Macro Pretest
Not counted in GDP
A consumer repairs her own car
Relationship between GDP and the four major expenditure components
Y=C+I+G+NX
When the economy is at full employment
the employment rate is greater than zero, the natural fats of unemployment prevails, and all remaining unemployment is either frictional or structural
unemployment rate formula
number of unemployed/labor force x 100
Inflation rate for CPI
CPI this year - CPI last year / CPI last year x 100
An average of the prices of the goods and services purchased by a typical family is the:
Consumer Price Index (CPI)
Four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
Consumer Price Index (CPI)
Current expenditure/base year expenditure x 100
When a company reduces production and employment during economic recessions, those employees who lose their jobs are generally considered to be
Cyclically unemployed
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy
The real interest rate
Is equal to the nominal interest rate minus the inflation rate
Not a "loanable fund"
Real estate
What would happen to unemployment rate and labor force participation rate if homemakers were included in employment and labor force totals
The unemployment rate would decrease and the labor force participation rate would increase
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
The value of leisure is not included in GDP, GDP is not adjusted for pollution and it does not account for unequal income distribution, and GDP is not adjusted for crime or other social problems
An efficiency wage is
an above-market wage paid by a firm to maximize worker productivity
The fact that the equilibrium quantity for loanable funds may increase along with an increase in the real rate of interest
assumes that demand for loanable funds increases with supply remaining unchanged
Businesses demand loanable funds because
firms need to borrow funds for new projects, such as building new factories or carrying out new research projects.
A person who is in between jobs but actively engaged in a job search is considered to be
frictionally unemployed
Government unemployment insurance tends to
increase the unemployment rate by lowering the opportunity cost of job search
Households supply loanable funds because of the
interest income recieved from the borrowers
labor force participation rate formula
labor force/working age population x 100
The payment of government unemployment insurance reduces the severity of recessions by
preventing a huge drop in income and spending for the unemployed
Experts in hand-drawn animation who remain unemployed due to the film industry's switch to computer-generated animation are considered to be
structurally unemployed
If the economy is experiencing deflation,
the nominal interest rate will be lower than the real interest rate
The type of inflation that is a greater problem to society is
unanticipated inflation, since it causes greater redistribution of income between those making payments and those awaiting payments in the future
