Economics Chapter 9

Labor productivity is

the quantity of output produced by one worker or by one hour of work.

The nominal interest rate will be less than the real interest rate when

the rate of inflation is negative.

Equilibrium in the loanable funds market determines

the real interest rate.

Total income in an economy is equal to

the sum of wages, interest, rent, and profit.

accumulated knowledge and skills acquired by a worker

What is human capital?

Which of the following individuals would be most negatively affected by anticipated inflation?

a retired railroad engineer who receives a fixed income payment every month

An example of a final good would be

a soy latte sold by Starbucks to a student.

An example of a transfer payment is

a welfare payment.

Who demands loanable funds?

firms

The short-term unemployment arising from the process of matching workers with jobs is called

frictional unemployment.

A final good is one that

is purchased by its final user.

Recessions cause the unemployment rate to ________ and the inflation rate to ________.

rise; fall

A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds.

savers; borrower

What are the three main kinds of unemployment?

structural, frictional, and cyclical

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is

5%.

________ is the ease with which a financial security can be exchanged for money.

Liquidity

The Business Cycle Dating Committee, a part of the ________, officially decides when a recession begins and ends.

National Bureau of Economic Research

If the CPI changes from 125 to 120 between 2007 and 2008, how did prices change between 2007 and 2008?

Prices decreased by 4%.

When production in an economy grows more quickly than the population in that economy, which of the following must be occurring?

Real GDP per capita is rising.

________ are financial securities that represent partial ownership of a firm.

Stocks

When the government runs a deficit, which of the following is true?

T < G + TR

Refer to Table 7-4. Given the information above, what can we say has happened in the economy from 2004 and 2005?

The price level has risen.

Refer to Figure 8-1. Based on the graph of the labor market above, if a minimum wage of $8 per hour is imposed, which of the following will result?

The quantity of labor demanded by firms will fall.

When the inflation rate falls, which of the following occurs?

The real after-tax payment bondholders receive rises.

When prices are rising, which of the following will be true?

The real interest rate will be lower than the nominal interest rate.

An increase in public saving has what impact on the market for loanable funds?

The supply of loanable funds increases.

How are intermediate goods treated in the calculation of GDP?

Their value is not counted separately, but included as part of the value of the final good for which they are an input.

If a German firm produces cars in the United States, that production should count towards

U.S. GDP.

If a U.S. firm produces cars in Mexico, that production should count towards

U.S. GNP.

An increase in the demand for loanable funds will occur if there is

an increase in expected profits from firm investment projects.

Which of the following will result in an increase in labor productivity?

an increase in technology

Nominal GDP is another term for

current-dollar GDP.

A recession begins with a(n) ________ in spending by firms on capital goods and a(n) ________ in spending on durable goods by households.

decrease; decrease

Gross domestic product in the economy is measured by the

dollar value of all final goods and services produced in the economy.

The labor force is the sum of

employed workers and unemployed workers.

A transfer payment is a payment by the government to an individual

for which the government does not receive a good or service in return.

In the circular flow diagram, ________ supply the factors of production, and ________ goods and services.

households; buy

Which of the following has a tendency to raise the unemployment rate?

implementing a minimum wage in an economy

The largest component of spending in GDP is

consumption spending.

If real GDP in a closed economy is $40 billion, consumption is $20 billion, and government purchases are $10 billion, what is investment?

$10 billion

Refer to Table 7-6. Suppose that a very simple economy produces three goods: cameras, legal services, and books. Suppose the quantities produced and their corresponding prices for 2006 and 2009 are shown in the table above. What is real GDP in 2006, using 2009 as the base year?

$11,200

Refer to Table 7-6. Suppose that a very simple economy produces three goods: cameras, legal services, and books. Suppose the quantities produced and their corresponding prices for 2006 and 2009 are shown in the table above. What is real GDP in 2009, using 2009 as the base year?

$11,790

Refer to Table 7-1. Consider the table of production and price statistics for a small economy in 2008. If the economy only produces the four goods listed below, what is GDP for 2008?

$428,000

Refer to Table 7-5. Suppose that a very simple economy produces three goods: movies, burgers, and bikes. Suppose the quantities produced and their corresponding prices for 2002 and 2007 are shown in the table above. What is nominal GDP in 2007?

$7,035

Suppose that real GDP for 2004 was $10,000 billion and real GDP for 2005 was $9,500 billion. What is the rate of growth of real GDP between 2004 and 2005?

-5%

You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. The CPI over that year rises from 180 to 200. What is the real interest rate you are paying?

-6.1%

If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?c

2.7%

Refer to Table 8-1. Suppose that the data in the table above reflect price levels in the economy. What is the inflation rate between 2004 and 2005?

2.9%

A car that is produced in 2007 is not sold until 2008. According to the definition of GDP, in which year's GDP should it be counted?

2007

If GDP grows at a rate of 3% per year, approximately how long will it take for GDP to double in size?

23 years

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?

3.5%

Which of the following is a true statement about the length of recessions and expansions in the United States economy?

After 1950, the length of expansions were much longer than the length of recessions.

________ are financial securities that represent promises to repay a fixed amount of funds.

Bonds

Discouraged workers are classified by the BLS as

Discouraged workers are classified by the BLS as

Which of the following causes the unemployment rate to understate the true extent of joblessness?

Discouraged workers are not counted as unemployed.

For the last few decades, the labor force participation rates of men have ________, and the labor force participation rates of women have ________.

For the last few decades, the labor force participation rates of men have ________, and the labor force participation rates of women have ________.

Which of the following equations correctly measures GDP in an economy?

GDP = C + I + G + NX

The ________ is a measure of the price level and is calculated by dividing ________ by ________ and multiplying by 100.

GDP deflator; nominal GDP; real GDP

Net national product (NNP) is equal to

GNP minus depreciation.

In a closed economy,

I = Y - C - G.

Which of the following is a true statement about real and nominal GDP?

If real GDP increases from one year to the next, we know that production of goods and services has risen.

Inflation that is ________ than what is expected benefits ________ and hurts ________.

less; lenders; borrowers

The costs to firms of changing prices are called

menu costs.

Workers in high-income countries have ________ to work with than do workers in low-income countries.

more physical capital

The GDP deflator is equal to

nominal GDP divided by real GDP, multiplied by 100.

The measure of production that values production using current prices is called

nominal GDP.

A full-time student who is not working is categorized as

not in the labor force.

Which of the following do not suffer the costs of inflation?

persons whose incomes rise more rapidly than inflation

The PPI is the

producer price index.

The only way the standard of living of the average person in a country can increase is if ________ increases faster than ________.

production; population

Labor productivity will increase if the ________ increases and ________.

quantity of capital per hour worked; technology improves

Public saving in the economy can be increased by

raising taxes.

The best measure of the standard of living is

real GDP per capita.

The measure of production that values output using base-year prices is called

real GDP.

The drawback to calculating real GDP using base-year prices is that

relative prices change over time, these are not reflected in base-year prices, and this distorts GDP.

By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce

structural unemployment

What does the PPI measure?

the average of the prices received by producers of goods and services at all stages of the production process

An example of an intermediate good would be

the bread that goes into a sub sandwich.

A period of expansion in the business cycle ends when

the business cycle reaches its peak.

The most widely used measure of inflation is based on which of the following price indices?

the consumer price index

Liquidity refers to

the ease with which a financial security can be traded for cash.

Potential GDP is defined as

the level of GDP attained when all firms are producing at capacity

We say that the economy is at full employment if the unemployment rate is equal to

the natural rate of unemployment.

The real rate of interest is

the nominal interest rate minus the inflation rate.

The rule of 70 states that

the number of years it takes an economy to double in size is 70 divided by the growth rate.

The unemployment rate is

the percentage of the labor force that is unemployed.

The labor force participation rate is defined as

the percentage of the working-age population in the labor force.

Gross national product is defined as

the value of final goods and services produced by residents of the United States even if the production takes place outside of the United States.

The circular flow diagram shows that

the value of total income is equal to the total value of expenditures on final goods and services.

Deflation occurs when

there is a decline in the price level.