Econ Test 3
Payroll Tax
A mandatory tax that both workers and employers in the United States pay to fund Social Security and Medicare
In the United States, all of the following are deductions generally allowed by the IRS on individual income taxes except: A) mortgage interest B) rent payments C) contributions to retirement plans D) charitable contributions
B) rent payments
Nominal GDP
GDP for a given year valued in that year's prices
Nominal GDP in a given year is...
GDP valued in prices of that year
Real GDP in a given year is...
GDP valued in the prices of the base year
Does the measured unemployment rate capture the true jobs picture in a place with a large underground economy?
No, many people who are actually working may report themselves as unemployed, which overstates unemployment.
Representative Commodity Money
Paper currency that could be redeemed for a specific quantity of an underlying commodity
The U.S. Social Security system is a ____________ system.
pay-as-you-go
Dollar bills in the modern economy serve as money because...
people have confidence that others will accept them as money.
Based on the current state of revenue of the Social Security and Medicare programs, the government has two options for funding, which are...
raising payroll taxes or cutting benefits
Economic growth is generally measured as the percentage increase in a country's...
real GDP
If, as your taxable income increases, you pay a smaller percentage of your taxable income in taxes, then the tax is...
regressive
If someone who was working full time is now only working part time, this change in status will cause the unemployment rate to...
remain unchanged
Money's three primary functions:
serves as a medium of exchange, store of value, and standard of value.
Discouraged Worker
someone who has given up actively looking for a job after an extended period of unemployment
For the U.S. federal government, discretionary expenditures refer to...
spending that must be authorized by congress each year
Diversification
spreading wealth across multiple investments
When money is used to express the value of goods and services, it is functioning as a...
standard of value
One difference between stocks and bonds is that...
stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond.
Javier lost his job as a chemical engineer when the company he worked for shut down, so he took a full time job as a convenience store clerk to help pay the bills. Javier is now considered...
underemployed
According to the Bureau of Labor Statistics, a person who does not have a job but is currently available for work and has been actively looking for a job in the past four weeks is considered...
unemployed
Business cycles ____________, and recessions ______________.
vary in length; differ in severity
The central bank of the United States is called...
The Federal Reserve System
Commodity Money
a good used as money that also has value independent of its use as money
The labor force participation rate is calculated as:
(labor force) / (adult population)
The unemployment rate is calculated as:
(number of unemployed) / (number of employed + number of unemployed)
A general formula for the spending multiplier is:
1 / (1 - MPC)
If an automobile is produced by Chevrolet in 2008 but not sold until 2010, the automobile is included in which year's GDP?
2008
There are 5 million people in an economy. If 3 million are employed and 1 million are unemployed, the unemployment rate is _____________.
25%
There are 5 million people in an economy. If 3 million are employed and 1 million are unemployed, the size of the labor force is ____________ people.
4 million
All of the following are vital ingredients for experiencing economic growth except... A) High Inflation B) Competition C) Physical Capital D) Honesty
A) High Inflation
Demand Shocks
Events that arise spontaneously and unpredictably, often as a result of changes in consumer and business confidence regarding the economy
U.S. paper currency is considered representative commodity money because it can be redeemed for gold by the U.S. government. (T/F)
False
Bonds
Financial securities that represent promises to repay a specified amount of money at a particular point in the future
In order to be considered unemployed, an individual must not have had a job, must have been available for work, and must have taken active steps to find a job in the past _____________.
Four weeks
The M2 measure of the money supply equals
M1 plus savings account balances plus small certificates of deposit plus money market mutual fund balances
A depression is a particularly severe and protracted recession. (T/F)
True
An unexpected large increase in the price of crude oil is an example of a supply shock. (T/F)
True
GDP does not account for things we do not value or like, and these things are called *economic bads* (T/F)
True
Political stability is an important ingredient in creating and sustaining economic growth. (T/F)
True
The marginal propensity to consume is the proportion of each new dollar's worth of income that is spent. (T/F)
True
Cyclical unemployment is the result of...
a slowdown in the economy
Structural unemployment exists because something is holding wages...
artificially high
Because unemployment payments and welfare payments, which reduce a recession's severity, naturally increase during a downturn, they are referred to as...
automatic stabilizers
The increase in government spending on unemployment insurance payments to workers who lost their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion are examples of...
automatic stabilizers
The largest proportion of M1 is made up of...
checkable deposits
M1 money supply supply consists of _______.
checking account balances, currency, and traveler's checks
A financial institution that accepts deposits and makes loans is generally referred to as a(n)...
commercial bank
Gold is an example of...
commodity money
The largest component of spending in GDP is...
consumption spending
Okun's law states that for every 1 percentage point increase in the cyclical unemployment rate, real GDP growth...
decreases by about 2 percentage points
Income taxes increase, which __________ consumers' disposable incomes, so ___________ falls.
decreases; consumption
Government faces a budget deficit, so it ___________ spending and ______________________ falls.
decreases; government spending
Payroll taxes are paid on...
earned income
According to the Bureau of Labor Statistics, a person who is self-employed is considered...
employed
The labor force equals the number of people
employed plus unemployed
Fixed Investment
expenditures on physical plants and equipment, which are then used to produce other goods
The amount by which the federal government's annual revenues exceed its annual expenditures is the...
federal government budget surplus
A $100 bill is...
fiat money
The natural rate of unemployment is comprised of...
frictional and structural unemployment
Any profit earned by a corporation...
gets taxed twice
Interest rates increase, which _____________ the cost of borrowing, so _______________ falls.
increases; investment
The largest source of federal government revenue in the United States is...
individual income taxes
Mortgage Loans
loans issued by banks for the purpose of purchasing real estate or buildings
When a bank takes money that you put in your checking account and gives it to someone else, at a cost, for a period of time, it is said to be...
making a loan
Fiat Money
money that is backed by nothing but the faith and confidence that it will serve as a medium of exchange
Structural unemployment is the result of...
more people looking for work in some labor markets than there are jobs available
Physical capital makes workers ____________, so a declining capital stock _______________.
more productive; hinders economic growth
Employment protection laws make it ________ for firms to hire people, which can result in a(n) ________ in the number of people who are structurally unemployed.
more risky; increase
The purchase by a consumer in Brazil of a video game produced in the US is included in...
net exports
Discouraged workers are ________ in the unemployment rate, and this tends to ________ the unemployment rate.
not counted; understate
According to the Bureau of Labor Statistics, a person who does not have a job and has not been actively looking for a job in the past four weeks is considered...
not in the labor force
Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico in 2005. This drove up the prices of natural gas, gasoline, and heating oil. This is an example of a...
supply shock
Federal Government Budget Deficit
the amount by which the federal government's annual expenditures exceed its annual receipts
In an economy, newly-issued money originates from...
the central bank
Liquidity refers to...
the ease with which an asset can be converted into cash
Human Capital
the knowledge and skills people accumulate through experience, education, and training
Gross Domestic Product
the market value of all final goods and services produced in a country in a given year
Financial Markets
the physical or electronic places where financial instruments are traded
Frictional unemployment is the result of...
the search process of matching workers with jobs
Microeconomics is
the study of decisions made by individuals and businesses
Macroeconomics is
the study of the economy as a whole
The total federal debt is equal to...
the sum of all past deficits minus the sum of all past surpluses.
GDP is calculated by summing up
the total market value of final goods and services produced in the economy during a particular year