Economics Unit 3

Explain why the three methods of calculating GDP produce the same estimate of GDP.

Sales, spending, and income are directly related and they all have to add up and equal the same amount. No money is "lost in the wash".

ONLINE DOESNT MATCH BOOK SOOOO?USE PG 152 The accompanying table contains the values of two price indexes for the years 2004, 2005, and 2006: the GDP deflator and the CPI. For each price index, calculate the inflation rate from 2004 to 2005 and from 2005 to 2006.

inflation rate=price index year 2- price index year 1/ price index year 1 times 100

If the consumer price index increases from 80 to 120 from one year to the next, the inflation rate over that time period was a. 20% b. 40% c. 50% d. 80% e. 120%

it equals 108/100 times 100= d. 108

If the cost of a market basket of goods increases from $100 in year 1 to $108 in year 2, the consumer price index in year 2 equals if year 1 is the base year. a. 8 b. 10 c. 100 d. 108 e. 110

it equals 108/100 times 100= d. 108??????slader says something different

The widespread use of technology has revolutionized the banking industry, making it much easier for customers to access and manage their assets. Does this mean that the shoe- leather costs of inflation are higher or lower than they used to be? Explain.

it is lower because with digital services consumers no longer have to maintain large cash balances and it is much easier to transact money

Draw a correctly labeled circular-flow diagram showing the flows of funds between the markets for goods and services and the factor markets. Add the government to your diagram, and show how money leaks out of the economy to the government and how money is injected back into the economy by the government.

memorize the circular flow diagram. Money leaks out of the economy to the government in the form of taxes and is injected back in via government transfers. Money flows from firms to the factor markets which flows into households from things like wages or rent, and then flows in to the markets for goods and services.

The consumer price index in the United States (base period 1982-1984) was 201.6 in 2006 and 207.3 in 2007. Calculate the inflation rate from 2006 to 2007.

price index year 2-price index year1/ price index year 1 times 100 so 207.3-201.6/207.3 times 100 equals 2.75%

Which of the following is true of real GDP? I. It is adjusted for changes in prices. II. It is always equal to nominal GDP. III. It increases whenever aggregate output increases. a. I only b. II only c. III only d. I and III e. I, II, and III

D. l and lll

Assume there are only two goods in the economy, french fries and onion rings. In 2009, 1,000,000 servings of french fries were sold for $0.40 each and 800,000 servings of onion rings were sold for $0.60 each. From 2009 to 2010, the price of french fries rose to $0.50 and the servings sold fell to 900,000; the price of onion rings fell to $0.51 and the servings sold rose to 840,000. a. Calculate nominal GDP in 2009 and 2010. Calculate real GDP in 2010 using 2009 prices.b. Why would an assessment of growth using nominal GDP be misguided?

A. Nominal GDP in 2009: $880,000 Nominal GDP 2010: $878,400 Real GDP 2010: $864,000. B. It wouldn't be accurate because it doesn't take into account inflation or the actual increase or decrease in production.

Which of the following is included in GDP? a. changes to inventories b. intermediate goods c. used goods d. financial assets (stocks and bonds) e. foreign-produced goods

A. changes to inventories

Which of the following components makes up the largest percentage of GDP measured by aggregate spending? a. consumer spending b. investment spending c. government purchases of goods and services d. exports e. imports

A. consumer spending

For each of the following events, explain how the use of a 10-year-old market basket would bias measurements of price changes over the past decade .a. A typical family owns more cars than it would have a decade ago. Over that time, the average price of a car has increased more than the average prices of other goods. b. Virtually no households had broadband Internet access a decade ago. Now many households have it, and the price has been falling.

A. the price index wouldn't place enough emphasis on car related costs and could be lower than it should be. b. An old market basket wouldn't take internet costs into account

Will each of the following transactions be included in GDP for the United States? Explain why or why not. a. Coca-Cola builds a new bottling plant in the United States. b. Delta sells one of its existing airplanes to Korean Air. c. Ms. Moneybags buys an existing share of Disney stock. d. A California winery produces a bottle of Chardonnay and sells it to a customer in Montreal, Canada. e. An American buys a bottle of French perfume in Tulsa. f. A book publisher produces too many copies of a new book; the books don't sell this year, so the publisher adds the surplus books to inventories.

A. yes, this is construction of a new structure. B. No. the airplane is a used good so it won't count. C. No. stocks do not represent either the production or sale of a final good, they merely represent a proof of ownership. D. Yes. This is an export. E. No. This is an import. F. Yes. this is considered investment spending.

Why does collective bargaining have the same general effect on unemployment as a minimum wage? Illustrate your answer with a diagram.

Both collective bargaining and minimum wages result in a higher rate of pay for workers. Wage rate goes on the vertical axis and quantity of labor goes on the horizontal. supply and demand curves are present with a vertical line showing a higher wage rate than equilibrium. this affects how many workers are hired

PG 120 Use the information provided in the table below for an economy that produces only apples and oranges. Assume year 1 is the base year. What was the value of real GDP in each year? Year 1 Year 2 a. $1,400 $2,700 b. 1,900 2,700 c. 1,400 2,000 d. 1,900 2,000 e. 1,400 1,900

C. 1,400 2,000

A person who is unemployed because of a mismatch between the quantity of labor supplied and the quantity of labor demanded is experiencing what type of unemployment? a. frictional b. structural c. cyclical d. natural e. none of the above

D???????????????

Identify each of the sectors to which firms make sales. What are the various ways in which households are linked with other sectors of the economy.

1. Households 2. Other Firms 3. The rest of the world. 1. Households-they purchase the goods and services provided by firms. In turn they provide labor, capital, and land to the factor markets. as well as private savings to financial markets. They give taxes and receive government transfers.

Most people in the United States have grown accustomed to a modest inflation rate of around 2-3%. Who would gain and who would lose if inflation came to a complete stop for several years? Explain.

If inflation was higher than expected borrowers gain at the expense of lenders because borrowers will pay back lenders with money that has a lower real value than was expected. If inflation was lower than expected lenders would gain at the expense of borrowers because the money borrowers are paying them has a higher real value

Consider Figure 10.3. PG 110 Explain why it would be incorrect to calculate total value added as $30,500, the sum of the sales price of a car and a car's worth of steel.

It would be incorrect because steel is an intermediate good and therefore would end up being counted twice in this example.

Suppose the United States dramatically increases benefits for unemployed workers. Explain what will happen to the natural rate of unemployment.

The natural rate of unemployment will rise because the frictional unemployment will rise. People are given more benefits reducing their need to hurry to find work making them more choosy.

Consider USE PG 147 Table 15.1 but suppose that the market basket is composed of 100 oranges, 50 grapefruit, and 200 lemons. How does this change the pre-frost and post- frost consumer price indexes? Explain. Generalize your answer to explain how the construction of the market basket affects the CPI.

The pre-frost index would become $100 and the post frost index would become $180 making both indexes rise by $5.?????//As long as two products inflate at the same rate the price indexes won't change.

Suppose that employment websites enable job- seekers to find suitable jobs more quickly. What effect will this have on the unemployment rate over time? Also suppose that these websites encourage job- seekers who had given up their searches to begin looking again. What effect will this have on the unemployment rate?

This will cause the unemployment rate to lower over time. Initially the unemployment rate will rise because these workers will be counted as current seekers.

From 1990 to 2000 the price of housing rose dramatically. What are the implications of this in deciding whether to use 1990 or 2000 as the base year in calculating 2010 real GDP?

You would use 1990 as the base year becuase it is most likely that inflation occurred over the decade.

USE CHART PG 128 How many people are unemployed? a. 10,000 b. 20,000 c. 30,000 d. 100,000 e. 110,000

a. 10,000

In which of the following cases would the worker be counted as unemployed? Explain. a. Rosa, an older worker, has been laid off and gave up looking for work months ago. b. Anthony, a schoolteacher, is not working during his three-month summer break. c. Grace, an investment banker, has been laid off and is currently searching for another position. d. Sergio, a classically trained musician, can only find work playing for local parties. e. Natasha, a graduate student, went back to school because jobs were scarce.

a. No, she is no longer looking for a job. b. No Anthony is still working part of the year c. Yes, she is looking for a job. d. No he is still partially employed e. No, she is no longer looking for a job

Explain the following. a. Frictional unemployment always exists. b. Frictional unemployment accounts for a larger share of total unemployment when the unemployment rate is low.

a. People will always be looking for jobs. b. higher unemployment rates are due to structural unemployment

A person who moved to a new state and took two months to find a new job experienced which type of unemployment? a. frictional b. structural c. cyclical d. natural e. none of the above

a. frictional

In each of the following situations, what type of unemployment is Melanie facing? Explain. a. After completing a complex programming project, Melanie is laid off. Her prospects for a new job requiring similar skills are good, and she has signed up with a programmer placement service. She has passed up offers for low-paying jobs. b. When Melanie and her co-workers refused to accept pay cuts, her employer outsourced their programming tasks to workers in another country. This phenomenon is occurring throughout the programming industry. c. Due to the current slump in investment spending, Melanie has been laid off from her programming job. Her employer promises to rehire her when business picks up.

a. frictional unemployment, she is taking her time to find a job. b. structural unemployment. changes in the entire industry because jobs are being outsourced. c. cyclical unemployment because her unemployment is caused by a downturn in a business cycle

Which of the following are consistent with the observed relationship between growth in real GDP and changes in the unemployment rate? Which are not? a. A rise in the unemployment rate accompanies a fall in real GDP. b. An exceptionally strong business recovery is associated with a greater percentage of the labor force being employed. c. Negative real GDP growth is associated with a fall in the unemployment rate.

a. is. b. is not ??????????????c. is not

In the following examples, is inflation creating winners and losers at no net cost to the economy or is it imposing a net cost on the economy? Explain. If inflation is imposing a net cost on the economy, which type of cost is involved? a. When inflation is expected to be high, workers get paid more frequently and make more trips to the bank. b. Lanwei is reimbursed by her company for her work- related travel expenses. Sometimes, however, the company takes a long time to reimburse her. So when inflation is high, she is less willing to travel for her job. c. Hector Homeowner has a mortgage loan that he took out five years ago with a fixed 6% nominal interest rate. Over the years, the inflation rate has crept up unexpectedly to its present level of 7%. d. In response to unexpectedly high inflation, the manager of Cozy Cottages of Cape Cod must reprint and resend expensive color brochures correcting the price of rentals this season.

a. net cost. shoe-leather b. net cost, unit-of-account inflation makes her money worth less to her now. c. no net cost, hector gains because the money he is paying is worth less than expected d. net cost, menu costs because he has to pay to print the new prices

You borrow $1,000 for one year at 5% interest to buy a couch. Although you did not anticipate any inflation, there is unexpected inflation of 5% over the life of your loan. a. What was the real interest rate on your loan? b. Explain how you gained from the inflation. c. Who lost as a result of the situation described? Explain

a. real interest rate=nominal-inflation so 5%-5%so the real interest rate was 0% b. You gained from the inflation because the value of the money you needed to pay back when down so you ended up paying less. The money being paid back as interest is valued lower than what it would have been if there had been no inflation c. the lender lost because inflation increased, the money he gets as interest is valued lower than what it would have been without any inflation

Use the data provided below to calculate each of the following. Show how you calculate each. a. the size of the labor force b. the labor force participation rate c. the unemployment rate Population age 16 and older =12 million Employment =5 million Unemployment =1 million

a. size of the labor force =employed+unemployed. so 5+1+6million b. the labor force participation rate=labor force/ population times 200 so 6/12times100=50% c. Unemployment rate = unemployed/labor force times 100 so 1mil/6miltimes 100 so 16.67%.

a. Define the natural rate of unemployment. b. The natural rate of unemployment is made up of which of the types of unemployment? c. Explain how cyclical unemployment relates to the natural rate of unemployment. d. List three factors that can lead to a change in the natural rate of unemployment.

a. the natural rate of unemployment is the rate of unemployment that arises from the effects of frictional plus structural unemployment. b. frictional and structural c. cyclical unemployment is the deviation of the actual rate of unemployment from the natural rate, or the difference between the actual and natural rates of unemployment d. governmental policies, changes in labor force characteristics, changes in labor market institutions like unions

Suppose the year 2000 is the base year for a price index. Between 2000 and 2020 prices double and at the same time your nominal income increases from $40,000 to $80,000. a. What is the value of the price index in 2000? b. What is the value of the price index in 2020? c. What is the percentage increase in your nominal income between 2000 and 2020? d. What has happened to your real income between 2000 and 2020? Explain.

a. the price index in 2000 is 100 because it is the base year. b. it is 80,000/40,000 times 100 which equals 200. c.80,000-40,000/80,000 times 100 so it increased by 100%. d. the real income is the same because both prices and wages doubled

What is the labor market classification of each of the following individuals? Be as specific as possible, and explain your answer. a. Julie has a graduate degree in mechanical engineering. She works full-time mowing lawns. b. Jeff was laid off from his previous job. He would very much like to work at any job, but, after looking for work for a year, has stopped looking for work. c. Ian is working 25 hours per week at a bookstore, and has no desire to work full time. d. Raj has decided to take a year off from work to stay home with his daughter.

a. underemployed because she has qualifications to work somewhere better. b. he is a discouraged worker and is not counted as unemployed. c. he is employed because he has no desire to work more d. he does not have a job and is not considered employed because he is not looking for a job

The value of a price index in the base year is a. 0. b. 100. c. 200. d. the inflation rate. e. the average cost of a market basket of goods.

b. 100

USE CHART PG 128 What is the labor force participation rate? a. 70% b. 50% c. 20% d. 10% e. 5%

b. 50% 100000/200000 labor force participation is labor force divided by population 16 and up

The unemployment problem in an economy may be understated by the unemployment rate due to a. people lying about seeking a job. b. discouraged workers. c. job candidates with one offer but waiting for more. d. overemployed workers. e. none of the above.

b. discouraged workers. c is overstating the problem, a idk what that is and d is just not a thing

If your wage doubles at the same time as the consumer price index goes from 100 to 300, your real wage a. doubles. b. falls. c. increases. d. stays the same. e. cannot be determined.

b. falls because real wage=(nominal wage/CPI) The numerator increased by 2 but the denominator increased by 3

Which of the following is notincluded in GDP? a. capital goods such as machinery b. imports c. the value of domestically produced services d. government purchases of goods and services e. the construction of structures

b. imports

If inflation causes people to frequently convert their dollars into other assets, the economy experiences what type of cost? a. price level b. shoe-leather c. menu d. unit-of-account e. monetary

b. shoe-leather

What type of unemployment is created by a recession? a. frictional b. structural c. cyclical d. natural e. none of the above

c. cyclical

PG 120 Refer to the 2013 data in the table below. Which of the following must be true? I. Residents of Japan were worse off than residents of the United States or the European Union. II. The European Union had a higher nominal GDP per capita than the United States. III. The European Union had a larger economy than the United States. a. I only b. II only c. III only d. II and III e. I, II, and III

c. lll only

Which of the following is true? The simple circular-flow diagram I. includes only the product markets. II. includes only the factor markets. III. is a simplified representation of the macroeconomy. a. I only b. II only c. III only d. I and III only e. none of the above

c. lll only

Changing the listed price when inflation leads to a price increase is an example of which type of cost? a. price level b. shoe-leather c. menu d. unit-of-account e. monetary

c. menu

If your nominal wage doubles at the same time as prices double, your real wage will a. increase. b. decrease c. not change. d. double. e. be impossible to determine.

c. not change

USE CHART PG 128 What is the unemployment rate? a. 70% b. 50% c. 20% d. 10% e. 5%

d. 10%

Real GDP per capita is an imperfect measure of the quality of life in part because it a. includes the value of leisure time. b. excludes expenditures on education. c. includes expenditures on natural disasters. d. excludes expenditures on entertainment. e. includes the value of housework.

d. excludes expenditures on entertainment

Which of the following is true of the natural rate of unemployment? I. It includes frictional unemployment. II. It includes structural unemployment. III. It is equal to 0%. a. I only b. II only c. III only d. I and II e. I, II, and III

d. l and ll

The best measure for comparing a country's aggregate output over time is a. nominal GDP. b. real GDP. c. nominal GDP per capita. d. real GDP per capita. e. average GDP per capita.

d. real GDP per capita

Which of the following can affect the natural rate of unemployment in an economy over time? a. labor force characteristics such as age and work experience b. the existence of labor unions c. advances in technologies that help workers find jobs d. government job training programs e. all of the above

e. all of the above. Unions that negotiate wages above the equilibrium level can be a source of structural unemployment and hence can affect the cyclical unemployment. With advances in technology that helps worker find jobs, workers become more choosy which leads to frictional unemployment. . Job- training programs are supposed to provide unemployed workers with skills that widen the range of jobs they can perform and hence can reduce structural unemployment.

To be considered unemployed, a person must I. not be working. II. be actively seeking a job. III. be available for work. a. I only b. II only c. III only d. II and III e. I, II, and III

e. l, ll, and lll

Which of the following is true of the CPI? I. It is the most common measure of the price level. II. It measures the price of a typical market basket of goods. III. It currently uses a base period of 1982-1984. a. I only b. II only c. III only d. I and II only e. I, II, and III

e. l, ll, and lll

Which of the following is true regarding prices in an economy? I. An increase in the price level is called inflation. II. The level of prices doesn't matter. III. The rate of change in prices matters. a. I only b. II only c. III only d. II and III only e. I, II, and III

e. l, ll, and lll because the level of prices doesn't matter as the real wage remains constant

Because dollars are used as the basis for contracts, inflation leads to which type of cost? a. price level b. shoe-leather c. menu d. unit-of-account e. monetary

e. monetary because inflation makes money a less reliable source of measurement and hence can't be used as the basis of contracts

GDP is equal to a. the total value of all goods and services produced in an economy during a given period. b. C+I+G+IM. c. the total value of intermediate goods plus final goods. d. the total income received by producers of final goods and services. e. none of the above.

e. none of the above. It is the total value of all FINAL goods and services produced in the economy in a given year.