Macro Econ Midterm #1 Study
Price indexes can be used to compare prices across different periods. Suppose that a year of tuition for college at public institutions averaged a cost of $1,807 in 1989 and that the CPI index was 127 in 1989. If the CPI index was 219 in 2009, then the cost of tuition in 2009, as the result of inflation, would equal__ Suppose that the actual average cost of tuition in 2009 was $6,420. Relative to the expected cost computed above, the cost of tuition increased by ___ the amount of inflation
$3,116 more than
In 2013, the population of Great Britain was around 64 million. According to the World Bank, the country's GDP (expressed in US dollars) in 2013 was about $2.5 trillion. This implies that Britain's 2013 per capita GDP was about...
$39,000
Your father earned $34,000 per year in 1984. To the nearest dollar, what is the equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
$70,288
Accordomg to the Economist article "The poor and the rich," which of the following are implications of the neoclassical growth model?
-Growth ultimately depends on technological progress - Rich countries will grow more slowly than poor countries
How does real GDP deal with the problem inflation causes with nominal GDP?
-Real GDP separates price changes from quantity changes. - Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. - By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced
Why do economic growth rates matter?
-When a country sustains high growth rates, life expectancy at birth increases. - High levels of sustained economic growth reduce infant mortality - High growth rates coincide with improved living standards.
The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic growth, the economic growth model focuses on the causes of increases in long-run labor productivity. What are the key factors that determine labor productivity?
-technological change -quantity of capital per hour worked
Suppose you were borrowing money to buy a car. Consider the following situations. Situation 1: Suppose the interest rate on your car loan is 17.00% and the inflation rate is 16.00%. Calculate the real interest rate ___. Situation 2: Suppose the interest rate on your car loan is 7.00% and the inflation rate is 4.00%. Calculate the real interest rate ___. Situation 1 will be ___ Situation 2 because the ___ is lower. Now suppose you are JPMorgan Chase, and you are making car loans. Which situation above would you now prefer? JP Morgan Chase would prefer ___.
1% 3% better than, real interest rate Situation 2
Indicate whether each of the following is a final good, an intermediate good, or neither. 1. Coffee beans purchased by a coffee shop 2. One share of Google stock 3. A new pick-up truck purchased by a consumer 4. A new home purchased by a family
1. Intermediate good 2. Neither 3. Final good 4. Final good
Indicate whether each of the following transactions represents the purchase of a final good. 1. The purchase of cotton fabric from a textile mill by a clothing company. 2. The purchase of two new elementary school buildings by the state government. 3. The purchase of French wine by a U.S. consumer. 4. The purchase of a new machine tool by the Ford Motor Company.
1. Is not the purchase of a final good 2. Is the purchase of a final good 3. Is the purchase of a final good 4. Is the purchase of a final good
Indicate whether you agree or disagree with the following statement. "If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline."
Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall.
Indicate whether you agree or disagree with the following statement. "If real GDP stayed the same while nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined."
Agree. If nominal GDP declines between 2008 and 2009, then the GDP deflator must also have declined.
The following table gives nominal and real GDP for an economy for two years. Year 1: NGDP= 1100.0 RGDP= 1,000 Year 2: NGDP= 1400.0 RGDP= 1200.0
Based on the table, in Year 2, the value of the GDP deflator is 116.67 The inflation rate between Year 1 and Year 2 is 6.1%.
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
Indicate whether you agree or disagree with the following statement. "If nominal GDP is less than real GDP, then the price level must have fallen during the year."
Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is necessary not sufficient to cause nominal GDP to be less than real GDP.
Indicate whether you agree or disagree with the following statement. "Whenever real GDP declines, nominal GDP must also decline."
Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.
Based on his article, "Institutions Matter, but Not for Everything," which of the following is not one of the alternatives mentioned for a poor, isolated region?
Exploitation of the region's natural resources
Which of the following is not a factor in why we would expect convergence to occur?
High marginal product of capital in rich countries
The monthly market basket for consumers consists of pizza, t-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and the following year. Products: pizza T-shirts Rent Base Year Q: 10 4 1 Price in Base Year: #3.50 $15.00 $300.00 Price in Year 2: $4.38 $13.50 $330.00
In Year 1, the CPI for the economy is 100. In Year 2. the CPI for this economy is 108.3.
A simple economy produces two goods, Pumpkin Pies and Technical Manuals. Price and quantity data are as follows: Year 1 (Base Year): PP.....125....$1.50 TM.....900....$60.00 Year 2: PP.....156.25.....$2.25 TM.....1,350.00.....$120.00
In Year 2, nominal GDP is equal to: $162351.56, and real GDP is $81234.38
Which of the following is not a source of technological change?
Increases in the labor force
The experience of Cameroon, discussed in the chapter "Why Poor Countries are Poor," in the Harford book, tends to support which of the approaches to growth and development?
Institutional Approach
If the U.S. Bureau of Economic Analysis (BEA) added up the values of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP)?
Larger: the value of all goods and services sold would include intermediate goods.
Which of the following best describes the idea of convergence?
Low-income countries will grow faster than rich countries and inevitably catch up.
An article in the Wall Street Journal asks the question, "How can inflation be low when everything is so expensive?" The article also notes that "the CPI shows that prices are the highest they've ever been." Is there a contradiction between a low inflation rate as measured by the CPI and the observations that prices are "the highest they've ever been" and everything is "so expensive?"
No, because the CPI and inflation measure only changes in the price level, not the absolute level of prices.
The following appeared in a newspaper article: "Inflation in the Lehigh Valley during the first quarter of [the year] was less than half the national rate...So, unlike much of the nation, the fear here is deflation-when prices sink so low that the CPI drops below zero." Do you agree with the reporter's definition of deflation?
No. Deflation is defined as a negative inflation rate.
Suppose a house is built and sold in the year 2008. If the house is resold in the year 2019, is the value of the house included in Gross Domestic Product (GDP) for 2019?
No. GDP for 2019 includes only production that occurs during 2019.
Which one of the following accurately describes the relationship between frictional unemployment and job search?
People are said to be frictionally unemployed when they are between jobs and searching for new jobs.
Consider the following simple economy that produces only three goods: Product Q('09) P('09) Q('17) P('17) Denim pants..... 80..........$40....... 100.......$50 Wine......90....$11.......80......$10 Textbooks.....15.....$90.....20......$100
Real GDP in 2017 equals $6,680
Which of the following is a true statement about long-run economic growth?
Small differences in economic growth rates result in big differences in living standards over time.
Suppose that Sally J. Society recently lost her job as an underwater welder. In looking for a new job, she discovers that the only available jobs are for economists and that there are no openings for underwater welders because the trade is now obsolete. If Sally J. Society decides to return to school to earn an Economics degree, what is the best classification of her unemployment status?
Structurally unemployed
Suppose that a simple economy produces only the following four goods and services: shoes, hamburgers, shirts, and cotton. Further, assume that all of the cotton is used in the production of shirts. Use the information in the following table to calculate Nominal Gross Domestic Product (Nominal GDP) for 2019. Product Quantity Price Shoes..........150.....$70.00 Hamburgers.....125....$3.00 Shirts.....75.....$30.00 Cotton....2,000.....$.80
The Nominal GDP for the year 2019 is $13125
According to new growth theory, one way to create additional economic growth is by raising the level of firms' knowledge capital. Suppose government policymakers wanted to assist the country in the development of knowledge capital. Which of the following policies would lawmakers not want to use to help in the development of knowledge capital?
The government could reduce corporate tax rates for service and retail companies.
The monthly market basket for consumers consists of pizza, t-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and in the following two years. Products: Pizza T-Shirts Rent Base Year (Year 1): 20 4 1 Price in Yr 1: $3.00 25.00 350.00 Price in Yr 2: $3.75 22.50 385.00 Price in Yr 3: $4.05 21.25 455.00
The inflation rate between Year 1 and Year 2 is 7.8%. The inflation rate between Year 2 and Year 3 is 12.9%.
Consider the simple economy that produces only three products. Us the information in the following table to calculate the (annual rate of) inflation for 2018 as measured by the consumer price index (CPI). Base Year (2010): Haircuts.....5....$10.00 Hamburgers......14.....$2.00 Movies....7......$15.00 2017: Haircuts....5....$11.00 Hamburgers....14....$2.45 Movies....7....$15.00 2018: Haircuts....5....$16.20 Hamburgers....14....$2.40 Movies....7....$14.00
The inflation rate for 2018 as measured by the consumer price index (CPI) is 9.42%.
Your boss has given you a raise. However, you want to know whether your purchasing power has actually increased, since inflation is rising as well. The table below gives your data for wages and the CPI for the last two years. Year 1.... $1,000 per day.....120 Year 2..... $1,100 per day....126
The nominal percentage increase in your wage is 10.0%. The real percentage increase in your wage is 4.8%.
Currently, the Bureau of Labor Statistics does not include homemakers in its employment and labor force totals. What would happen to the unemployment rate and the labor force participation rate if homemakers were included in these numbers?
The unemployment rate would decrease and the labor force participation rate would increase.
Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
Which equation represents the relationship between GDP and the four major expenditure components?
Y=C+I+G+NX
Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2019?
Yes. GDP for 2019 includes the market value of final goods and services. This includes real estate services.
Indicate which component of GDP will be affected by each of the following transactions involving the Ford Motor Company. a. You purchase a new Ford Escape Hybrid from a Ford dealer. b. You purchase a 2013 (preowned) Ford Escape Hybrid from a friend. c. Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana. d. Ford produces 1,000 Escapes in a factory in Missouri and ships them to a cap dealer in Shanghai, China. e. Ford purchases new machine tools to use in its Missouri Escape factory. f. The state of Missouri builds a new highway to help improve access to the Ford Escape plant.
a. Consumption Expenditure b. Not included in GDP calculation c. Not included in GDP calculation d. Net Export Expenditure e. Investment Expenditure f. Government Expenditure
Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in each of the following situations? a. In years after the base year, nominal GDP___ real GDP. b. In the base year, nominal GDP ___ real GDP. c. In years prior to the base year, nominal GDP ___ real GDP.
a. is greater than b. is equal to c. is less than
Even if they don't find a job right away, people entering the job market after graduating from high school or college will...
be counted as part of the labor force by the BLS if they are actively looking for work.
Some economies are able to maintain high growth rates despite diminishing returns to capital by using...
better or enhanced technology, along with accumulating capital; these economies are growing because technology, unlike capital, is subject to increasing returns.
An economy that does not experience increases in technological progress...
can experience economic growth by increasing capital, however, this will eventually stagnate and the economy will not continue to grow.
What index is used to measure the average prices paid by a typical family? An average of the prices of the goods and services purchased by a typical family is the:_____ Suppose the economy's consumer price index (CPI) in 2008 was 181 and the CPI in 2009 was 195. The inflation rate over the period from 2008-2009 was equal to ___.
consumer price index (CPI) 7.7%
In his article, "The poor's best hope," Jagdish Bhagwati argues that an effective tariff-reduction strategy requires that labor-intensive products manufactured in rich countries be handled differently from agricultural products because...
employees in those industries are often poor and unskilled, and would be hurt by tariff reduction.
The person who is between jobs but actively engaged in a job search is considered to be____. Expert in hand-drawn animation who remain unemployed due to the film industry's switch to computer-generated animation are considered to be___. When a company reduces production and employment during economic recessions, those employees who lose their jobs are generally considered to be___.
frictionally unemployed structurally unemployed cyclically unemployed
The unemployment rate declined from 4.5% in March 2017 to 4.4% in April. The labor force participation rate also declined from March to April, from 63.0% to 62.9%. Holding constant the number of people employed in April 2017, if the labor force participation rate had increased instead of decreased, the unemployment rate for April 2017 would be...
greater than 4.4% because adding the same number to both the numerator and the denominator of a fraction that is less than one increases the value of the fraction.
What is the rule of 70?
is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double.
At the macro-economy level,...
knowledge capital exhibits increasing returns and physical capital exhibits decreasing returns.
One major component of GDP that can be negative is..
net exports
The millions of workers leaving the job market for the reasons given are...
not counted as unemployed in the BLS data because they are no longer actively looking for work.
Which of the following is the best measure of the standard of living of the typical person in a country?
real GDP per person
Economic growth will...
slow down or stop if more capital per hour is used because of diminishing returns to capital
Potential GDP is...
the level of GDP produced when all factors of production are utilized a "normal" rates. Potential GDP grows over time.
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.
If the economy is experiencing deflation,
the nominal interest rate will be lower than the real interest rate
If inflation is expected to increase,...
the nominal interest rate will increase
The unemployment rate in the United States typically has been lower that the unemployment rate in Canada and countries in Western Europe because...
the opportunity cost of job search is lower in Canada and countries of Western Europe and unemployed workers in those countries search longer for jobs.
The natural rate of unemployment is..
the sum of structural and frictional unemployment
Shortly before the fall of the Soviet Union, the economist Gur Ofer of the Hebrew University of Jerusalem, wrote this: "The most outstanding characteristic of Soviet growth strategy is its consistent policy of very high rates of investment, leading to a rapid growth rate of [the] capital stock." This turned out to be a very poor growth strategy because...
there were diminishing returns to capital.
The natural rate of unemployment tends to be lower when...
unemployment insurance benefits are paid for fewer weeks.
In 1914, Henry Ford increased the wage he paid workers in his car factory in Dearborn, Michigan to $5 per day. This wage was more than twice as much as other car manufacturers were paying. Ford was quoted as saying: "The payment of five dollars a day for an eight-hour day was one of the finest cost-cutting moves we ever made." Giving workers a raise can result in overall lower costs for a firm if...
workers are motivated by higher wages to work harder.
