ECONOMICS 2301 EXAM #2 HW

In the trough of a recession, output and employment ______.

"bottom out" at their lowest levels

According to the table, when disposable income is $470 billion, what is the savings?

$20 billion

According to Okun's law, if the unemployment rate in 2009 was 9.6, the natural rate of unemployment was 7.4, and the potential GDP was $8,500 billion, what was the loss of output associated with the above-natural unemployment rate?

$374 billion

If marginal propensity to consume equals 0.6 and the change in income is $12 billion, what is the change in consumption?

$7.2 billion

What is the formula for the CPI?

(Price of the most recent market basket/price estimate of the market basket in 1982-1984) x 100

Which of the following describes how to calculate the unemployment rate?

(unemployed/labor force) x 100%

If disposable income increases from $410 to $430 billion and savings increases from $5 to _____ billion, the marginal propensity to save is 0.25.

10

If real economic growth is 3%, the inflation rate is 5%, and the nominal interest rate is 7%, then the real rate of interest is:

2%

Suppose that in a particular year the natural rate of unemployment is 5 percent and the actual rate of unemployment is 8 percent. Using Okun's law, the size of the GDP gap in percentage point terms is:

6 percent

The formula for the rule of 70 that calculates the number of years it will take for the price level to double is ___.

70 divided by the annual percentage increase in the rate of inflation

Which of the following is a public investment in infrastructure?

A city builds a new water plant.

Which of these phenomena is responsible for the movement of women and minorities into high-productivity jobs?

A decline in discrimination

Frictional unemployment is inevitable and, in part, desirable because many workers who are voluntarily between jobs are moving to higher-paying, more productive positions that will result in which of the following?

A higher income for the workers An increase in GDP A better allocation of labor resources

Which of the following is not an investment in human capital?

A local company replaces its clerks' typewriters with PCs.

Which of the following would limit the growth in poor countries because of reduced foreign direct investment and development?

A no-growth policy among industrial nations

What type of inflation allows people to plan ahead and avoid or lessen the redistribution effects of inflation?

Anticipated inflation

Select the statements that summarize how firms can increase productivity using economies of scale.

As firms expand their size and output, they can use more productive equipment. As firms expand their size and output, they are better able to recoup investments in new production methods and products. As firms expand their size and output, they can employ more productive methods of delivery.

_____ propensity to save equals saving divided by income.

Average

Why does an increase in business taxes shift the investment demand curve to the left?

Because the expected profitability of investments declines

Firms are able to use larger, more productive equipment and employ methods of manufacturing and delivery that increase productivity when they enjoy ______ of scale.

Blank 1: economies or economy

Reductions in per-unit production costs that result from increases in output levels lead to _______ of _______.

Blank 1: economies or economy Blank 2: scale

The two types of investment in human capital are on-the-job training and formal (one word)

Blank 1: education or schooling

Those who are working are defined as _______ and those who are not working but actively seeking work are defined as _______

Blank 1: employed Blank 2: unemployed

Efficiency factor is when an economy must achieve economic efficiency as well as _________ ________ to reach its full production. (Use one word per blank)

Blank 1: full Blank 2: employment

On average, unemployment rates among less-educated workers are ______ than workers with more education.

Blank 1: higher, larger, greater, or more

If the amount of capital per worker ______ , labor productivity will increase.

Blank 1: increases, rises, expands, or grows

Generally, technological advance is generated by the discovery of new _______ which allows _______ to be combined in improved ways that increase output.

Blank 1: knowledge Blank 2: resources

Pollution, global warming, and ozone depletion are ______ externalities that result from economic growth.

Blank 1: negative or adverse

The competitive market system tends to drive the economy toward _______ efficiency and ________ efficiency.

Blank 1: productive Blank 2: allocative

The phase of the business cycle that describes a decline in total output, income, and employment is called a(n)

Blank 1: recession or contraction

Which of the following may be reasons for substantial shifts in business expectations?

Changes in exchange rates Changes in trade barriers Court decisions in key labor or antitrust cases

The formula for the _____ Price Index is the price of the most recent market basket in a particular year divided by the price estimate of the market basket in 1982-1984 multiplied by 100.

Consumer

The _____ schedule shows the various amounts that households would plan to spend at each of the various levels of disposable income.

Consumption

What are the effects of unanticipated deflation?

Creditors will benefit at the expense of debtors. The real incomes of people with fixed nominal incomes will increase. The purchasing power of savings will increase.

Economic growth is realized when the production possibilities curve shifts because of changes in which of the following factors?

Demand Efficiency

The determinants that directly affect economic growth can be grouped into which of the following categories?

Demand Efficiency Supply

Which of the following explain why flexible-income receivers may be unaffected by or even benefit from unanticipated inflation?

Demand-pull inflation may cause some nominal incomes to increase faster than inflation and lead to real income increases. Their incomes may automatically increase when the CPI increases. Some union workers receive COLAs in their pay when CPI increases.

What is the primary factor that determines the amounts that households will consume and save?

Disposable income

The unemployment rate for African Americans and Hispanics is lower than that for whites.

False

When an economy experiences negative shocks, in the short run, the economy responds primarily through changes in prices.

False

According to some economists, which of the following are positive effects of mild inflation?

Firms will have a strong demand for labor. Firms have an incentive to expand their plants and equipment.

Which of the following are excluded from core inflation so that it better reflects the general trend in overall prices?

Food items Energy products

Which statements about frictional and structural unemployment are true?

Frictionally unemployed workers live in areas where jobs exist, while structurally unemployed workers do not have appropriate jobs available to them. Frictionally unemployed workers have marketable skills, while structurally unemployed workers do not.

The difference between actual and potential GDP is called a ______ gap.

GDP

Which of the following entities provides funding for public investment in infrastructure?

Government

Which of the following describe why unemployment rates are higher for African Americans and Hispanics than for whites?

Greater concentration in lower-skilled occupations Lower rates of educational attainment

Which of the following are reasons why teenagers have a much higher unemployment rate than adults?

Have less geographic mobility Quit more frequently "Fired" more frequently Have lower skill levels

What are the negative effects of economic growth on the individual?

High anxiety with the introduction of new technologies Too much focus on materialism instead of community High-stress environments due to the frantic pace

On average, unemployment rates among less-educated workers are _______ than workers with more education.

Higher

Which of the following could be considered a cost of cyclical unemployment?

Higher crime, suicide, and divorce rates Political upheaval Severe psychological costs to the job loser

Economic growth provides society ______.

Higher living standards Greater material abundance More goods and services

Which statements describe how even low levels of inflation may negatively affect real output?

Households and businesses spend time and effort distinguishing between real and nominal wages and interest rates. Businesses incur the costs of changing prices to reflect inflation.

Which of the following cannot properly be called a part of infrastructure?

Human capital

Which of the following factors of productivity growth account for workers moving over time from low-productivity to high-productivity employment?

Improved resource allocation

Which of the following are consequences of the widespread joblessness of cyclical unemployment?

Increased poverty Lower morale Greater ethnic tensions

What are the two supply-side elements of real GDP?

Increases in labor productivity Increases in hours worked

Identify the supply factors that are "determinants" of economic growth.

Increases in the quantity and quality of natural resources Improvements in technology Increases in the quantity and quality of human resources Increases in the supply of capital goods

People whose incomes are fixed see their real incomes fall when _____ occurs.

Inflation

Which of the following comprise technological advancement?

Innovative production techniques New managerial methods New forms of business organization

Which of the following statements best describes the nominal interest rate?

Interest rates that are expressed in annual amounts and not adjusted for inflation

Which of the following statements is true?

Investment in both private and public capital is conducive to economic growth and higher productivity.

Which of the following are possible sources of the demand and supply shocks that can cause business cycles?

Irregular innovation Monetary factors Financial instability

Which statement about real income is true?

It has been adjusted for changes in prices over time.

Which statement best describes U.S. inflation since 2000?

It has been neither very high nor very low.

Which of these explain why growth is an important economic goal?

It increases real wages and incomes. It increases standards of living. It increases a society's ability to resolve socioeconomic problems.

Which statements about the CPI are true?

It is periodically updated by the BLS to reflect current inflation rates. It is updated every few years to reflect recent consumer purchasing patterns.

How is cost-push inflation unique?

It reduces the overall quantity of real output.

Which of the following are characteristics of lower-skilled workers?

Less likely to be self-employed Longer spells of structural unemployment

The basic economic cost of unemployment is forgone ______.

Output

The phase of the business cycle at which the economy is at or near full employment is known as a(n)

Peak

Identify the negative externalities that result from industrialization and growth.

Pollution Climate change

What do antigrowth economists cite as evidence in favor of their argument that growth is undesirable?

Pollution Poverty Materialism

Consumption and disposable income have what kind of relationship?

Positive

Real income will remain the same when nominal income rises at the same percentage rate as does the ______.

Price index

Real income equals nominal income divided by the

Price level

______ is a major factor preventing the economy from rapidly adjusting to shocks.

Price stickiness

Public investment in U.S. infrastructure like roads and bridges promotes _______ investment in new factories and retail stores.

Private

Which of the following increases investment demand?

Profitable new products

Which of the following are arguments against rapid economic growth?

Rapid economic growth is unsustainable due to the earth's finite resources. Rapid economic growth has not solved sociological problems like poverty and homelessness. Rapid economic growth results in pollution, global warming and other environmental problems

_______ income will be affected if the change in the price level differs from the change in a person's nominal income.

Real

In the figure, the consumption schedule shifts down when households consume less at each level of ______.

Real GDP

Which of the following statements best summarizes the real economic growth per capita in the United States between 1950 and 2018?

Real GDP per capita rose nearly fourfold.

Which of the following statements best summarizes the growth in real GDP in the United States between 1950 and 2018?

Real GDP rose more than eightfold.

Income that has been adjusted for changes in prices over time is called ______.

Real Income

What are the results of unanticipated inflation?

Some people are harmed and others are helped. Wealth and real income are redistributed.

Which of the following is a major factor in preventing the economy from rapidly adjusting to shocks?

Sticky prices

An auto worker in Michigan who loses his job because the company relocated the plant to another country is an example of ______ unemployment.

Structural

Which type of unemployment occurs as a direct result of a mismatch between skills and jobs?

Structural

The supply factors that are part of the "determinants" of economic growth include increasing the quality and quantity of natural and human resources, increasing the stock of capital, and improvements in

Tech

_______ advancement and capital investment are related because both promote further economic investment in new machinery and equipment.

Technological

Which of the following factors of productivity growth helps to promote the development of new forms of business organization?

Technological advance

What happens as a result of changes in wealth, expectations, interest rates, and household debt?

The consumption schedule shifts in one direction, and the saving schedule shifts in the opposite direction.

Which of the following helps explain why the growth rate in the United States has been positive during the 1900s?

The increase in labor productivity

What is the unemployment rate?

The percentage of the labor force that is unemployed

What does the Consumer Price Index (CPI) measure?

The prices of a fixed "market basket" of goods and services

Growth enables society to improve nations' infrastructure.

True

Hyperinflation is extraordinarily rapid inflation.

True

In the United States, inflation reached double-digit rates in the 1970s and early 1980s but has since declined and recently, has been relatively mild

True

In the United States, inflation reached double-digit rates in the 1970s and early 1980s but has since declined and recently, has been relatively mild.

True

Technological advance and investment are related because technological advance promotes investment in new machinery and equipment.

True

The Bureau of Labor Statistics lists all part-time workers as fully employed.

True

The competitive market system tends to drive the economy toward productive and allocative efficiency.

True

Which of the following are normally very similar between men and women?

Unemployment rates

What are common characteristics of less-educated workers that contribute to their having higher unemployment rates than workers with more education?

Working lower-skilled jobs Having more time between jobs Working jobs that are vulnerable to cyclical layoff

The formula for a GDP gap is:

actual GDP minus potential GDP

Business cycles are ______.

alternating increases and decreases in economic activity

A business cycle consists of ______.

alternating rises and declines in the level of economic activity

An important source of increasing labor productivity is ______.

an increase in the ratio of capital to labor

Savers are hurt by unanticipated inflation because:

as prices rise, the real value of savings decreases

Cost-of-living adjustments are ______.

automatic wage changes that happen when the CPI rises

A key issue in macroeconomics is why the economy sees ______.

business cycle fluctuations rather than slow, smooth growth

The two ways that society can increase its real output and income are by increasing its inputs of resources and ______.

by raising the productivity of those inputs

Firms and industries producing capital goods are affected most by the business cycle and the negative effects of a recession because purchases of capital goods ______.

can be postponed

The index most widely used by the government and the private sector to measure changes in the cost of living is the:

consumer price index

The rate of inflation is equal to the percentage change of the ______ from one year to the next.

consumer price index

The composition of the market basket for the CPI is based on spending patterns of urban _______ in a given period.

consumers

Saving equals disposable income minus

consumption

Social security payments automatically increase when the CPI goes up because of the ______.

cost of living adjustments

Inflation caused by an increase in the per-unit production costs at each level of total spending is called:

cost-push

Economists say that the economy is at "full employment" when the ______ unemployment rate is zero.

cyclical

Unlike economists who argue in favor of rapid economic growth, economists who argue against it see rapid economic growth as ______.

damaging

The purchase of the economy's expanding goods and services by households, businesses, and the government is known as the ______ factor.

demand

Inflation caused by an excess of total spending beyond the economy's capacity to produce is called:

demand-pull inflation

A worker who, after unsuccessfully seeking employment for some time, becomes frustrated and stops actively seeking work is referred to as a(n) ______ worker.

discouraged

Dissaving will occur at low ______ levels.

disposable income

When consumption is greater than after-tax income, it is called ______.

dissaving

The rule of 70 says that the number of years it will take for some metric to double, given its annual percentage increase, can be found by ___.

dividing 70 by the annual percentage increase

The business cycle affects output and employment in capital and durable goods industries more severely than in industries producing non-durable goods because, ______.

during a recession, business investment in new capital goods and consumer spending on new durable goods can be postponed

According to McConnell, better working conditions are best brought about by ______.

economic growth

Frantic paces on jobs, worker burnout, and alienated employees are all effects of ______.

economic growth

Economic theories are founded on the idea that economic fluctuations are driven by ______.

economic shocks

Reductions in per-unit production costs that result from increases in output levels are called ___.

economies of scale

The labor force is the sum of the ______ and ______.

employed unemployed

When prices are sticky in the short-run, the economy is forced to respond to shocks in the economy with changes in ______.

employment output

An economy is "fully employed" when the unemployment rate _____.

equals the structural and frictional unemployment rate

Demand-Pull inflation is caused by:

excess total spending

During hyperinflation, the value of money:

falls rapidly

When inflation occurs each dollar of income will buy ______ goods and services than before.

fewer

When inflation occurs, people with ______ incomes see their real incomes fall.

fixed

Which of the following group of people are hurt by unanticipated inflation?

fixed-income recipients savers creditors

Economic growth is made possible by the

four supply factors that shift the production possibilities curve outward

Workers that are _____ unemployed live in areas where jobs exist, and they have marketable skills.

frictionally

Workers that are unemployed because they are "between jobs" are:

frictionally unemployed

The Bureau of Labor Statistics lists all part-time workers as ______.

fully employed

The difference between actual and potential GDP is called a GDP

gap

One reason teenagers have a higher unemployment rate than adults is because they:

have lower skill levels

If household consumption is originally at C0, but households then decide to consume more at each level of real GDP, the consumption schedule shifts to the _____ (one word) curve on the graph.

higher

A nation's real GDP depends on labor ______ multiplied by labor ______.

hours productivity

Unanticipated inflation ______ fixed-income recipients, savers, and creditors.

hurts

Over time, when workers move from low-productivity to high-productivity employment, it is called ______.

improved resource allocation

A nation's economic growth from one year to the next depends on its ______.

increase in labor inputs and increase in labor productivity

Increased capital is important to productivity growth because the ______ in the quantity and quality of capital will make workers ______ productive.

increases; more

Frictional unemployment is ______.

inevitable and, in part, desirable

Real interest rates are the ______.

interest rates quoted in the market minus the expected inflation rate

Human capital refers to

knowledge and skills that make a worker productive

In any year, a nation's real GDP depends on hours of work multiplied by ______.

labor productivity

Output per hour of work is the definition of:

labor productivity

The two main supply-side elements that contribute to changes in real GDP are increases in hours worked and increases in ______.

labor productivity

The fraction of the working-age population that is in the labor force is called the ______ rate.

labor-force participation

Individuals who derive their incomes entirely from Social Security are ______ by inflation.

largely unaffected

According to McConnell, economic growth has made working conditions ______.

less hazardous and more pleasant

The number of persons unemployed for long periods as a percentage of the labor force is ______ the overall unemployment rate.

lower than

Why the economy sees business cycle fluctuations rather than slow, smooth growth is a central issue of ______.

macroeconomics

Increases in capital are important to productivity growth because increases in the quantity and quality of capital ______.

make workers more productive

Investment decisions are decisions based on ______,

marginal benefit and marginal cost

A decline in the discrimination against women and minorities has resulted in

more women and minorities in higher-productivity jobs

The demand factor involves households, businesses, and government purchasing the economy's expanding output of goods and services so that there will be

no unplanned increase in inventories and resources will remain fully employed

Income that is received as wages and is not adjusted for inflation is called ______ income.

nominal

The formula for real income is ______.

nominal income divided by the price index

The interest rates quoted in the market are known as ______.

nominal interest rates

Food and energy prices often complicate the measurement of inflation because supply and demand for these products ______.

often change, creating temporary changes in prices

When society increases its inputs of resources and raises the productivity of those resources, it can increase real ______ and ______.

output wages

Recessions are periods when ______.

output and employment are falling

Economic growth made possible by the four supply factors is illustrated by the _________ the production possibilities curve.

outward shifting of

The phase of the business cycle when the economy is near or at full employment and the level of real output is at or near capacity is called a:

peak

A shift of the investment demand curve from ID0 to ID2 is explained by ______ business expectations.

pessimistic

Economic growth can be illustrated when the demand factor and the efficiency factor shift the production ______ curve outward.

possibilities

The GDP gap equals actual GDP minus ____ GDP.

potential

When an economy uses its resources in the least costly way to produce goods and services, it is called

productive efficiency

Several possible sources of shocks that can cause business cycles include ______.

productivity changes unexpected political events monetary factors irregular innovation

If Sue saves $1,000 in the bank and earns 6% interest and inflation is greater than 6%, then the ______.

purchasing power of the savings will decline

Inflation redistributes:

real income

Labor productivity is:

real output per hour of work

Inflation ______ the purchasing power of money.

reduces

Cost-push inflation can contribute to a recession by increasing prices, which ______.

reduces output and leads to lower employment

If the capital stock ______ and the quantity of labor decreases, labor productivity will probably ______.

remains fixed; increase

Select examples of infrastructure.

roads and bridges water supply system

Ideally, a nation acquires funds for investment spending on plant and equipment by ______ income.

saving

Sources of funds for investment spending in plant and equipment are ______.

savings by households, governments, and foreigners

If a firm with investment demand of ID0 becomes more optimistic about future sales, costs, and profits, the investment demand curve will ______.

shift to ID1

Unexpected events that drive economic cycles and fluctuations are called economic

shocks

The unemployment rates for men and women are normally: Multiple choice question.

similar

The labor force is the ______.

sum of the employed and unemployed

The six "determinants" of economic growth are grouped into three categories: one demand factor, four _______ factors, and one efficiency factor.

supply

The largest contributor to productivity growth is through ______.

technological advancement

Inflation is a problem because when it occurs:

the "purchasing power" of money is reduced

Economic growth is made possible due to ______ that shift the production possibilities curve outward.

the factors of production

Human capital refers to _____.

the improvement in labor created by education and knowledge that is embodied in the work force

The unemployment rate equals the percentage of ______.

the labor force that is unemployed

Nominal income is ______.

the number of dollars received as wages, rent, interest or profits

The number of persons unemployed for long periods as a percentage of the labor force is much lower than:

the overall unemployment rate

Cost-push inflation is caused by an increase in ______.

the per-unit production costs at each level of spending

The rate of inflation is equal to:

the percentage growth of CPI from one year to the next.

Deflation occurs when there is a decline in ______.

the price level

Real income will remain the same when nominal income rises at ______ the price index.

the same percentage rate as

To economists, the term "aggregate" means ______.

total combined

A ______ of a recession is when output and employment "bottom out" at their lowest levels.

trough

The portion of the labor force that is not working but is willing and able to work and actively seeking work is defined as ______, and the portion of the labor force that is working part-time or full-time is defined as ______.

unemployed employed

The unemployment rate is calculated by dividing the number of ______ by the ______ times 100.

unemployed labor force

Frictional unemployment is defined as a type of unemployment that is caused by workers who ______.

unemployed as they actively search for a new job.

A discouraged worker is a(n) _______.

unemployed worker who drops out of the labor force and no longer seeks work actively

Forgone output is a basic economic cost of ______.

unemployment

Workers in lower-skilled occupations have higher ______ rates than workers in higher-skilled occupations.

unemployment

The efficiency factor involves both productive and allocative efficiency, which means in order to reach its full production potential an economy must

use its resources in the least costly way to produce the specific mix of goods that maximizes people's well-being

Workers today are more productive than workers in the past because ______.

workers now have more physical capital embodying better technology with which to work

The fraction of the ______ population that is in the labor force is called the labor-force participation rate.

working-age