Macroeconomics GDP

Inflation equation

Inflation in year 2= (CPI in year 2- CPI in year 1)/(CPI in year 1) x 100

Inventory

Inventory investments. ex- GM produces cars and they may not sell all the cars produced in this year.

I in Spending Approach

Investments by producers/ firms (it is not personal financial investments)

Labor Force Participation Rate (LFPR) equation

LFPR=Labor Force/Adult Population x 100%

If 99 million people are working and 1 million are unemployed but actively seeking work, then the unemployment rate is ____%

1%

If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural rate of unemployment is:

5%

If the labor force includes 100 million workers and 5 million people are unemployed but actively seeking work, then the unemployment rate is ____%

5%

If the population of the United States is 260 million, the labor force is 130 million, and 120 million workers are employed, the rate of unemployment is _____%

7.7%

borrower

the recipient of a loan

Unemployment Rate

unemployment rate= unemployed/labor force x 100%

Suppose a market basket consists of 20 jars of peanut butter at $1 and 10 jars of jelly at $2. What is the value of the market basket in 2012?

$40

Suppose a market basket consists of 20 jars of peanut butter at $1.10 and 10 jars of jelly at $2.25. What is the value of the market basket in 2013?

$44.50

Suppose a market basket consists of 20 jars of peanut butter at $1.20 and 10 jars of jelly at $2.50. What is the value of the market basket in 2014?

$49

Economic Growth Rate

(RGDP in year 2- RGDP in year 1) /(RGDP in year 1)x100

Real GDP

1. Determine the base year 2. Only the prices in the base year are used to calculate RGDP for all the years. *For the base year: NGDP=RGDP

unemployment

1. Don't have a job 2. Must have been looking for work in the past month/4 weeks. 3. 16 years and up

What is not apart of GDP?

1. If it is a personal financial investment. ex- buying shared of Home Depot stock. 2. If it is not new. ex- buying a house but 10 years ago. 3. Intermediate goods. ex-lumber, steel purchased by manufacturers. 4. Government transfers. ex- a monthly social security check

Employed

1. Job 2. Get Paid

If a country has a working-age population of 200 million, 135 million people with jobs, and 15 million people unemployed and seeking employment, then its unemployment rate is:

10%

If the rate of unemployment is 10% and the labor force is 130 million, the number of unemployed workers is:

13 million

If a country has a working age population of 200 million, 135 million people with jobs, 10 million people who were looking for a job but have given up, and 5 million people who are unemployed and seeking employment, then its labor force is ______ million

140 million

If a country has a working- age population of 200 million, 135 million people with jobs, and 15 million people unemployed and seeking employment, then its labor force is

150 million

If a country has a working-age population of 200 million, 120 million people with jobs, and 30 million people unemployed and seeking unemployment, then its unemployment rate is

20%

If during 2010, the Republic of Sildavia recorded investment spending of $3 billion, government purchases of $3 billion, consumer spending of $7 billion, imports of $5 billion, government transfers of $1 billion, and exports of $3 billion, Sildavia's GDP in 2010 was: A) $11 billion B) $12 billion C) $13 billion D) $14 billion

A) $11 billion

Boeing buys $3 million worth of steel, $2.5 million worth of computer hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing sells this particular model at $10 million. The value added by Boeing is equal to: A) $3.5 million B) $16.5 million C) $13 million D) $15.5 million

A) $3.5 million

Which example illustrates cyclical unemployment? A) an autoworker is laid off because a recession has caused a decline in sales B) a geologist is permanently laid off from an oil company because of a technological advance C) a worker at a fast-food restaurant quits work and attends college D) a real estate agent leaves a job in Texas and searches for a similar, higher paying job in California

A) a autoworker is laid off because of a recession has caused a decline in sales

Which item is included in the calculation of GDP? A) expenditure on new construction B) A retiree's monthly social security check C) buying a house built 10 years ago D) buying shares of Home Depot stock

A) expenditure on a new construction

Net exports are calculated by subtracting A) imports from exports B) exports from imports C) out all intermediate goods D) I,G, and value added from GDP

A) imports from exports

Structural changes in an economy and changes in consumer tastes are reasons for: A) job creation and job destruction B) job searches C) unemployment during recessions D) unemployment during expansions

A) job creation and job destruction

Which pair of policies is likely to reduce the natural rate of unemployment? A) job training and employment subsidies B) high minimum wages and generous unemployment benefits C) job training and higher minimum wages D) employment subsidies and policies designed to strengthen labor unions

A) job training and employment subsidies

Don is a builder and in his free time he has built an addition to his new house. This transaction will: A) not be included in GDP because it is not produced for the market place B) be included in GDP because Don is a professional builder C) not be included in GDP because it is an intermediate good D) be included in GDP because building is Don's hobby

A) not be included in GDP because it is not produced for the market place

To be officially unemployed, a person must: A) not have a job and must have looked for work in the past four weeks B) be under 55 years old C) be working fewer than 30 hours per week D) be working fewer than 20 hours per week

A) not have a job and must have looked for work in the past four weeks

If real GDP falls while nominal GDP rises, then prices on average have: A) risen B) fallen C) stayed the same D) real GDP cannot rise when nominal GDP falls

A) risen

Cyclical unemployment A) rises during a recession B) falls during a recession C) rises during an expansion D) is a part of natural development

A) rises during a recession

The labor force is equal to the: A) sum of the number of those employed and unemployed B) population minus the number of employed C) sum of the number of those employed and the underemployed D) number of people working

A) sum of the number of those employed and unemployed

Consider an economy that produces only DVDs and DVD players. If 10 DVDs are sold at $20 each and 5 DVD players are sold at $100 each, then nominal GDP is: A) $100 B) $700 C) $1,100 D) $900

B) $700

Suppose that in year 1 an economy produces 100 golf balls that sell for $3 each and 75 pizzas that sell for $8 each. The next year the economy produces 110 golf balls that sell for $3.25 each and 80 pizzas that sell for $9 each. Using year 1 as the base year, real GDP in year 2 is: A) $900 B) $970 C) $1,000 D) $1,077.50

B) $970

Which statement is true? A) The number of people not working but who have looked for work in the past year is equal to the number of unemployed people B) The labor force is the total number of people working plus those who are unemployed C) The unemployment rate is the number of people unemployed expressed as a percentage of the population. D) The labor force is the same as the population

B) The labor force is the total number of people working plus those who are unemployed

The value of ______ is counted in GDP A) Glass for windshields purchased by a car manufacturer B) A new car sold by a dealer C) A used car sold by a dealer D) A share of stock in a car manufacturer

B) a new car sold by a dealer

The Arcadia Entertainment Co. produced 20,000 DVD's of the movie Thor in 2011. Only 4,000 copies remained unsold at the end of 2011. As a result: A) only 16,000 DVDs should be included in GDP in 2011 as consumption expenditure B) all 20,000 DVDs will be included in GDP in 2011, 16,000 as consumption expenditure and 4,000 as investment expenditure C) only 16,000 DVDs are included in GDP of 2011; the remaining 4,000 are counted in GDP of 2012 D) all 20,000 DVDs are initially counted in 2011 GDP as consumption expenditure, but they will be subtracted and added to 2012 GDP as the merchandise gets sold

B) all 20,000 DVDs will be included in GDP in 2011, 16,000 as consumption expenditure and 4,000 as investment expenditure.

Goods that are produced in a particular period but not sold in that period: A) count as consumption in the next year B) are included in investment C) are treated like exports D) are classified as purely financial transactions

B) are included in investment

Economists frequently use GDP per capita to reflect: A) the impact of prices on GDP B) differences in living standard across countries. C) people who are employed D) both people who are employed and those who are unemployed

B) differences in living standard across countries

The labor force is considered to be: A) everyone who is employed B) everyone who is employed plus everyone who is unemployed C) the population of the nation D) those not frictionally unemployed plus all others who are employed

B) everyone who is employed plus everyone who is unemployed

If real GDP rises while nominal GDP falls, then prices on average have: A) risen B) fallen C) stayed the same D) decreased and then been offset by an equal increase

B) fallen

Radhika just graduated from college. She recently quit her part time job to focus on finding a full time job that better uses the skills she has acquired in college. Radhika is considered to be A) structurally unemployed B) frictionally unemployed C) cyclically unemployed D) employed since she is focusing on finding a full-time job

B) frictionally unemployed

An example of an intermediate good is A) wages paid to an employee B) steel purchased by aircraft manufacturers C) vegetables purchased for your dinner D) electric bills for your house

B) steel purchased by aircraft manufacturers

Suppose a consumer buys a Perfect Pizza frozen cheese pizza at the grocery store for $10. Perfect Pizza purchased the dough and tomato sauce from a food-processing comapany for $2 and bought the cheese for $1. It sold the pizza to the store for $5. How much has GDP increased? A) $2 B) $5 C) $10 D) $18

C) $10

In 2011, consumption spending is $7,000, government purchases of goods and services is $2,000 and investment spending is $1,500. If GDP for 2011 is $10,300, exports are _____ and imports are ______ A) $400; $200 B) $100; $200 C) $600; $800 D) $500; $300

C) $600; $800

Which example is a likely response to inflation? A) People choose to carry higher money balances B) People tend to make fewer transactions C) People tend to make more transactions D) People tend to hold on to fewer interest-bearing assets

C) People tend to make more transactions

Which transaction would not count as GDP? A) Nike builds a retail store B) Your mother buys a pound of Washington-grown apples C) Your mother buys 100 shares of Nike Stock D) The Indiana stat government pays for repair of a damaged bridge over the Wabash River

C) Your mother buys 100 shares of Nike stock

Included in GDP is the dollar value of: A) a used car sold during the period B) a new car imported during the period C) a new car exported during the period D) 100 shared of General Motors stock bought by a retiree

C) a new car exported during the period

Real GDP per capita is: A) a perfect measure of a country's standard of living B) the only way to measure living standards among different countries C) an incomplete measure of a country's standard of living D) used only by the United Nations to compare nations based on measures of welfare.

C) an incomplete measure of a country's standard of living

Increases in the average level of prices is called A) depreciation B) deflation C) inflation D) expectations

C) inflation

The statistics and data on unemployment are gathered and reported: A) daily B) weekly C) monthly D) yearly

C) monthly

You are a college student and not working or looking for work. You are: A) unemployed B) in the labor force but not employed C) not part of the labor force D) counted in the labor force as underemployed

C) not part of the labor force

The inflation rate is the: A) price level in the current year minus the price level in the previous year B) price level in the current year plus the price level in the previous year C) percentage change in the price level from one year to the next D) price level in the current year multiplied by the price level in the previous year

C) percentage change in the price level from one year to the next

The Venezuela example illustrates: A) that the difference between nominal and real GDP is negligible in most cases B) that there is no difference between nominal and real GDP in the real world C) the importance of distinguishing between nominal and real GDP D) that GNP, rather than GDP, is a better measure of a country's economic activity.

C) the importance of distinguishing between nominal and real GDP

Which transaction is included in the nation's gross domestic product? A) A college student buys a used textbook from his roommate B) A construction company purchases lumber to build a new house C) A college student buys a pizza and has it delivered to her dorm room D) A group of college students volunteer to rake leaves at an assisted living facility for senior citizens

C. A college student buys a pizza and has it delivered to her dorm room

CPI equation

CPI=(cost of market basket in year t)/(cost of market basket in the base year)x100

CPI

Consumer Price Index. Measures the price level of goods and services

C in Spending Approach

Consumption from consumers or households

Which item is included in GDP? A) The purchase of 100 shares of Microsoft stock B) The purchase of a 1965 Ford Mustang C) Social Security payments from the U.S. government to retired people D) The purchase of a ticket to a Lady Gaga Concert

D) the Purchase of a ticket to a Lady Gaga concert

The natural rate of unemployment is: A) composed of frictional, structural, and cyclical unemployment B) equal to zero C) always greater than the actual unemployment rate D) composed of structural and frictional unemployment

D) composed of structural and frictional unemployment

Discouraged workers: A) are getting paid too little B) do not like their job C) are working part-time but are looking for a full-time job D) have given up looking for work

D) have given up looking for work

A person who is not working or looking for work is: A) included in the unemployment rate B) underemployed C) a member of the labor force who is not working D) not counted in the unemployment rate

D) not counted in the unemployment rate

Aggregate(total) output is: A) equal to consumer spending on goods and services. B) the value of new construction, changes in inventories, and the purchase of physical capital by businesses C) the total quantity of intermediate goods produced by an economy D) the total quantity of final goods and services produced by an economy

D) the total quantity of final goods and services produced by an economy

GDP does not include A) the value of leisure B) damage of the environment C) The value of housework D) the value of owner-occupied housing

D) the value of owner-occupied housing

Unemployment rates are usually higher in Europe than they are in the United States because: A) the minimum wage is higher in the United States than it is in Europe B) U.S. economic policy is much more effective than is European economic policy C) there are more unskilled, uneducated workers in Europe than there are in the United States D) unemployment benefits are more generous in Europe than they are in the United States

D) unemployment benefits are more generous in Europe than they are in the United States

frictional unemployment

Due to job search ex- you quit your job and you are looking for a new job

Rent in Income Approach

Earn rent if you become a landlord

G in Spending Approach

Government Purchases of goods and services. ex- airplanes, national defense. (Not the same as government transfers)

Not apart of Labor Force

If you do not have a job and you have not been looking for work

Does unemployment ever go away?

No, unemployment always exists, the U-rate will never equal 0 due to job search.

Inflation

Price level increase

Profit

Profit=total revenue(sales)-total cost of inputs. Inputs are capital ex- equipment, labor, materials(steel, grapes).

Sam, who is 55 years old and has been a steelworker for 30 years, is unemployed because the steel plant in his town closed and moved to Mexico. Sam is experiencing _______ unemployment

Structural unemployment

Profit in Income Approach

The money made by the producers/firms

Definition of GDP

The total market value of all final goods and services newly produced in the US within a period of time, in a quarter or a year.

Interest Payments in Income Approach

When you save money you will make interest income

Spending Approach of GDP

Y=C+I+G+X-M

Nominal GDP equation

Y=[Price of A x Quantity of A + Price of B x Quantity of B

Income Approach of GDP

Y=wages+interest payments+rent+profit

cyclical unemployment

caused by economic recession

Real GDP is nominal GDP adjusted for: A) double counting B) changes in prices C) population D) imports

changes in prices

actual unemployment

cyclical+frictional+structural

Structural unemployment

due to industrial changes ex- a factory closes and opens somewhere else, retailers due to online shopping.

Labor force=

employed+ unemployed

X and M in Spending Approach

foreigners in different economies. X- Exports ex- cars, metals, agriculture. M- Imports ex- oil, food, clothes and toys.

Unemployment that is due to the time workers spend In job search is ________ unemployment

frictional unemployment

natural rate of unemployment

frictional unemployment + structural unemployment

Categories of unemployment

frictional, structural, cyclical

Anna recently moved to Boston, as her husband, Joe, has a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is:

frictionally unemployed

Wages in Income Approach

hourly income

discouraged workers

individuals who would like to work but have given up looking for a job

Production Approach of GDP

market value of final goods and services

Real income =

nominal income/price level

real interest rate formula

nominal interest rate - inflation rate. or nominal interest rate= real interest rate+ inflation

Not in the Labor force if

not employed, not looking for work, retired and a homemaker (stay at home mom or dad)

Lenders

someone that lends money to you ex- a bank

Value Added

value added=sales(total revenue)-cost of intermediate goods.