Macro exam 1

A government decision to privatize a sector of the economy formerly operated by the government is an example of__________ policy

structural

The sum of the value added is equal to

the price of the final product

The quality adjustment bias of the CPI refers to the failure of statisticians toA) allow for the possibility that consumers switch from products whose prices are rising. B) allow for the possibility that consumers switch stores at which they shop.C) take into account improvements in goods and services.D) take into account price changes in goods and services.

.C) take into account improvements in goods and services

A decision by congress to reduce spending in order to balance the governments budget is an example of _____________ policy

Fiscal

All of the following statements are correct except: a) economies grow steadily over time b) there are unemployed people even during expansions c) unemployment increases during recessions d) trade surplus exists when a country exports more than it imports

a) economies grow steadily over time

All of the following describe economic conditions during the Great Depression in the United States except:

high rates of inflation

Educational services provided in public schools are

included in GDP at cost

the standard of living in an economy is best measured by

output per person

When jobs are hard to find, profits are low, few wage increases are given, and many companies go out of business, the economy is most likely in a(n)

recession

In 2019, Josefine Dowling sells a five-year-old car to used car, incorporated for $2000. In the same year, used car, incorporated resells the car to Lupe Hitchcock for $2700. What is the contribution of these transactions to GDP in the year 2019?

$700

Assume one investor bought a 10-year inflation-protected bond with a fixed annual real rate of 1.5 percent and another investor bought a 10-year bond without inflation protection with a nominal annual return of 4.2 percent. If inflation over the 10-year period averaged 3 percent, which investor earned a higher real return? A) The investor who purchased the inflation protected bond. B) The investor who purchased the bond without inflation protection. C) Both investors earned the same real return. D) Neither investor earned a positive real return.

A) The investor who purchased the inflation protected bond.

The largest expenditure component of U.S. GDP is A) consumption. B) investment. C) government purchases. D) exports.

A) consumption

The consumer price index for the current year measures the cost of a standard basket in the______ year relative to the cost of the same basket in the ______ year. A) current; base B) current; current C) base; index D) base; current

A) current; base

Suppose the CPI does indeed overstate the inflation rate. When the CPI increases by 5 percent and household incomes increase by 5 percent, we should conclude that real incomes of households have A) increased. B) stayed constant. C) decreased. D) increased more slowly than has inflation.

A) increased.

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent. The nominal price of gasoline _____, and the real price of gasoline _____. A) increased; increased B) increased; decreased C) increased; did not change D) decreased; increased

A) increased; increased

The duration of unemployment _____ during a recession. A) increases B) decreases C) remains constant D) varies between 5 and 14 weeks

A) increases

All of the following are costs of unemployment except A) lost leisure time. B) lost tax revenue. C) lost self-esteem. D) lost income.

A) lost leisure time.

The Federal Reserve makes decisions regarding _____ policy while Congress makes decisions regarding _____ policy. A) monetary; fiscal B) structural; fiscal C) fiscal; structural D) fiscal; monetary

A) monetary; fiscal

A measurement in terms of current dollar value is called a(n) ______ quantity: A) nominal B) real C) deflated D) indexed

A) nominal

Suppose that the price of chicken rises sharply compared to the price of turkey. In response, consumers buy more turkey and less chicken than they did in the CPI base year. In this situation the CPI will tend to ______ inflation as a result of ______ bias. A) overstate; substitution B) understate; substitution C) accurately measure; substitution D) overstate; quality adjustment

A) overstate; substitution

Real GDP measures the ______ of production; nominal GDP measures the ______ of production. A) physical volume; current dollar value B) current dollar value; current dollar value C) current dollar value; market value D) current dollar value; physical volume

A) physical volume; current dollar value

The shoe leather costs of inflation include all of the following except A) the lost purchasing power of cash. B) the extra costs incurred to avoid holding cash. C) the cost of more frequent trips to the bank. D) the installation of a new cash management system.

A) the lost purchasing power of cash.

Which of the following is not classified as a final good? A) New clothing purchased by a college student B) Fresh vegetables purchased by a restaurant C) A new car purchased by a family D) A new machine purchased by a business

B) Fresh vegetables purchased by a restaurant

Which of the following transactions would be included in the GDP of the United States? A) Coca-Cola produces soft drinks in England. B) Honda produces cars in Ohio. C) McDonald's sells hamburgers in Russia. D) Ford Motor Company produces cars in Mexico.

B) Honda produces cars in Ohio

Major macroeconomic questions include all of the following except A) What causes economic growth? B) What causes differences in wages between men and women? C) Why does inflation vary over time and across countries? D) What are the causes of unemployment?

B) What causes differences in wages between men and women?

The value of intermediate goods is excluded from the measurement of GDP in order to A) adjust for inflation. B) avoid double counting.C) index economic activity.D) measure GDP in constant prices.

B) avoid double counting.

The phenomenon known as ______ occurs when inflation causes people to pay an increasing percentage of their income in taxes even when their real incomes have not changed. A) hyperinflation B) bracket creep C) the Fisher effect D) substitution bias

B) bracket creep

To compare the purchasing power of nominal wages in two different years, one must A) compare the nominal values. B) deflate both quantities by a common price index. C) increase both quantities by the same percentage increase in a price index. D) adjust both quantities by the real interest rate.

B) deflate both quantities by a common price index.

In 1929, the CPI equaled 0.171 and in 1930, the CPI equaled 0.167. These data provide evidence of a period of A) inflation. B) deflation. C) trade deficit. D) expansion.

B) deflation.

A key indicator of the hardship experienced during the Great Depression is the: a) high rate of inflation b) high rate of unemployment c) large trade deficits D) large budget deficits

B) high rates of unemployment

Goods and services provided by state and local governments are: A) included in GDP at market prices. B) included in GDP at cost. C) excluded from GDP because they are not sold in markets. D) excluded from GDP because they are publicly provided

B) included in GDP at cost.

Two methods used to adjust nominal values for inflation are A) substituting and complementing. B) indexing and deflating. C) aggregating and disaggregating. D) real and nominal.

B) indexing and deflating.

Inflation is a measure of the ______ of prices; the CPI is a measure of the ______ of prices. A) current level; rate of change in the level B) rate of change in the level; current level C) index; base year's level D) base year's level; index

B) rate of change in the level; current level

Despite some problems with equating GDP with economic well-being, higher real GDP per person does imply greater economic well-being because it tends to be positively associated with:

Better education, health, and life expectancy

Which of the following is an example of an intermediate good? A) A new car sold to a family B) A metal-stamping machine used to produce cars sold to an automaker C) A new speaker system sold to an automaker for installation in a car D) A new mobile phone sold to a teenager

C) A new speaker system sold to an automaker for installation in a car

Which of the following activities is most likely to be counted in GDP? A) Fran volunteers at the local veteran's hospital twice a month. B) Stu gave $5 to a homeless man he met in the park. C) Gail buys paper and crayons to donate to poor children in need of school supplies. D) Bud works hard five hours each week to make sure that his lawn always looks nice.

C) Gail buys paper and crayons to donate to poor children in need of school supplies

Which of the following is a real quantity? A) The current wages paid to factory workers B) The cost of a new car C) The number of tons of steel produced in 2019 D) The current price of a barrel of oil

C) The number of tons of steel produced in 2019

One family earned an income of $28,000 in 1995. Over the next five years, their income increased by 15 percent, while the CPI increased by 15 percent. After five years, this family's nominal income ______, and their real income ______. A) decreased; also decreased B) decreased; increased C) increased; did not change D) increased; also increased

C) increased; did not change

To prevent people paying a higher percentage of their income in taxes even when their real incomes have not changed, Congress A) implemented a flat tax. B) reduced the capital gains tax. C) indexed the income tax brackets to the CPI. D) deflated the income tax brackets to the CPI.

C) indexed the income tax brackets to the CPI.

A change in the average price level is called _____, while a change in the price of a specific good in comparison with other goods and services is called _______. A) a quality adjustment; a substitution bias B) a change in a relative price; inflation C) inflation; a change in a relative price D) a price level adjustment; a quality adjustment

C) inflation; a change in a relative price

GDP equals the value added by producers of: A) intermediate goods and services only. B) final goods and services only. C) intermediate goods and services, as well as final goods and services. D) intermediate and final goods only

C) intermediate goods and services, as well as final goods and services.

If the unemployment rate increases from 4 percent to 10 percent, then the economy is mostly likely in a(n): A) expansion. B) boom. C) recession. D) aggregation.

C) recession

If the consumer price index decreased from 1.66 to 1.59, then it must be the case that _____ relative to prices in the base year. A) all prices fell B) the weighted average level of prices rose C) the weighted average level of prices fell D) some prices rose, and some prices fell

C) the weighted average level of prices fell

If workers and employers agree to a three-year wage contract under the expectation of 3 percent inflation, and inflation turns out to be 5 percent, then A) workers gain and employers gain. B) workers gain and employers lose. C) workers lose and employers gain. D) workers lose and employers lose.

C) workers lose and employers gain.

How do you calculate GDP using the expenditure method?

Consumption + Investments + government spending + net exports

Major macroeconomic questions include all of the following except A) Are free trade agreements beneficial? B) Can inflation be reduced without generating additional unemployment? C) What causes slowdowns in productivity growth? D) How do monopoly firms set prices and determine quantities to produce?

D) How do monopoly firms set prices and determine quantities to produce?

Which of the expenditure components of GDP can be negative A) Consumption spending on durables B) Government spendingC) Consumption spending on servicesD) Net exports

D) Net exports

An "unemployment spell" is a period during which A) the unemployment rate is less than 10 percent. B) the unemployment rate exceeds 15 percent. C) an unemployed individual leaves the labor force and then returns. D) an individual is continuously unemployed.

D) an individual is continuously unemployed.

Long-lived goods used for producing other goods and services are called A) consumption goods. B) non-market goods. C) value-added goods. D) capital goods.

D) capital goods.

The four components of aggregate expenditures are A) consumption, imports, government spending, and net exports. B) consumption, interest payments, government spending, and net exports. C) consumer durables, investment, government spending, and net exports. D) consumption, investment, government spending, and net exports.

D) consumption, investment, government spending, and net exports.

The value of unpaid work by a homemaker ______ included in GDP and the value of housekeeping services sold in a market ______ included in GDP. A) is; is not B) is; is C) is not; is not D) is not; is

D) is not; is

When statisticians fail to allow for the possibility that consumers switch from products with rising prices to those whose prices are stable or falling, the CPI will tend to ______ the rate of inflation. A) understate B) precisely measure C) be unrelated to D) overstate

D) overstate

A measure of the average price of a given class of goods or services relative to the price of the same goods and services in a base year is called a A) real price. B) real quantity. C) rate of inflation. D) price index.

D) price index.

Jim Brown would like to work, but has not looked for work in the past four weeks because he does not believe any jobs are available. In the official employment statistics, Jim is classified as:

Out of the labor force

Capital income includes

Profits, rent, and interest

One way to avoid counting the prices of intermediate goods multiple times in computing the value of GDP is to

Sum the value added of producers of both intermediate and final goods and services

What is the equation for unemployment rate?

Unemployed/ labor force

Which of the following is an example of a capital good? a) a new car sold to a family b) a metal-stamping machine used to produce cars sold to an automaker c) a new speaker system sold to an automaker for installation in a car d) A new mobile phone sold to a teenager

b) a metal-stamping machine used to produce cars sold to an automaker

Major macroeconomic questions include all of the following except: a) what causes economic growth? b) what causes differences in wages between men and women? c) why does inflation vary over time and across countries? d) what are the causes of unemployment?

b) what causes differences in wages between men and women?

If average labor productivity increases while population and the number of employed workers remain constant, then total output

increases