Exam 2 Review

In 2011, Kendall Ford, an automobile dealership, spent $20,000 on a new car lift for its repair shop, $2,000 on a new copy machine for its sales division, and $600,000 on Ford Motor company stock. Unsold cars and trucks were valued at $400,000 on January 1, 2011 and unsold cars and trucks were valued at $900,000 on December 31, 2011. What is Kendall Ford's total investment spending in 2011?

$522,000

If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion, the growth rate of real GDP between 2010 and 2011 is

(8.3-8)/8 3.75%

The labor force participation rate equals the

(labor force divided by working-age population) x 100

Refer to the table. Consider the following data on nominal GDP and real GDP (values are in billions of dollars). The inflation rate in 2010:

2.807%

According to the Economics club at K-State, the prices increased by a) 7.4 in Manhattan and 1.7 nationwide b) 1.7 in Manhattan and 4.7 nationwide c) 4.7 in Manhattan and 1.7 nationwide d) 4.7 in Manhattan and 7.1 nationwide

4.7 in Manhattan and 1.7 nationwide

If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from

70/3 23.3 years to 17.5 years

Suppose the working-age population of a fictional economy falls into the following categories: 90 are retired or homemakers; 60 have full-time employment; 20 have part-time employment; 20 do not have employment, but are actively looking for employment; and 10 would like employment but do not have employment and are not actively looking for employment. The official unemployment rate as calculated by the U.S. Bureau of Labor would equal.

80 employed 20 unemployed 10 discouraged (don't count) 90 are retired 20 looking for employment Labor force=100 Unemployed=20 Unemployed/Labor Force 20.00%

Refer to the table. Consider the following data for a simple economy, what is the GDP deflator for 2010 using 2009 as a base year?

97.39%

If there is public dissaving, investment spending in the economy will decline holding everything else constant T/F

True

Increases in capital per hour worked cannot sustain high rates of economic growth unless accompanied by technological change T/F

True

The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is 5% higher in year 2 than in year 1 T/F

True

To examine how the total production of an economy has changed over time, it would be better to examine real GDP T/F

True

The resources lost for dealing with inflation a) is small even when there is rapid inflation b) is called menu cost c) does not exist if inflation is perfectly anticipated d) is called shoe leather cost

is called shoe leather cost

Frictional unemployment is the result of a) persistent mismatch between the skills and characteristics of workers and the requirements of the job b) the search process of matching jobs with workers c) the ups and downs of inflation d) a slowdown in the economy

the search process of matching jobs with workers

If an economy experiences deflation, the real interest rate a) will be less than the nominal interest rate b) will be negative when the nominal interest rate is positive c) will be greater than the nominal interest rate d) will be equal to the deflation rate, so long as the nominal interest rate is positive

will be greater than the nominal interest rate

The CPI implicitly assumes that the demand curve for each good and service in the representative market basket is a) positively sloped b) negatively sloped c) vertical d) horizontal

vertical

Which of the following would be a consequence of substitution bias in the CPI? a) Social Security payments would not adequately compensate retired workers for inflation b) businesses would over-compensate employees for inflation when giving the cost of living rises c) the inflation rate based on the CPI would under estimate the true level of inflation d) judges would award child support payments that would not adequately keep up with the true cost of inflation

Businesses would over-compensate employees for inflation when giving the cost of living rises

Refer to the table. Assume the market basket for the consumer price index has three products: Cokes, hamburgers, and CDs with the following values in 2006 and 2011 for price and quantity: The CPI for 2011 equals

CPI=current basket/base 121

Efficiency wage is another name for the minimum wage T/F

False

Eliminating frictional unemployment would be good for the economy T/F

False

Residential investment includes spending by firms on office buildings T/F

False

The NBER's Business Cycle Dating Committee defines a recession at least 2 consecutive quarters of falling real GDP T/F

False

The inflation rate measures the average prices of goods and services in the economy T/F

False

The nominal interest rate plus the inflation rate equals the real interest rate T/F

False

A country in which a significant fraction of domestic production takes place in foreign owned factories and facilities is most likely a country where a) GNP is much larger than GDP b) GDP is much larger than GNP c) GDP is equal to GNP d) GDP is not comparable to GDP

GDP is much larger than GNP

Which of the following is true about the consumer price index? a) it accounts for people switching to goods whose prices have fallen b) it assumes that consumers purchase the same amount of each product in the market basket each month c) it frequently updates the price changes of new products added to the market basket, as these have a tendency to fall d) it filters out part of the price increases that occurs because of quality improvements in products

It assumes that consumers purchase the same amount of each product in the market basket each month

There is a government budget surplus if a) T-TR > G b) G > T c) G > TR d) TR < T

T-TR > G

You earned $30,000 in 1990 and your salary rose to $80,000 in 2011. If the CPI rose from 82 to 202 between 1990 and 2011, which of the following is true? a) there was deflation between 1990 and 2011 b) the purchasing power of your salary fell between 1990 and 2011 c) the purchasing power of your salary remained constant between 1990 and 2011 d) the purchasing power of your salary increased between 1990 and 2011

The purchasing power of your salary increased between 1990 and 2011

Refer to the table. Consider the date above (in billions of dollars) for an economy: GDP (in billions of dollars) for this economy equals

Y= C+I+G+NX 800+300+300+200= $1,600

Which of the following is most liquid? a) mutual fund share b) government bond c) corporate bond d) dollar bill

a dollar bill

Which of the following policies would reduce structural unemployment? a) an increase in minimum wage b) a job retraining program c) implementing an unemployment insurance policy d) building an online database that helps workers find jobs

a job retraining program

The nominal GDP of the U.S. in 2010 was $14.6 trillion. This means that a) the value of output in 2010 was around $14.6 trillion b) total income in 2010 was around $14.6 trillion c) total spending in 2010 was around $14.6 trillion d) all of the above

all of the above

An increase in the demand for loanable funds will occur if there is a) an increase in the real interest rate b) a decrease in the real interest rate c) an increase in expected profits from firm investment projects d) an increase in nominal interest rate accompanied by an equal increase in inflation

an increase in expected profits from firm investment projects

Refer to the figure. Which of the following is consistent with the graph depicted? a) an increase in household income b) an increase in transfer payments to households c) an increase in the proportion of income after net taxes used for consumption d) an increase in tax revenues collected by the government

an increase in the proportion of income after net taxes used for consumption

When actual inflation is less than expected inflation a) borrowers lose and lenders gain b) borrowers gain and lenders lose c) borrowers and lenders both lose d) borrowers and lenders both gain

borrowers lose and lenders gain

The demand for durable goods a) has decreased over time b) declines by a greater percentage than does GDP during a recession c) declines by a smaller percentage than does GDP during a recession d) rises by a greater percentage than does GDP during a recession

declines by a greater percentage than does GDP during a recession

Which of the following will not occur as a result of a decrease in net taxes? a) decreased household saving b) decreased government saving c) a shift to the left of the supply curve for loanable funds d) all of the above

decreased household saving

Borrowers are ____ of loanable funds and lenders are ____ of loanable funds a) demanders; suppliers b) suppliers; demanders c) suppliers; suppliers d) demanders; demanders

demanders; suppliers

The natural rate of unemployment is the amount of unemployment

equal to frictional plus structural employment

GDP understates the total production of final goods and services because the omission of a) exports b) inflation c) intermediate goods d) household production

household production

In a closed economy, which of the following components of GDP is not included? a) investment b) government spending c) net exports d) consumption

net exports

If nominal GDP exceeds real GDP for a specific year, then the GDP deflator must be a) equal to zero b) greater than 100 c) less than 100 d) less than zero

nominal/real=GDP deflator greater than 100

The Bureau of Labor Statistics would categorize a retiree who is not working as a) employed b) unemployed c) discouraged worker d) out of the labor force

out of the labor force

A good measure of standard living is a) real GDP per capita b) nominal GDP per capita c) total real GDP d) total nominal GDP

real GDP per capita

The period between a business cycle peak and a business cycle trough is called a) expansion b) recession c) diffusion d) recalculation

recession

Human capital refers to which of the following a) the quantity of goods and services that can be produced by one worker or by one hour of work b) the accumulated knowledge and skills workers acquire from the education and training or from their life experience c) manufactured goods that are used to produce other goods and services d) physical equipment that is made by human laborers, not machines

the accumulated knowledge and skills workers acquire from education and training or from their life experience

Potential GDP refers to a) the level of GDP attained when all firms are producing at capacity b) the level of GDP attained by the country with the highest growth of real GDP in a given year c) the difference between the highest level of real GDP per quarter and the lowest level of real GDP per quarter in a given year d) the extent to which real GDP is above or below nominal GDP

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

GDP is calculated by summing up a) the total quantity of goods and services in the economy b) the total quantity of goods and services produced in the economy during a period of time c) the total market value of goods and services in the economy d) the total market value of final goods produced in an economy during a period of time

the total market value of final goods produced in an economy during a period of time

Suppose the labor movement has a revival in the United States and the majority of workers join labor unions. As a result we would expect a) the labor force participation rate to fall b) the unemployment rate to fall c) the unemployment rate to rise d) no change in the unemployment rate or labor force participation rate

the unemployment rate to rise

Suppose in 2012, you purchased a house built in 2003. Which of the following would be included in the GDP for 2012? a) the value of the house in 2012 b) the value of the house in 2013 c) the value of the house in 2012 minus depreciation d) the value of the services of the real estate agent

the value of the services of the real estate agent