MAcro Econ Exam 2

The table shows some of the items in the U.S. National Income and Product Accounts in 2004.

10.4

The table shows some of the items in​ Northland's National Income and Product Accounts in 2016. Use the expenditure approach to calculate​ Northland's GDP in 2016.

150 billion

When the price level is rising at​ _______ and the real interest rate is 1 percent a​ year, the nominal interest rate is 3 percent a year.

2 percent a year

The Population Survey in Blogsville reports the following numbers for the past​ month: 16 million people had​ full-time jobs. 8 million people had​ part-time jobs. 9 million people were without work but were available for work and had made specific efforts to find a job within the past four weeks or were waiting to be recalled from a layoff. 40 million people of working age did not have jobs and did not want jobs. Last​ month, the labor force was​ ______ million and the​ working-age population was​ ______ million.

88 108

Consider the business​ cycle, and then choose the statement that is correct.

A business cycle is periodic but irregular.

GDP is the market value of all the final goods and services produced within a country in a given time period.

A final good​ (or service) is an item that is bought by its final user during a specified time period.

Classify each of the following items as a final good or service or an intermediate good or​ service, and identify which is a component of consumption​ expenditure, investment, or government expenditure on goods and services. A. New Apartment Building B. Steel Sheets bought by GM C. Computer purchased for a senator's office D. Textbook bought by a student

A is a final good that is investment, B is an intermediate good​, C is a final good that is government expenditure​, and D is a final good that is consumption expenditure.

What is a characteristic of an economy at full​ employment?

All unemployment is frictional and structural

​______ good is used as a component of a final good. We​ ______ add the value of intermediate goods produced to the value of final goods to measure GDP.

An​ intermediate; do not

The U.S. unemployment rate​ ______.

Averaged

To find total number of people unemployed

Calculate the sum of the four types of person included in the broadest measure of unemployment.

When calculating GDP What do we include or not include

Consumption expenditure yes Government expenditure yes Indirect taxes less subsidies no Depreciation no Net factor income from abroad no Investment yes Net exports yes Statistical discrepancy no

The Commerce Department reported that in December​ 2015, retail sales rose by​ 0.2, net exports​ decreased, inventories held by businesses rose by 0.1​ percent, and total sales by businesses fell by 0.6 percent. ​Source: Commerce​ Department, February 2016 Which component of GDP changed because retail sales​ increased? Which component of GDP changed because business inventories​ increased?

Consumption​ expenditure; Investment

Real GDP​ ______.

Does not accurately measure household production, underground economic activity, or life expectancy

When the unemployment rate​ ______ the natural unemployment​ rate, real GDP​ ______ potential GDP.

Equals; equals

The U.S. labor force participation rate​ ______.

Increased from 59 percent in 1960 to 67 percent in 1999

Investment is the purchase of new capital goods​ (tools, instruments,​ machines, and​ buildings) and additions to inventories. Investment also includes the purchases of new homes by households.

Investment is a component of the expenditure approach to calculating GDP New home sales are part of investment in the current year. When new home sales this year are greater than new home sales last​ year, investment this year is positive and real GDP​ increases, and it increases by more than the increase in the previous year.

The natural unemployment rate ​ ______.

Is the unemployment rate at full employment

Classify each of the following items as a final good or an intermediate​ good, and identify whether it is a component of consumption​ expenditure, investment, or government expenditure on goods and​ services: Item 1. Banking services bought by a student. Item 2. A new limousine for the president. Item 3. Packing boxes bought by Amazon.com. Item 4. A new apartment building.

Item 1 is​ ______ and item 2 is ​ _____. a final good that is consumption expenditure​; a final good that is government expenditure Item 3 is​ ______; and item 4 is ​ ______. A. an intermediate good​; a final good that is investment

Classify each of the following items as a final good or an intermediate​ good, and classify the expenditure on each final good as consumption expenditure or​ investment: Item 1. Aluminum cans bought by CocaCola Item 2. A textbook bought by a student Item 3. Trucks bought by Fedex Item 4. New concrete mixers bought by Chicago Concrete Inc Item 1 is​ ______ and item 2 is​ ______.

Item 1 is​ ______ and item 2 is​ ______.

Once a​ month, the Bureau of​ ______ Statistics calculates the Consumer Price​ Index, which is a measure of the​ ______ consumers for a fixed basket of consumer goods and services.

Labor; average of the prices paid by urban

*Real-time data provided by Federal Reserve Economic Data​ (FRED), Federal Reserve Bank of Saint Louis. The graphs show the unemployment rate​ (red), the natural unemployment rate​ (black) and the output gap​ (blue).

Over the past two​ years, U.S. cyclical unemployment​ ______ and​ ________. Changed from negative to positive; the output gap switched from inflationary to recessionary

Which of the following is an example of government expenditure on goods and​ services?

Purchase of office supplies for the office of the junior senator from new york

The table shows the nominal interest rate and inflation rate in Japan for several years. Calculate the real interest rate for each year and complete the table.

Real interest rate​ = Nominal interest rate−Inflation rate.

Economists look to expand GDP to include the quality of life Robert​ Kennedy, when seeking the Democratic presidential nomination in​ 1968, remarked that GDP measures everything except that which makes life worthwhile. ​Source: The New York Times​, September​ 1, 2008 Which items did Robert Kennedy probably think were​ missing?

Robert Kennedy probably thought that​ _______ were missing from the measure of GDP. political freedom and social justice

Here are four statements about the types of unemployment. Which of these statements is​ correct? 1. An unemployed textile worker in South Carolina who loses her job because of competition from China is an example of structural unemployment. This type of unemployment arises when changes in technology or international competition change the skills to perform jobs. 2. An autoworker who loses his job because of a slowdown in the economy is an example of cyclical unemployment. This type of unemployment increases during a recession and decreases during an expansion. 3. An unemployed textile worker in South Carolina who loses her job because of competition from China is an example of frictional unemployment. This type of unemployment arises from normal labor turnover. 4. An unemployed graduate searching for a first job is an example of structural unemployment. This type of unemployment arises from normal labor turnover.

Statements 1 and 2 are​ true; the others are false.

Suppose that the number of jobs in the fishing industry decreases but the number of jobs in the travel industry increases. Initially, ​______.

Structural unemployment increases

The United Nations HDI is based on GDP per​ person, life expectancy at​ birth, and indicators of the quality and quantity of education.

The United States​ _______ have the highest HDI in part because​ _______. does​ not; Americans do not have access to universal healthcare Adding​ _______ to the current HDI index would not create a better standard of living index. real GDP

The road less traveled If we are​ right, this year is different and global growth will rise to an​ above-trend pace during the second half of 2013. ​Source: J.P. Morgan Global Data​ Watch, May 2013 Does this news mean that the​ 2008-2009 recession was expected to end in the second half of​ 2013? Does recession end only when real GDP growth rises above​ trend?

The information in the news clip indicates that the​ 2008-2009 recession​ ______ expected to end in the second half of 2013. A recession ends when​ ______. was​ not; the growth rate of real GDP is positive

Which of the following is an example of​ investment?

The purchase of a new espresso machine by starbucks

The United Nations Human Development Report gives the following data for real GDP per person in​ 2014: China,​ $12,547; Russia,​ $22,352; Canada,​ $42,155; United​ States, $52,947. Other information suggests that household production is similar in Canada and the United States and smaller than in China and Russia. The underground economy is larger in Russia and China and a similar proportion of each of these economies. Canadians and Americans enjoy more leisure hours than do the Chinese and Russians. Canada and the United States spend significantly more on the environment than do China and Russia. In which pair​ (or pairs) of countries is it easiest to compare the standard of​ living? And in which pair​ (or pairs) is it most​ difficult? Explain why.

The standard of living can be easily compared​ ______. between China and Russia or between Canada and the United​ States, because household​ production, the underground​ economy, leisure​ hours, and the environment are similar in each pair The standard of living cannot be easily compared in​ ______ and​ ______ because​ ______. either China or​ Russia; either Canada or the United​ States; in each pair household​ production, the underground​ economy, leisure​ hours, and the environment are different

Consider what is included in the measurement of​ GDP, and then choose the correct statement.

The underground​ economy, which is not included in GDP is the part of the economy that is hidden from the view of the government.

Consider U.S. unemployment and choose the correct statement.

There is always someone without a job who is searching for​ one, so there is always some unemployment.

The United Nations Human Development Report gives the following data for real GDP per person in​ 2002: China,​ $4,580; Russia,​ $8,230; Canada,​ $29,480; United​ States, $35,750. Life expectancy at birth is 79.3 in​ Canada, 77.0 in the United​ States, 70.5 in​ China, and 66.7 in Russia. Freedom House rates political freedom each​ year, and its ratings are as​ follows: Canada and the United​ States, 1.1​ (1.0 is the most​ free); Russia,​ 4.5; and​ China, 7.6​ (ratings in the​ 7+ range are the least​ free). How do life expectancy at birth and political freedom change the relative ranking of living standards that real GDP per person​ indicate?

They​ don't change the relative ranking because they rank countries in a similar way as real GDP per person ranks them

Describe the relationship between the unemployment rate and the natural unemployment rate as the output gap flutuates between being positive and being negative.

When the output gap is​ positive, the unemployment rate​ ______ the natural unemployment rate. When the output gap is​ negative, the unemployment rate​ ______ the natural unemployment rate. is less​ than; is greater than

​______ is an example of U.S. consumption expenditure.

Your purchase of a coffee from Starbucks

Which of the following is included in the measure of U.S.​ GDP?

a 2013 grand am produced and sold as a new car in the US

The tables to the right show the unemployment rate and the natural unemployment rate from February 2020 to February 2021​, and real GDP​, and potential GDP from the fourth quarter of 2019 to the fourth quarter of 2020.

above; negative

In the United​ States, the CPI basket consists of items that​ ______. ​______ has the greatest weight in the CPI basket.

an average urban household​ buys; Housing

Explain the relationship between the percentage of employed workers who have​ part-time jobs and the business cycle. The percentage of the employed people who have​ part-time jobs increases in​ _______ because​ _______.

a​ recession; firms cut work hours

When sales of durable goods​ fell, ______ decreased. An example of a durable good is​ ______.

consumption expenditure and​ investment; a car purchased by a household or a delivery van purchased by FedEx

When sales of nondurable goods​ fell, ______ decreased. An example of a nondurable good is​ ______.

consumption​ expenditure; a cup of coffee

When the economy goes into​ recession, the biggest increase in unemployment is​ _______.

cyclical because jobs are lost in many industries as they cut production

The type of unemployment that fluctuates over the business cycle is

cyclical unemployment

The unemployment rate fluctuates around the natural unemployment rate because​ _______ during a recession and​ ___________ during an expansion.

cyclical unemployment​ increases; decreases

Despite some optimism about the seeds of​ recovery, the Congressional Budget Office​ (CBO) sees joblessness rising. The CBO sees unemployment peaking at​ 10.4% next year from an average of​ 9.3% this​ year, before it falls to​ 9.1% in 2011. ​Source: Fortune​, August​ 25, 2009 Before the recession​ began, the U.S. unemployment rate was about 6 percent. As a recession​ begins, firms quickly make layoffs. Is this rise in unemployment mostly a rise in​ frictional, structural, or cyclical​ unemployment?

cyclical; it is related to the state of the economy

The Commerce Department reported that retail sales increased 1.3 percent in June. Net exports were up 0.8 percent in the first quarter and inventories held by businesses rose by 0.3 percent in June. Total sales by businesses rose 0.3 percent. ​Source: Commerce​ Department, 2013 Does the statement that total sales by businesses were up 0.3 percent mean that GDP increased by 0.3​ percent? Explain your answer.

did not change by 0.3​ percent; GDP measures production of all final goods and services and​ "total sales by​ businesses" includes final and intermediate goods and services

A marginally attached worker is a person who​ _______.

doesn't work, is available and willing to​ work, but​ hasn't looked for a job recently

The labor force is the number of people​ _______.

employed plus the number of people unemployed

When the unemployment​ rate_______ the natural unemployment​ rate, real GDP is​ _______ potential GDP and the output gap is​ _______.

exceeds; below; negative

The natural unemployment rate is not zero because natural unemployment includes​ _______.

frictional and structural unemployment

The table provides information about the U.S. CPI for February each year from 2015 to 2021. Between February 2015 and February 2021​, the price level​ ______, which means that we experienced​ ______.

increased; inflation

The Commerce Department reported that retail sales increased 1.3 percent in June. Net exports were up 0.8 percent in the first quarter and inventories held by businesses rose by 0.3 percent in June. Total sales by businesses rose 0.3 percent. ​Source: Commerce​ Department, 2013 Explain the effect of the rise in net exports on GDP.

increases GDP

An increase in inventories of durable goods increases​ _______.

investment

A discouraged worker​ ______.

is a marginally attached worker who has not made specific efforts to find a job within the previous four weeks because previous unsuccessful attempts were discouraging

The following statements about the business cycle are correct except ​______.

it is a regular predictable cycle in real GDP around potential GDP

In the United​ States, the inflation rate since 1999 generally was

lower than between 1979 to 1981.

The unemployment rate jumped to​ 5.5% in May 2008 from​ 5% in April 2008. This jump was the biggest​ one-month jump in unemployment since February​ 1986, and the​ 5.5% rate is the highest level seen since October 2004. ​ Source: CNN​, June​ 6, 2008 Compare the unemployment rate in May 2008 with the unemployment rate during the previous recessions.

lower than the unemployment rates that occurred in the recessions since the 1970s

If the CPI decreases from one year to the​ next, then the inflation rate is

negative.

In the United States between 1976 and​ 2016, the inflation rate

peaked during the late 1970s and 1980 and was at its generally lowest in the 1990s and 2000s.

When the price level​ _______ the inflation rate​ _______.

rises​ rapidly; is high

The labor force participation rate in the United States​ _______.

shows an upward trend between 1960 and​ 1999, and a downward trend that began in 2000

The economy is at full employment when all unemployment is​ _______.

structural and frictional

When cyclical unemployment increases and other things remain the​ same, ______.

the natural unemployment rate does not change

The unemployment rate jumped to​ 5.5% in May 2008 from​ 5% in April 2008. This jump was the biggest​ one-month jump in unemployment since February​ 1986, and the​ 5.5% rate is the highest level seen since October 2004. ​ Source: CNN, June​ 6, 2008 Why might the unemployment rate tend to actually underestimate the unemployment​ problem, especially during a​ recession?

the number of marginally attached workers​ increases, but these workers are not included in the official unemployment rate

The unemployment rate is​ ______.

the percentage of the people in the labor force who are unemployed

The labor force participation rate is​ ______.

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

When the cost of the CPI market basket increases from one year to the​ next, we know that

the prices of the goods and services contained in the CPI market basket have increased on the average.

Potential GDP is the value of real GDP when​ _______.

the unemployment rate equals the natural unemployment rate

If the BLS included all marginally attached workers as being​ unemployed, the​ _______ would be​ _______.

unemployment​ rate; higher

The BLS counts Jody as being unemployed if she​ _______.

wants a job and is willing to take a job but after searching last week cannot find a job

The CPI market basket

weights the goods and services according to the budget of an average urban household.

Looking at the annual inflation rates in the United States from 2000 to​ 2016, we see that they

were at or below 5 percent throughout the period and was negative for a year.

Purchases of new U.S. homes surged in December and 2015 was the best year for housing since 2007.​ Existing-home sales also increased in the best year since 2006. The inventory of existing homes on the market was smaller than demand. ​Source: Bloomberg, January​ 28, 2016 Where do​ new-home sales appear in the circular flow of expenditure and​ income? Explain how a surge in new home sales affects real GDP.

​investment; increase GDP and the surge in new home sales this year make the increase in GDP greater than the previous year

When the unemployment rate is​ ______ than the natural unemployment​ rate, cyclical unemployment is​ _______.

​less; negative

At a business cycle​ trough, cyclical unemployment is​ ______ and at a business cycle​ peak, cyclical unemployment is​ ______.

​positive; negative