Macro Exam 2
In an economy with rising prices, compared to the base year,
nominal GDP is larger than real GDP in years after the base year.
Gross Domestic Product (GDP) is
the market value of all final goods and services produced in a country during a period of time.
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called
value added.
If the United States were to stop trading goods and services with other countries, which of the following U.S. industries would be likely to see their sales decline the most?
All of the above.
Why do economic growth rates matter?
All of the above.
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
All of the above
From 1800−1899, the average growth rate in GDP per hour worked in the United States was
1.3%
As the economy nears the end of an expansion, which of the following typically occurs? Purchases of which types of goods are business cycles most likely to affect? Recessions cause the inflation rate to _________, and the unemployment rate to _________.
All of the above occur. durable goods decrease; increase
Is free trade more likely to benefit a large, populous country or a small country with fewer people?
A small country with fewer people.
As of August 2015, which of the following demographic groups has the highest unemployment rate?
African Americans
You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your neighbor, which of the following statements is true?
Al of the above
New growth theory LOADING... suggests that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal government intervene in the market to increase the amount of knowledge capital?
All of the above
Which of the following causes changes in the CPI to overstate the true inflation rate?
All of the above
The GDP of the country Sumeria has grown at an average rate of 6 percent over the last two years, while the rate of inflation has remained more or less stable. Macroeconomists in the country are arguing that this increase in GDP is a clear indication of an overall improvement in the well-being of its people. Which of the following, if true about the last two years in Sumeria, would strengthen this argument?
An increasing percentage of the population is choosing leisure time over time spent in the work force.
The diagram on the right represents a tariff imposed on an individual market. The total deadweight loss (loss in economic surplus) from this tariff is illustrated by areas
C and D.
If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast?
Disposable personal income
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.
As long as countries only produce goods in which they have a comparative advantage and trade those goods for ones in which they do not have a comparative advantage, everyone gains and no one loses as a result of international trade. Ture or false
False
If income rises more slowly than the rate of inflation, purchasing power will rise. True or false
False
At the beginning of an expansion, which of the following is most likely to be true?
Firms increase spending on capital goods.Firms increase spending on capital goods.
National income is
GDP minus depreciation.
Which of the following is not a shortcoming of GDP as a measure of well-being? If Americans still worked 60-hour weeks, as they did in 1890,
GDP only counts final goods and services and not intermediate goods. GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher.
All of the following are correct except Which component of gross domestic income is the largest?
Gross domestic income does not include health insurance benefits received by the employees. wages
An article in the Economist on the Irish economy argues, "Irish progress, both economic and fiscal, is typically measured using GDP .... But for an economy where foreign firms are so dominant, GNP ... is more relevant." Source: "Fitter, Yet Fragile," Economist, January 5, 2013. The author's reasoning is based on the fact that
Gross domestic product (GDP) is the value of final goods and services produced within Ireland whereas gross national product (GNP) is the value of final goods and services produced by residents of Ireland, even if the production takes place outside Ireland.
The role of the entrepreneur becomes much more important in the new growth theory long dash—the endogenous growth modellong dash—than in the traditional economic growth model because
In the new growth theory, entrepreneurs play a key role in the development and adoption of new and sometimes untried technologies.
The world is often described as having a global economy. How important is international trade to the United States?
In the U.S., imports are smaller fractions of GDP than in most other countries.
Indicate whether each of the following is a final good, an intermediate good, or neither. Coffee beans purchased by a coffee shop One share of Google stock A new pick-up truck purchased by a consumer A new home purchased by a family
Intermediate good Neither Final Good Final good
Which of the following is a factor explaining why low-income countries have not experienced rapid economic growth?
Many low−income countries have poor public education and health.
The textile industry in Indonesia has traditionally been one of the largest employers in the manufacturing sector. Increased production levels in this industry during the first three quarters this year led industry experts to believe that the industry's contribution to Indonesia's GDP would also increase. However, at the end of the year it was seen that the percentage of Indonesia's GDP that came from the textile industry actually declined. Which of the following, if true, would best explain this outcome?
Other major Indonesian industries reported greater increases in production value than those reported by the Indonesian textile industry.
Albanda is an agrarian economy located in South Asia. Shen Chou and her friend Wang Tao are discussing the efficacy of the Consumer Price Index. Shen, who works with a nonprofit organization, says that the Consumer Price Index does not reflect the realities of consumption patterns of the average consumer. Wang, a policy planner, says that it must be accurate because it was updated only a year ago. Which of the following, if true, would strengthen Shen's argument?
Pensioners whose benefit payments are directly linked to the changes in CPI reported a decreased purchasing power compared to the previous year.
Which of the following would be included in the gross national product (GNP) of the United States?
Production from a U.S. firm that operates in Mexico.
The government of a country is considering increasing the minimum hourly wages by 10 percent. Economists argue that this is going to have a negative effect on employment in the long term. Which of the following, if true, would strengthen the economists' viewpoint?
Several research studies have concluded that increases in the minimum wage are likely to reduce school enrollment among teenagers.
Stanley Williams, a member of the village council at Shillong, is of the opinion that this village has an absolute advantage in the production of both chocolates and bread. His colleague, Amanda Jones, however feels that Shillong only has an absolute advantage in the production of bread. Stanley is assuming that
Shillong does not use more resources than Safi to produce chocolates and bread.
What effect do labor unions have on the unemployment rate?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
The working-age population in Concordia was estimated to be 6.5 million in a certain year. The country's labor department announced that the total number of unemployed people in the country had gone up to 460,000 during this year while, the total number of people out of the labor force decreased to 2,000,000. Oscar Lewis, a student of labor economics believes that the labor department data is flawed. Which of the following, if true, would strengthen the argument that the data understates unemployment?
Skilled workers who were forced to shift to part-time jobs because of an economic downturn are also considered employed.
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.
According to Dan Sichel, an economist at Wellesley College, the amount of time a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new machine." Which of the following statements is correct?
Song development time produces songs, similar to investment in a factory produces physical goods.
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.
The working-age population in Concordia was estimated to be 6.5 million in a certain year. The country's labor department announced that the total number of unemployed people in the country had gone up to 460,000 during this year while, the total number of people out of the labor force decreased to 2,000,000. Oscar Lewis, a student of labor economics believes that the labor department data is flawed. Which of the following, if true, would strengthen the argument that the data overstates unemployment?
The data does not cover the thousands of Concordians who work in other countries.
Maria Tivlinsky and Harry Davis, both interns at an economics research institute in the country Southville, are discussing the effects of the increase in the supply of unskilled labor in the economy. Maria says that the average nominal wage paid to unskilled labor is likely to fall. This, according to her, would cause firms to hire more workers and will reduce unemployment in the country. Harry however, does not think that unemployment will necessarily fall; too many workers looking for jobs could depress wages and employment prospects on the whole. Which of the following, if true, is likely to weaken Harry's claim that unemployment will not fall?
The economy is expanding rapidly as a result of which the demand for labor is expected to increase sharply.
Dan Demaar and Rob Runten are working on a class assignment on economic growth. Dan collects the GDP growth data for the country Fanez, which is located in the Middle East. He states that the standard of living in Fanez must have increased remarkably over the past ten years because it has a total GDP of $1,049 million, which is twice its GDP ten years back. Rob does not fully agree that the situation has improved substantially over these 10 years. He looks at the data and points out, that growth in Fanez was in fact very slow during this time. Its annual growth rate, while always positive, never exceeded 1.2 percent. Which of the following, if true, would weaken Dan's argument?
The growth rate of the population in Fanez has consistently exceeded the real GDP growth rate.
Which one of the following depicts an accurate description of the household survey and the establishment survey? Many economists prefer
The household survey interviews households and measures the unemployment rate whereas the establishment survey interviews businesses and measures the employment rate. the establishment survey because it is determined by actual payroll records rather than unverified answers.
In an attempt to control inflation, the Indian central bank increased interest rates substantially. This was expected to have an adverse impact on the country's GDP this year. Some economists also expected a year-on-year decline in India's GNP. However, Indian GNP actually went up. Which of the following, if true, would best explain this outcome?
The number of Indian IT employees working on projects outside of India increased considerably this year.
The figure on the right shows unemployment rates for demographic groups. The adult unemployment rates apply to persons aged 20 and over who are in the labor force. The teenage unemployment rates apply to persons aged 16 to 19 who are in the labor force. Note that people identified as Hispanic may be of any race. Source: U.S. Departmant of Labor, Employment Situation Summary, April 2007. Use the figure to determine which one of the following statements is true:
The unemployment rate of black adults is approximately twice that of white adults.
The government of a country faced substantial pressure from different sectors to reduce tariffs. Many groups, including the media, were lobbying for an overall reduction in import tariffs imposed by the government. According to them, the country would gain if free trade were encouraged. While certain sectors reported increased exports after a reduction in trade restrictions, many firms went out of business in other sectors as imports increased. People who lost their jobs complained that the reduction in tariffs had done the nation more harm than good. Which of the following, if true, would support the claim of the people who lost their jobs?
The country's trading partners have not reduced their trade barriers.
Using GDP per capita in 2014 (measured in U.S. dollars, corrected for differences across countries in the cost of living), identify which one of the following statements is true:
Western Europe, Australia, Canada, Japan, New Zealand, and the United States are high-income countries.
Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following questions is most relevant to answer in order to determine the accuracy of the CEO's claim?
What are consumer expectations of future growth?
For this data, the base year for calculating GDP is 2000. Use the graph to help determine which one of the following statements regarding nominal and real GDP is FALSE.
When nominal GDP increases, real GDP falls.
Which of the following statements is true about the importance of trade in the U.S. economy?
While exports and imports have been steadily rising as a fraction of GDP, not all sectors of the U.S. economy have been affected equally by international trade.
Narnia, a developed open economy, has been experiencing double-digit inflation and a decelerating output growth for the last four quarters. Jonathan Mathews and Ben Hall, two market analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. Jonathan thinks that the central bank should raise the nominal interest rate to control inflation. This, he feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. Ben however disagrees. According to him, an increase in the nominal interest rate will lower investment, leading to a decline in aggregate production by firms. This, in turn, will increase the shortage in the economy and prices will rise further. Which of the following questions would be most important to answer in order to determine whether Jonathan's claim is accurate?
Would the change in the nominal interest rate be greater than the change in prices?
Which of the following equations sums up the components of Gross Domestic Product (GDP)?
Y = C + I + G + NX
Which equation represents the relationship between GDP and the four major expenditure components? What are the four major components of expenditures in GDP?
Y = C + I + G + NX Consumption, Investment, Government Purchases, and Net Exports
Suppose you can receive an interest rate of 10 percent on a certificate of deposit (CD) at a bank that is charging borrowers 20 percent on new car loans. Which one of the following choices does not explain why you might be unwilling to loan money directly to someone who wants to borrow from you to buy a new car, even if that person offers to pay you an interest rate higher than 10 percent?
You are better at assessing risks than the usual financial institutions.
Which of the following is most likely to lead to sustained long-run growth?
increases in labor productivity
To calculate personal income from national income, which of the following must the BEA do?
add government transfer payments
The country of Alaine produces 1,000 tons of corn during a year. It is valued at $500 per ton. A lobbyist for the corn industry in Alaine argues that the total value of corn production should be included in the country's GDP for the same year. The lobbyist's claim is based on the assumption that
corn is not used in the production of other goods.
Which of the following do we subtract from GDP to obtain national income?
depreciation
The phrase "giving due weight" to the sectors of the economy that have been growing quickly means that analysts The Nigerian National Bureau of Statistics accomplished the task of giving these sectors their due weight by The more comprehensive approach used to calculate GDP provides a truer picture of the size of Nigeria's economy because
developed better measures of those sectors of the economy, which then allowed for better GDP estimates. updating the year it used to measure real GDP from 1990 to 2010 and significantly increasing the number of businesses it surveyed. it resulted in the initial GDP estimate for 2013 almost doubling in size.
One major component of GDP that can be negative is
net exports.
Being located in the Bay Area gives start-up software firms an advantage because of The advantages the Bay Area has are
external economies. likely to persist over time because more software firms will locate there, enhancing the external economies.
All of the following are problems caused by deflation except
firms make higher profits as consumers buy more goods and services.
Technological change is more important to long-run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through
foreign direct investment.
Property rights have been determined to be a major factor that helps countries sustain economic growth. Governments can change laws and policies in order to give individuals and firms more freedom. By doing so, government can help promote growth because greater property rights
give entrepreneurs more incentive to take risks that create new products, ideas, and more technology.
Briefly explain whether the value of U.S. exports is typically larger or smaller than the value of U.S. imports. The value of U.S. exports
has been smaller than the value of U.S. imports since about 1980.
Real GDP per hour worked is determined by
human capital, physical capital, and technology.
In the 1980s and 1990s, a small group of countries experienced high rates of growth. These countries are sometimes called the newly industrializing countries. Where are most of these countries located?
in East Asia
Increases in the minimum wage will The unemployment rate in the United States is usually ________ than the unemployment rates in most other high-income countries, partly because the United States has _________ requirements for the unemployed to receive government payments.
increase unemployment among teenagers. lower; more stringent
International trade has always played a role in the U.S. economy. Is this role increasing or decreasing (in terms of exports and imports)? International trade is
increasing because government policies facilitate trade.
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.
The real interest rate
is equal to the nominal interest rate minus the inflation rate.
The computation of the average annual growth rate of real GDP What is the best use of the rule of 70 among those listed below?
is more complex when examining data for a long period of time than when examining data for only a few years. to judge how rapidly real GDP per capita is growing over long time periods
Dumping
is selling a product for a price below its cost of production.
The difference between a nominal variable and a real variable is that
nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.
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.
Disposable personal income is equal to
personal income minus personal tax payments.
Productivity growth rates matter because
productivity growth rates have a big impact on future economic growth.
An article in the Wall Street Journal notes that the BLS has changed the methods it uses to calculate the CPI with the result that the measured inflation rate is lower than it would have been if the BLS had still used the old methods. The article notes, "But this is not a massive conspiracy to hide runaway inflation." The BLS's motivation in changing its methods of calculating the CPI was to
reduce biases thereby allowing for a more accurate measure of the true inflation rate.
As the CPI (consumer price index) increases,
the level of prices in the economy increases.
In 1999, at a meeting of the World Trade Organization in Seattle, Washington, a large number of people protested attempts to reduce trade barriers. What is a reason why some would want to prevent trade barriers from being reduced? Some want to prevent trade barriers from being reduced because they
seek to protect domestic wages.
Potential GDP is
sometimes greater, sometimes less, and sometimes equal to actual real GDP.
In determining whether to borrow funds, firms compare the rate of return they expect to make on an investment with Which of the following factors determines the supply of loanable funds? Holding all else constant, a federal government budget deficit will
the interest rate they must pay to borrow the necessary funds. the willingness of households and governments to save decrease the supply of loanable funds and increase the equilibrium real interest rate.
Capital can be differentiated between physical capital and human capital. Human capital is Which of the following is the best example of human capital?
the knowledge and skills workers acquire from education and training or from their life experiences a worker gets a college degree
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.
All of the following statements correctly describe the outcomes when the U.S. imports products in which it does not have a comparative advantage, except that In the example in the text with Japan and America producing and trading cell phones and tablet computers, America has a comparative advantage in tablet computers while Japan has a comparative advantage in cell phones. Which of the following statements correctly describes the outcome when America imports cell phones from Japan?
the number of jobs in the U.S is reduced. Jobs in the American cell phone industry may suffer but jobs in the American computer industry manufacturing tablet computers increase and in the overall American economy, more jobs are created.
The true cost of borrowing and lending is best measured by
the real interest rate.
When examining economic growth rates throughout history,
the world experienced little to no growth until the industrial revolution, after which some economies began to experience real economic growth.
When there are part−time workers , the official BLS measure of the unemployment rate ______ the true degree of unemployment.
understates
The natural rate of unemployment tends to be lower when
unemployment insurance benefits are lower.
The largest component of gross domestic income
wages
When looking at GDP as the amount of total income, the largest component of total income in the U.S. is Wages earned by households make up _______ 50% of the total income earned in the U.S. economy.
wages greater than
An important conclusion to draw from the circular-flow diagram is that In the circular-flow diagram, who supplies factors of production in exchange for income?
we can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income. households
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 her purchasing power constant?
$54,348
The economic growth model predicts that ______ will grow faster than _______. Which of the following best explains what is actually happening to real per capita GDPs of countries?
Lower-income industrial countries are catching up with higher-income industrial countries.
An article in the Wall Street Journal noted that at the end of 2014, "U.S. families' debt burdens have settled at their lowest level in over a decade." Does this information indicate that the U.S. economy was close to the end of an economic expansion in late 2014?
No, because debt will normally increase near the end of an expansion.
Explain whether you agree or disagree with the following statement: Sometimes, however, governments use these requirements to shield domestic firms from foreign competition.
Yes, sometimes governments impose stricter health and safety requirements on imported goods than on goods produced by domestic firms.
Of the eight categories in the CPI market basket, which three categories make up more than 75 percent of the basket? Computation of the CPI assumes that households buy the same market basket of products each month. For this reason, which one of the following factors is not relevant in calculating the CPI?
housing, transportation, and food the quantities of the products households purchase in the current year