Macro

Unemployment rate=?

(# of unemployed/labor force)x 100

If the CPI in 2002 was 180 and the CPI in 2003 was 184, what was the inflation rate between 2002 and 2003?

(184-180)/180x100= 2.22%

Consider the information in the table for Tyrovia, a country that produces only two products: guns and butter. Nominal GDP for Tyrovia for 2020 equals. 2012- Quantity of Guns-80 Price of Guns- $5- Quantity of Butter- 40- Price of Butter- $4 2020- Quantity of guns- 90- Price of Guns- $6- Quantity of butter- 60- Price of Butter- $10

(90x6)+(60x10)=$1,140

Inflation Rate

(P2-P1/P1)x100

Real variable=?

(nominal variable/price index) x 100

If the CPI was 207 in 2009 and 225 in 2013, what wage would someone who earned a $50,000 income in 2009 have to earn in 2013 in order to keep their purchasing power constant?

50,000 x (225/207)=$54,348

Suppose that you are available to go to work but have not looked for a job for at least the last four weeks because you believe that there aren't any jobs available. You would be counted as?

A discouraged worker.

Suppose that the inflation rate turns out to be much higher than most people expected. In that case,

A lender will lose from the situation while a borrower will gain.

Price level

A measure of the average price of goods and services in the economy.

GDP deflator definition

A measure of the price level, calculated by dividing nominal GDP by real GDP and multiplied by 100

GDP deflator

A meaure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100 (NGDP/RGDPx100)

Which of the following goods and services would be excluded from a personal consumption expenditures in the Bureau of Economic Analysis (BEA) statisitics?

A new house

Real GDP refers to nominal GDP

Adjusted for price changes.

CPI definition

An average of the prices of the goods and services purchased by the typical urban family of four.

Producer Price Index (PPI)

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

Increases in real GDP would overstate the well-being of a country over time if, over that time period, the

Average hours per week increased

How is GDP calculated?

By multiplying the price times the quantity of each good and service sold in the current period, then adding the results.

CPI

CPI= Expenditures in the current year/ Expenditures in the base year

The price index which is used to measure changes in the cost of living is the:

Consumer Price Index (CPI)

Which of the following is true about the consumption component of the U.S. GDP?

Consumer spending on services is greater than the sum of spending on durable and nondurable goods.

In the equation that sums up the information on the components of GDP, Y=C+I+G+NX, which component is the largest?

Consumption.

Unemployment caused by a recession:

Cyclical unemployment

As output (GDP) is increasing, the amount of cyclical unemployment would:

Decrease

During the late nineteenth century in the United​ States, many farmers borrowed heavily to buy land. During most of the period between 1870 and the​ mid-1890s, the United States experienced mild deflation. Many farmers engaged in political protests during these​ years, and deflation was often a subject of their protests. Why would farmers have felt burdened by deflation during this​ period?

During deflationary​ periods, the real interest rate exceeds the nominal interest​ rate, and the real cost of borrowing increases.

According to Costco's CEO, Jim Sinegal: ​"Paying good wages and keeping your people working for you is good business...Imagine that you have​ 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for​ you." What is Costco's CEO referring to?

Efficiency wages

Labor force=?

Employed + Unemployed

Which of the following statements is correct regarding inflation?

Even when inflation is perfectly anticipated, some individuals will experience a cost. People on fixed incomes are particularly hurt by inflation. Anyone holding paper money will find its purchasing power decreasing each year by the rate of inflation.

Why must the total value of production in an economy equal the total value of income?

Every penny spent on a good or service must end up as someone's income

Consumer Price Index

Expenditure in current year/ Expenditure in base year x 100

A new home purchased by a family:

Final good

A new pick-up truck purchased by a consumer:

Final good

The three types of unemployment are?

Frictional, structural and cyclical unemployment.

Suppose Mary is currently unemployed. Each​ day, Mary spends the entire day searching available job openings for an appropriate position given her set of​ skills, abilities, and interests. If someone asks Mary what she does for​ work, she tells them that she is currently​ "in-between jobs." Which of the following best classifies Mary's unemployment​ status?

Frictionally unemployed

How is GDP measured?

GDP is measured using market values.

Which one of the following is not a measure of the price level?

Government Price Index: An average of the prices paid by the government for goods and services used only by different government agencies.

Growth in the economy is almost always measured as..?

Growth in real GDP

Effects of Inflation

High and variable inflation reduces investment, Inflation distorts the information delivered by prices, and High and variable inflation results in less productive use of resources.

GDP does NOT capture

Household production, the underground economy, leisure and human costs, pollution or other negative effects of production, changes in crime and other social problems, how the pie is divided.

Rule of 70

If a variable grows at a rate of x percent per year, 70/x will approximate the number of years required for the variable to double.

Labor Productivity is determined by:

Increases in capital per hour worked, Technological change- Better machinery and equipment, increases in human capital, better means of organizing and managing production, Property rights

The only way that the standard of living of the average person in a country can increase is by?

Increasing production faster than population growth.

Coffee beans purchased by a coffee shop:

Intermediate good

The real interest rate:

Is equal to the nominal interest rate minus the inflation rate.

Since 1948, which of the following best describes the trend in the labor force participation rate?

It is decreasing for men and increasing for women.

What is the labor force participation rate of the economy?

Labor force/ working age population working age pop.= unemployed+ employed.

Labor force participation rate=?

Labor force/ working age population x 100

If prices rise over time, then real GDP will be?

Larger than nominal GDP in years before the base year.

Gross Dometic Product (GDP)

Market value of all final goods and services produced in a country during a specific time period.

Which of the following statements is true?

Minimum wage laws cause an increase in unemployment.

One share of a google stock:

Neither and intermediate good or final good

Suppose a house is built and sold in the year 2010. If the house is resold in the year 2021, is the value of the house included in GDP for 2021?

No. GDP for 2021 includes the market value of final goods and services. This includes real estate services.

Real Avg Hourly wage

Nominal AVG hourly wage/ CPI x 100

Using the year 2000 as the base year, and assuming that prices during the 1990s were lower on average than prices in 2000, we can conclude that...

Nominal GDP was lower than real GDP in the 1990s.

GDP Deflator

Nominal GDP/Real GDP x 100

Which of the following is the best categorization of a discouraged worker?

Not looking for work and not in the labor force.

All of the following are problems in measuring the unemployment rate except that:

People on active military service are included as unemployed.

Inflation can affect the distribution of income because?

People with incomes rising faster than the rate of inflation enjoy an increasing purchasing​ power, while people with incomes rising more slowly than the rate of inflation are hurt by a decreasing purchasing power.

Growth rates

Percentage change= (new value-old value)/ old value x 100

Components of GDP

Personal consumption expenditures ("Consumption"), Gross Private Domestic Investment ("Investment"), Government Consumption and Gross Investment ("Government Purchases")

Which of the following is true about the government purchases component of U.S. GDP?

Purchases by state and local governments are greater than purchases by the federal government.

The internet has ________ the size of menu costs.

Reduced

Frictional Unemployment

Short-term unemployment that arises from the process of matching workers with jobs.

The unemployment rate:

Shows the percentage of the labor force that is considered unemployed.

The type of unemployment most likely to result in hardship for the people who are unemployed is?

Structural because this type of unemployment requires retraining to acquire new job skills.

Bob Wesley believes that structural unemployment should be eliminated in order for an economy to be healthy. In making this​ argument, which of the following relevant issues is he​ ignoring?

Structural unemployment will exist in an economy that is innovative.

When the skills of the unemployed don't match the skills required for a job, we have...?

Structural unemployment.

Biases in the CPI

Substitution bias, Increase in quality bias, New product bias, Outlet bias

Which market basket specifically targets intermediate goods?

The basket used by the Producer Price Index.

What is the difference between the consumer price index and the producer price index?

The consumer price index is an average of the prices of the goods and services purchased by the typical urban family of​ four, whereas the producer price index is an average of the prices received by producers of goods and services at all stages of the production process.

Menu costs are:

The costs to firms of changing prices

What is the informal sector, or underground economy?

The informal sector of the economy where production is concealed from the government.

What is the percentage of the working-age population in the labor force?

The labor force participation rate

GDP is best defined as

The market value of all final goods and services produced in a country during a period of time, typically one year.

When the economy is at full employment, unemployment is equal to?

The natural rate of unemployment.

The difference between the nominal interest rate and the real interest rate is?

The nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate

Real interest rate

The nominal interest rate minus the inflation rate

The real interest rate equals?

The nominal interest rate minus the inflation rate.

If the economy is experiencing deflation,

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

That stated interest rate on a loan is

The nominal interest rate.

Natural Rate of Unemployment

The normal rate of unemployment, consisting of friction and structural unemployment.

The BLS collects price statistics from traditional​ full-price retail​ stores, which do not reflect the prices some consumers pay by shopping at discount stores or on the Internet. This is a description of which bias?

The outlet bias

The inflation rate is..

The percentage change in the GDP deflator from one year to the next.

Long-run economic growth

The process by which rising productivity increases the average standard of living.

Which of the following is included in the economist's definition of investment?

The purchase of a machine, factory, or house.

Which of the following are the two key factors that determine labor productivity?

The quantity of capital per hour worked and the level of technology.

Labor of Productivity

The quantity of goods and services that can be produced by one worker by one hour of work.

Nominal Interest rate

The stated interest rate on a loan.

Changes in the CPI overstate the true inflation rate due to four​ "biases." If apple prices rise rapidly during the month while orange prices​ fall, consumers will reduce their apple purchases and increase their orange purchases. Which of the four biases is concerned with this consumer​ behavior?

The substitution bias

The "normal" underlying level of unemployment in the economy is?

The sum of structural unemployment and frictional unemployment, the full- employment rate of unemployment, the natural rate of unemployment.

The natural rate of unemployment is:

The sum of structural unemployment and frictional unemployment.

How would it affect the unemployment rate if the Bureau of Labor Statistics counted as unemployed both​ (1) discouraged workers and​ (2) people who work​ part-time but would prefer to work​ full-time?

The unemployment rate would increase.

Which of the following would not be counted as part of this year's GDP?

The value of a used car at its sale price.

Real GDP is

The value of goods and services evaluated at base year prices.

Suppose, in 2022, you purchase a house built in 2000. Which of the following would be included in the GDP for 2022?

The value of the services of the real estate agent.

How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment​ rate?

They decrease the opportunity cost of job search.

Transfer payments are not included in GDP calculations because...?

Transfers payments are simply transfers of income from one group to another and not a purchase of a new good or service.

Why is the unemployment rate, as measured by the BLS, an imperfect measure of the extent of joblessness in the economy?

Underemployed people are considered employed, Discoraged workers are not considered unemployed, It does not account for inaccurate responses to the Current Population Survey, and It fails to account for illegal activities.

When there are part- time workers, the official BLS measure of the unemployment rate _________ the true degree of unemployment.

Understates.

Structural Unemployment

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs.

Cyclical Unemployment

Unemployment caused by a business cycle recession.

Real GDP

Value of final goods and services expressed at base-year prices.

Nominal GDP

Value of final goods and services expressed in current-year prices.

What is the relationship between the unemployment rate and enacting or increasing a minimum wage? When a minimum wage is enacted or increased across a country, the unemployment rate...

Will increase some but the impacts will be much larger for some groups of workers.

Government purchases?

Y=Consumption + Investment + Govt. purchases + Net eXports

Suppose your mother's salary was $29,500 in 1992, when the CPI was 100. She earned $65,000 in 2011, when the CPI was 226. Which of the following statements is true?

Your mother's real wage decreased.

The unemployment rate in the United States is ______ and the requirements for receiving unemployment _____ than in Western Europe.

lower; more stringent

GDP

measured using market values (not quantities), Includes only final good and services, Includes only current production

Suppose that Apple and the investors buying the​ firm's bonds both expect a 4 percent inflation rate for the year. ​Further, suppose the nominal interest rate on bonds is 8 percent and the expected real interest rate is 4 percent. Part 2 Now suppose that a year after the investors purchase the​ bonds, the inflation rate turns out to be 3 ​percent, rather than the 4 percent that had been expected. Part 3 In this​ situation, investors ______ and borrowers _____.

win, lose