Macro Midterm 2
If the labor force participation rate equals 64%, the working age population equals 1700, and the number of unemployed equals 188, then the number of employed people equals ___________.
900 900+188/1700= 64%
What occurs in the labor market when the prevailing price (wage) exceeds the equilibrium price (wage)?
A surplus arises Unemployment rises
Suppose the Big mac index between the US and ecuador is -31%. What does this imply about relative prices?
Dollars go further at McDonalds in Ecuador than in the US Prices in ecuador are less than we would expect if PPP held.
______ variables allow us to compare value (such as wages) over time.
Real
When actual wages remain above the equilibrium level, it creates_________.
Real wage unemployment also known as Classical Unemployment
Which of the following statements about unemployment is TRUE?
The natural rate of unemployment is greater than zero. All economies experience some unemployment regardless of economic strength.
All things equal, when wage decreases,
The quantity supplied of labor decreases
Output produced per worker is called __________.
productivity
As a result of the relationship between price level and government spending, the slope of aggregate demand curve is
unaffected
When employers don't hire workers if they cannot fire them, unemployment can _______.
increase
The size of the change in the overall price level is called the _______ rate.
inflation
When new and/or improved goods become available, people change the types of goods and services they consume. This challenge to accuracy in CPI measurement is called:
innovation
A decrease in foreign investment in a county will ___________ the countries capital stock an shift the LRAS to the __________.
Decrease Left
A graph that depicts the relationship between wages and quantity of labor________ by firms is called the _________ ________ curve.
Demanded Labor demanded
Is it possible for an economy to produce beyond its own capacity?
Yes workers can work overtime and firms can add "graveyard" shift
How long a period is the long run?
Not a set amount of time
Why is selecting goods and services for the market basket problematic for the BLS
Not all people enjoy the same goods and services.
Which of the following explains why purchasing power parity almost never holds:
Transaction Costs Non-tradable's Trade restrictions
Categorize the following groups of people as either U1, U2, U3. 1. Job losers and temp workers 2. Unemployed 3. Long time unemployed
1. U2 2.U3 3.U1
Suppose the growth rate of nominal GDP equals 7%, the inflation rate equals 4%, and the population growth rate is 1%. The real GDP per capita growth rate equals _________%
2% Nominal - Inflation - Population grwoth
Suppose US nominal GDP was $13.9 trillion in 2009 and $14.4 Trillion in 2010. The growth rate of nominal GDP over this period is __________%
3.6%
Suppose US nominal GDP was $14.9 trillion in 2014 and $15.6 trillion in 2012. The growth rate of nominal GDP over this period is __________%
4.7%
If the number of unemployed people equal 200, the number of employed people equals 1100, and the working age population equals 1900, then the labor force participation rate equal ____________%.
68.4 labor force ------------ working age population
Which of the following makes wages sticky?
Contracts Union agreements
What is another name for indexed payments?
Cost of living adjustments
Wage stickiness tends to cause ___________ unemployment.
Cyclical
The consumer price is calculated by the:
BLS
What is the general relationship between worldwide economic growth and population growth after 1800?
Both increased rapidly.
Supporters of foreign direct investment (FDI) claim that it:
Builds up capital stock when domestic savings are insufficient Transfers human capital to domestic workers
Which government agency determines unemployment statistics?
Bureau of Labor statistics
Countries with very low physical capital levels will receive a greater return to an additional unit of capital the countries with high initial physical capital levels. What is this called?
Decreasing marginal returns to factors of production
How to measure changes over time and deciding which goods should be included are challenges faced by the Bureau of Labor Statistics when calculating:
CPI
A measure that tracts changes in the cost of a market basket of goods and services consumed by a typical U.S. household is called the ______ _______ _______.
Consumer price index.
Rightward shifts in the long run aggregate supply curve are the main indicator of ____________ ____________.
Economic Growth
Increases in productivity per person leads to ______________ ___________.
Economic growth
In the base year, the value of the consumer price index (CPI)
Equal 100
Frictional, structural, and real-wage(classical) unemployment composes the _______ rate of unemployment.
Equilibrium
Hedonic quality adjustment refers to:
Estimating what the price of a good would be without improved quality.
The following statements are steps used to construct an index that describes price changes across locations. Rank them in sequence from First (top) to last (bottom):
Find a market based that we can compare across countries Measure the goods prices in each country Calculate the cost of the basket in each country Build an index showing basket cost relative to the base
Why might it be useful to exclude food and energy prices from inflation measurements?
Food and energy prices tend to fluctuate gently
Indicate the formula for GDP in 2017, when GDP in 2016 is given by, "Y" an the economy grew at 4%
GDP = Y + (0.04 * Y) GDP = 1.04Y
Which of the following price indexes does not use a fixed basket of goods and services?
GDP Deflator
What is the effect on GDP of a $125 million increase in government spending when the MPC = 0.65?
GDP increases by $357.14 million.
How does access to quality health care help productivity?
Healthy workers miss fewer work days Good Health makes it easier for children to learn in school reducing vitamin deficiencies improves mental and physical energy
How does the BLS weigh changes in quality against changes in the price of goods and services in the market basket?
Hedonic quality adjustment
Improvements in technology tend to lead to:
High rates of change in income.
For labor market calculations, the working age population includes _______.
Homeless people who are at least 16 Stay at home parents Full-time college students Unemployed individuals
Indicate which of the following events will increase the LRAS curve, ceteris paribus
Immigration amnesty Technology improvements increase in foreign investments
Increased Productivity:
Improves overall standard of living
Indicate the accuracy trade-offs with the assumption that the market basket is fixed.
In reality, price changes lead to changes in quantity consumed. Fixed market baskets isolate price changes from behavioral changes.
Consider a self sufficient farm worked only by members of the farm family households. The only way this family can enjoy a higher standard of living is:
Increase the amount each family member produces Increase the amount each family member consumes.
When the Price of good and services ________, people tend to reduce quantity consumed. If the market basket does not reflect this fact, it overstates the change in the cost of living
Increases
The aggregate demand curve is downward sloping due tot he relationship between the price level and spending in which of the following categories?
Investment Consumption Next exports
The value of a dollar:
Is greater in Iowa that it is in New York City, Varies based on location Changes as prices fall and rise
Factual evidence suggests that the purchasing power of an average person in the world today
Is greater than it was 300 years ago
Suppose you have a $15,000 car loan. If price levels are rising, then the real value of debt:
Is shrinking over time
How does an increase in the actual price level affect the LRAS curve?
LRAS does not change
What is the effect of a change in expected future prices not he LRAS curve?
LRAS does not change
When the economy experiences an improvement in technology, which of the following events occur?
LRAS increases SRAS increases
Over the last few centuries:
Nominal GDP grew faster than inflation Economic growth exceeded population growth Nominal GDP grew faster than population
When the cost of living varies across countries,
Nominal GDP per capita means different things in different countries.
When workers and firms expect changes in future price levels,
Only the SRAS curve shifts
Which of the following is generally true about prices and income:
Prices and income change at different rates across time and location.
Suppose the Big Mac Index between the US and Spain is 24%. What does this imply about relative prices?
Prices in Spain are higher than we would expect if PPP held.
Which if the following can help improve human capital by increasing access to high quality education and health care?
Public Policy
According to _______ _______ ________, purchasing power in different countries should be the same when stated in a common currency
Purchasing Power Parity
If the difference in sale price is small and transaction costs are high,
Purchasing power parity fails.
A surplus in the labor market exists when:
Quantity of labor demanded is less than the quantity of labor supplied at a given wage
When calculating a market basket, ________ is held constant. When calculating real GDP, _________ is held constant.
Quantity; Price
In the United States, which of the following payments are most commonly indexed to inflation?
Social Security Payments
In the presence of negative supply shock, what does the economy experience if the government does nothing ?
Stagflation
Vocational retraining is an appropriate response to which type of unemployment?
Structural
When workers human capital does no match the skills demanded by employers it leads to what type of unemployment?
Structural Unemployment
Research and development can be costly. As a result, private businesses will not necessarily pursue this research unless there is a foreseeable profit. What is the governments role in this scenario?
Subsidize private industry with tax incentives for necessary research
Two reasons for a variation in consumption over time are _______ and ________.
Substitution and innovation
A graph that depicts the relationship between the wage and the quantity of labor _________ by households is called the labor _________ curve.
Supplied Supply
In terms of the labor supple and demand model, unemployment occurs when there is an _________ of labor.
Surplus
Suppose that an increase in government spending does not shift the AD enough to return the economy to long run equilibrium. What must happen in the AD/AS model to reach LR equilibrium?
The SRAS curve must increase.
A dollar is worth more in Greely, CO (a small, largely agricultural city) than it is in Chicago, IL. because
The cost of living tends to be higher in big cities
What is the long run effect of an increase in government spending?
The economy reaches its previous level of output Prices are slightly higher than before government intervened
Why is it misleading to say that economy has "only" grown at 2% per year for the last 75 years?
The effect of compounding increases GDP by substantially more than2%
Civillian, non institutionalized members of the population who are at least 16 year old are considered:
The working age population
What is true of countries with low initial income levels?
They tend to grow much faster than countries with high initial income levels
A primary function of price indexes is:
To calculate inflation
Though it may undermine the the concept of comparing a constant basket of goods, the BLS occasionally updates the items in the CPI market base, Why?
To capture the cost of a certain standard of living. To more accurately measure the types of goods and services that are available in a given period.
Though it may undermine the concept of comparing a constant basket of goods, the BLS occasionally updates the items in the CPI market basket. Why?
To more accurately measure the types of goods and services that are available in a given period. TO capture the cost of a certain standard of living.
In the long run, the only way to consume more is:
To produce more increase labor productivity
Categorize the following groups of people as either U4, U5, or U6: 1. Unemployed + Discouraged + marginally attached 2. Unemployed + Discouraged 3. Unemployed + Discouraged + marginally attached + underemployed
U5 U4 U6
Money paid by government to Unemployed individuals is called _________ insurance.
Unemployment
The gap between the number of people who want to work at a given wage and the number of available jobs at that wage is called:
Unemployment
The term "typical Households" refers to:
Urban consumers
In order to analyze the change in the overall cost of living, economists:
Use a single number that summarizes price changes of all goods.
Define efficiency wages:
Wages set above market rate to increase productivity.
Some criticize the market "basket approach" by indicating that people tend to alter consumption patterns as price changes. if we allow the basket to change,
We would capture the range in price AND quantity
A countries income depends on:
Worker productivity
How does human capital contribute to economic growth?
Worker productivity increases people work smarter
What is the likely result of an employment environment where workers are in high demand due to an economy that is producing beyond capacity?
Workers will demand raises input prices will increase workers will leave existing jobs for those that pay more
In order to evaluate how the price of all goods and services change over time and place, analysts use:
a market basket
Events that shift the LRAS curve
also shift the SRAS curve
An approach that measures changes in the cost of market basket is called the market ______ approach.
basket
In the US most research and development is conducted:
by private businesses
Much government spending is legislated. As a result, an increase in overall price level
does not affect government spending as it related to GDP.
Rapid economic growth:
is relatively new in the context of history
When potential output contracts, the LRAS drive shift to the ___________.
left
A period of time where the price of all inputs (labor, land, capital) is variable is called __________________ ___________.
long run
When the capital stock in a country increases, the LRAS curve shifts to the ________
right
When policy makers attempt to stimulate the economy with increased government spending,
the economy often experiences inflation
A measure of inflation that considers wholesale prices of inputs is called:
the producer price index
All things equal, when wage increases,
the quantity demanded for labor decreases
Due to then existence of unemployment,
the simplest labor market model is incomplete.
The growth accounting equation tells us that the growth rate of GDP is equal to the growth rate of technology plus:
the weighted growth rates of capital and labor
