each year. If all of its factors are committed to making Gizmos exclusively, it can make 8 million units per year. Ruritania's Ministry of Growth has considered various plans to stimulate economic growth in the kingdom. Adjust the production possibilities frontier (PPF) on the graph to show the impact of a successful plan to provide more on-the-job training.
PPF moves right
If a country imports $400 billion of goods and services and exports $500 billion of goods and services, this country's net export is _____, and this leads to a _____ GDP.
Positive, higher
Anna Prentice has worked for years fixing broken typewriters. She is laid off from her job as fewer and fewer people use typewriters. She is looking for work but cannot find a job in her area of specialty.Which term describes Anna's type of unemployment?
Structural unemployment
Since the invention of automatic teller machines, many bank tellers have lost their jobs. This is an example of _____ unemployment.
Structural unemployment
U.S. steelworkers who have lost their jobs to workers receiving lower wages overseas are part of _____ unemployment.
Structural unemployment
Which of these statements is true regarding an economy's short-run growth? It often follows an economic downturn when resources have been underutilized. It occurs when an economy's PPF expands outward. It occurs when there is an expansion of an economy's capacity to produce. It often occurs when there is technological advancement and a discovery of new resources.
a
deflation
a decrease in the general level of prices
The value of cars that the Ford Motor Company produces in a German plant is:
a part of German GDP.
disinflation
a situation in which price increases are slowing (the inflation rate is declining)
In a country, the nominal GDP increased but the Real GDP stayed the same. which most likely occurred a) Both the price level and production did not change. b) The price level increased by a large amount but production did not change. c) The price level decreased by a large amount but production increased. d) Both the price level and production increased by a large amount.
b
The higher the productivity of a nation, the: larger is its labor force. higher is its standard of living. greater is its population growth. lower is its capital-to-labor ratio.
b
What is the BEST measure of economic growth and standards of living in a country? a. nominal GDP per capita b. real GDP per capita c. real GDP d. nominal GDP
b
What is the single MOST important factor influencing economic growth for an economy? population growth increased productivity reducing the capital-to-labor ratio government regulation of big businesses
b
Worker productivity is one of the most important factors that help determine the performance of an economy. Which definition best describes productivity? a) total output in one year b) production per hour worked c) percentage change in output d) capital per worker e) total number of hours worked
b
Assume the economy can produce either sports utility vehicles (SUVs) or minivans. The graph below depicts the current production possibilities frontier (PPF). Suppose the economy experiences a large increase in immigration. Move the end points of the PPF below to show how the PPF changes. Assume that the increase in immigration affects the economy's ability to produce both minivans and SUVs. This is an example of: a. economic contraction. b. economic stagnation. c. economic growth. d. economic recession
c
What is the most important factor influencing economic growth for the US economy? Population growth B Government regulation of big businesses C Increased productivity D Greater natural resources
c
Which of the following is included in the GDP of the US? a) The value of a 100-year old house that your family purchased this year . b) Coffee beans that are used to make espresso drinks at Starbucks C) The value of a car produced in Alabama by Hyundai, a Korean automobile company. D) All of them are included in the US GDP.
c
Which of these institutions is NOT an example of our nation's infrastructure? subway systems the Hoover Dam buildings owned by General Electric interstate highway systems
c
which variables contribute to the largest portion of GDP expenditures and income approaches in US
consumption spending and wage and salaries
Brock Lee used to work at Munch n' Munchies Restaurant serving fun family fare. Business at Munch n' Munchies has been slow because the major employer in town has laid off a large number of people. There simply was not enough work to keep Brock Lee on the payroll at Munch n' Munchies.
cyclical unemployment
When the economy is operating at full employment:
cyclical unemployment is zero.
According to the production function, which of these changes will NOT result in economic growth? improvements in the productivity of labor improvements in technology increases in capital increases in consumption spending
d
Labor productivity is a major determinant of: a. the skill level of the labor force. b. the money supply. c. the size of the labor force. d. living standards.
d
The following table shows data for four countries. Country -Workers -Capital Stock A- 100 $4,000 B- 50 $500 C- 200 $1,000 D- 150 $150 The table shows that the country with the LEAST productive workers is:
d
What is the primary explanation for the rapid growth of the U.S. economy over the last century? increases in the number of immigrants increases in human capital increases in government spending for infrastructure technological progress
d
Which of these events would NOT lead to higher inflation, all else equal? a) increased economic activity due to a rise in consumer confidence b) a disruption in the global supply chain for key inputs of production c) a government increasing its money supply in order to pay its rising debt d) a bumper crop that leads to a sharp rise in farm produce
d
Which of these leads to long-run growth? a. cut in business tax to stimulate firms to hire the unemployed b. an increase in social security benefits to help the unemployed c. reduction in sales tax to stimulate consumer spending d. subsidies to R&D activities
d
Which of these transactions would NOT be included in the GDP calculation of a country? a) price of a new office building b) the value of an increase in unsold inventory of a company c) salary of a soldier in a country's army d) supplemental income paid by the government to a disabled person
d
Anita Job is the new Treasury Secretary, and she is trying to interpret the inflation measures for two consecutive years. In year one, the aggregate price level increased by 8%8% and, in year two, the aggregate price level increased by 3% Which term describes the change in the price level from year one to year two?
disinflation
Consider the information about the economy of Pakistan. Note that the currency of Pakistan is the rupee. The government purchases: 3.303.30 trillion rupees .Individuals consume 8.208.20 trillion rupees. Individuals save 5.345.34 trillion rupees. Businesses invest 1.301.30 trillion rupees. Foreigners spend 0.610.61 trillion rupees to purchase Pakistani firms. Pakistan imports: 2.282.28 trillion rupees. Pakistan exports: 1.371.37 trillion rupees. Calculate Pakistan's GDP. Assume that the values are all current and no conversions need to be made. Give your answer in terms of trillions of rupees, and round to two decimals.
11.89 trillion rupees
Suppose the unemployment rate is 7% and an economist breaks the unemployment rate into the following components: frictional (1%) and structural (2%). Based on these estimates, the cyclical unemployment rate is:
4%
A guitar is produced in California using $300 in raw materials and sells for $400 in a guitar shop. Each guitar that is produced contributes $_____ to U.S. GDP.
400