Macroeconomics test 1

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What is a​ quota?

A numerical limit a government imposes on the quantity of a good that can be imported into a country.

Is free trade more likely to benefit a​ large, populous country or a small country with fewer​ people?

A small country with fewer people.

"If a recession is so severe that the price level​ declines, then we know that both real GDP and nominal GDP must​ decline."?

Agree. If both output and prices are​ falling, then both real GDP and nominal GDP will fall.

Household production and the underground economy?

Are not accounted for in the Bureau of Economic​ Analysis' estimates of GDP.

"Whenever real GDP declines, nominal GDP must also​ decline."?

Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.

An article in the Wall Street Journal notes that many economists believe that GDP data for India are unreliable because​ "the average firm employs just a handful of people and the overwhelming majority of the adult population works off the books and far from major​ cities." Working​ "off the​ books" refers to?

Earning income that is not reported for tax purposes.

In the​ U.S., gross domestic product ​(GDP​) and gross national product ​(GNP​) are close in value. Under what circumstances would GNP be much larger than​ GDP?

Few foreign firms maintain facilities in the U.S. while many U.S. firms are currently operating abroad, Few foreign citizens currently work in the U.S. and few foreign firms maintain facilities in the U.S., Many U.S. citizens currently work in foreign countries while few foreign citizens currently work in the U.S.

How is the GDP deflator​ calculated?

GDP Deflator = Nominal GDP / Real GDP X 100

All of the following are correct except?

Gross domestic income does not include health insurance benefits received by the employees.

GDP is an imperfect measure of economic​ well being because it fails to measure what types of​ production?

Household production and the underground economy.

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?

Most manufacturing industries, Some service industries, Most of the agriculture industry.

If the GDP deflator in 2012 has a value of​ 98.0, then?

Prices have decreased 2 percent between the base year and 2012.

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.

Real GDP is?

The value of goods and services evaluated at base year prices.

Which component of gross domestic income is the​ largest?

Wages

In​ 2014, the largest component of gross domestic income was.

Wages.

How does the World Trade Organization​ (WTO) allow countries to determine whether dumping has​ occurred? The WTO allows countries to determine that dumping has occurred if.

a product is exported for a lower price than it sells for on the home market.

The opponents of globalization contend that?

globalization destroys cultures.

Once a country has lost its comparative advantage in producing a​ good, its income will be​ ________ and its economy will be​ ________ efficient if it switches from producing the good to importing it.

higher; more

In the​ circular-flow diagram, who supplies factors of production in exchange for​ income?

households

While running for​ president, Barack Obama made the following​ statement: ​"Well, look, people​ don't want a cheaper​ T-shirt if​ they're losing a job in the process."What did Obama mean by the phrase​ "losing a job in the​ process"? Obama was suggesting that a job would be lost if the​ T-shirt were cheaper because?

it would be produced in another country.

An article in the Wall Street Journal discussed the views of Canadian Minister of Finance Joe Oliver on the effect of falling oil prices on the Canadian economy. According to the​ article, Oliver argued that​ "lower oil prices would have a broadly neutral impact on real. gross domestic​ product, but have a negative effect on nominal​ GDP." Oliver must be expecting the effect of lower oil prices to?

lower the inflation​ rate, which would offset the reduction in nominal GDP.

The use of trade barriers to shield domestic companies from foreign competition is called?

protectionism.

In calculating​ GDP, which levels of government spending are included in government​ purchases?

spending by​ federal, state, and local governments

New Balance manufactures shoes in the United​ States, so you might expect that the firm would benefit from a tariff on shoes. Yet New Balance did not actively oppose the Obama​ administration's attempts to eliminate the shoe tariff imposed on countries that would be part of the​ Trans-Pacific Partnership.

the agreement would lower the cost of shoes and shoe parts that it imports from other countries.

Gross domestic product is best defined as

the market value of all final goods and services produced in a country during a period of​ time, typically one year.

Which of the following is included in the​ economist's definition of​ investment?

the purchase of new​ machines, factories, or houses

The term external economies refers to, and Which of the following is a source of comparative​ advantage?

the reduction of costs resulting from increases in the size of an industry in a given area. and the relative abundance of capital and labor.

Although international trade leads to substantial net​ benefits, not everyone gains from international trade. Which of the following groups is most likely to lose from​ trade?

the workers and companies in the industries that compete with the imports.

An article in the New Yorker magazine​ states, ​"the main burden of​ trade-related job losses and wage declines has fallen on​ middle- and​ lower-income Americans. But...the very people who suffer most from free trade are​ often, paradoxically, among its biggest​ beneficiaries." Explain how it is possible that​ middle- and​ lower-income Americans are both the biggest losers and at the same time the biggest winners from free trade. It would be possible for​ middle and​ lower income Americans to be both the biggest losers and at the same time the biggest winners from free trade if they are the ones most likely to.

work in industries that produce at higher opportunity cost than in other countries and purchase those goods that can be produced at lower opportunity cost in other countries.

Which of the following is true about the consumption component of U.S. GDP in​ 2014?

Consumer spending on services was greater than the sum of spending on durable and nondurable goods.

What are the four major components of expenditures in​ GDP?

Consumption, Investment, Government​ Purchases, and Net Exports

Which of the following do we subtract from GDP to obtain national​ income?

Depreciation.

Briefly explain whether you agree or disagree with the following​ statement: ​"International trade is more important to the U.S. economy than to most other​ economies."

Disagree. Exports and imports are a relatively small fraction of the United States GDP.

Briefly explain whether you agree with the following​ statement: ​"Japan has always been much more heavily involved in international trade than are most other nations. In​ fact, today Japan exports LOADING... a larger fraction of its GDP than do​ Germany, Great​ Britain, or the United​ States."

Disagree. Japan exports about​ 20% of its​ GDP, of the​ above, only the U.S. exports a smaller percentage.

While running for the 2016 Democratic nomination for​ president, Vermont Senator Bernie Sanders opposed the​ Trans-Pacific Partnership in part because he believed that as a result of the​ agreement, "the U.S. will lose more than​ 130,000 jobs to Vietnam and Japan​ alone." Do you agree that reducing barriers to trade reduces the number of jobs available to workers in the United​ States?

Disagree. While some jobs are saved by trade​ restrictions, many more jobs are lost in industries that use trade restricted goods as inputs.

Indicate whether you agree or disagree with the following​ statement: ​"In years when people buy few shares of​ stock, investment will be lowlow ​and, therefore, so will gross domestic product ​(GDP)."

Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and​ inventory, not stock purchases.

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.

In the circular flow of expenditure and​ income, why must the total value of production in an economy equal the total value of​ income?

Every penny spent on a good or service must end up as​ someone's income.

Even if GDP included these types of​ production, why would it still be an imperfect measure of economic​ well-being?

GDP is not adjusted for crime or other social problems, The value of leisure is not included in GDP, GDP is not adjusted for pollution and it does not account for unequal income distribution.

What happens if we measure GDP by adding up the value of every good and service produced in the​ economy?

GDP is overestimated because of double counting.

Which of the following is not a shortcoming of GDP as a measure of​ well-being?

GDP only counts final goods and services and not intermediate goods.

When a significant fraction of domestic production takes place in​ foreign owned facilities, a​ country's difference between GDP and GNP is as​ follows.

GDP will be much larger than GNP.

If Americans still worked​ 60-hour weeks, as they did in​ 1890?

GDP would be much higher than it​ is, but the​ well being of the typical person would not necessarily be higher.

U.S. Gross National Product​ (GNP) differs from U.S. Gross Domestic Product​ (GDP) in which of the following​ ways?

GNP considers production that occurs outside the U.S. Your answer is correct. GNP is the value of final goods and services produced by residents of the U.S.

How does the size of a​ country's GDP affect the quality of life of the​ country's people?

Generally, the more goods and services people​ have, the better off they are.

Which of the following factors may explain why a country like the Netherlands is more likely to import and export larger fractions of its GDP than would a larger​ country, such as China or the United​ States?

Given its small​ size, the Netherlands must specialize in producing and exporting only a few​ products; it cannot produce the wide range of products that China or the U.S. can produce,Your answer is not correct,The Netherlands must rely on imports for a large range of products,The Netherlands is a small country with a level of GDP that is only a small fraction of that of China or the U.S.

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." 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.

Briefly explain whether you agree with the following​ argument:​"Unfortunately, Bolivia does not have a comparative advantage with respect to the United States in the production of any good or​ service."

If the U.S. trades at all with​ Bolivia, then the argument above is false. There would be no trade unless both countries were made better​ off, and this would imply Bolivia has the comparative advantage in the production of at least one good or service.

Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs between 2003 and 2006 spent their time. They discovered that during the period when they were​ unemployed, the reduction in the number of hours of paid work was almost completely replaced by an increase in the number of hours spent on household production. Based on these​ findings, what can we predict about total production long dash whether or not that production is included in the calculation of GDPlong dash in the economy when these workers became​ unemployed?

If the workers had been paying other people to perform the household activities prior to​ unemployment, then total production will fall.

Why in microeconomics can we measure production in terms of​ quantity, but in macroeconomics we measure production in terms of market​ value?

If, in​ macroeconomics, we measured production using​ quantities, we would add tons of wheat grown by U.S. farmers to the number of iPods produced by​ Apple, to gallons of​ milk, and so on. When we measure total​ production, we​ can't just add together the quantities of every good and service because the result would be meaningless. Measuring production using market value in dollar terms allows us to add together many different goods and services.

Which of the following describes the importance of international trade around the​ world?

Imports and exports remain a smaller fraction of GDP in the U.S. than in most other countriesImports and exports remain a smaller fraction of GDP in the U.S. than in most other countries.

In addition to tariffs and​ quotas, governments sometimes erect other barriers to trade. Which of the following is an example of a barrier to trade that a government may​ impose?

Imports must meet certain health requirements, Imports of certain products may be restricted on national security grounds, Imports must meet certain safety requirements.

​"Corporate profits are much too​ high: Most corporations make profits equal to 50 percent of the price of the products they​ sell."?

Incorrect: The largest component of gross domestic income is​ wages, which are about three times as large as profit.

Which of the following is not a main source of comparative​ advantage?

Internal economies of scale.

What is meant by a country specializing in the production of a​ good? Is it typical for countries to be completely​ specialized?

It shifts resources toward producing only those goods where it has a comparative​ advantage; No

If the U.S. Bureau of Economic Analysis​ (BEA) added up the values of every good and service sold during the​ year, would the total be larger or smaller than measured gross domestic product​ (GDP)?

Larger: The value of all goods and services sold would include intermediate goods.

The problems of small firms working off the books and far from major cities would make it difficult for the Indian government to accurately measure GDP because the?

Measures of GDP will be understated if these practices are common.

Which of the following is an example of positive economic​ analysis?

Measuring the effect of the sugar quota on the U.S. economy.

According to most​ economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground​ economy?

Most economists would answer​ "no" because these types of production do not affect the most important use of the GDP​ measure, which is to measure changes in total production over short periods of time.

In​ 2011, President Barack Obama described a trade agreement reached with the government of Colombia as a​ "'win-win' for both our​ countries." Is everyone in both countries likely to win from the​ agreement?

No, workers employed at companies that are less efficient than foreign companies will lose jobs.

Suppose a house is built and sold in the year 2006. If the house is resold in the year​ 2017, is the value of the house included in Gross Domestic Product ​(GDP) for​ 2017?

No. GDP for 2017 includes only production that occurs during 2017.

In an economy with rising​ prices, compared to the base​ year?

Nominal GDP is larger than real GDP in years after the base year.

Some countries have larger underground economies than do other​ countries, because?

Of government policies that are retarding economic growth.

Disposable personal income is equal to?

Personal income minus personal tax payments.

Which of the following is true about the government purchases component of U.S. GDP in​ 2014?

Purchases by state and local governments was greater than purchases by the federal government.

How does real GDP deal with the problem inflation causes with nominal​ GDP?

Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years, By keeping prices​ constant, we know that changes in real GDP represent changes in the quantity of output produced, Real GDP separates price changes from quantity changes.

Over​ time, prices may change relative to each other. To take this change into​ account, the Bureau of Economic Analysis calculates?

Real GDP using chain weights.

According to an article in the Economist​, ​"China's GDP grew by​ 7% in the second​ quarter, which was higher than had been​ expected." Is it likely that percentage the article is referring to is the change in?

Real GDP.

What events led to the General Agreement on Tariffs and​ Trade? Why did the World Trade Organization eventually replace​ GATT?

The Great Depression and the​ Smoot-Hawley Tariff; Trade in services and in products incorporating intellectual property grew in importance.

We often use real GDP per capita as a measure of a​ country's well-being. Review the definition of real GDP per capita before answering the following question.Today, the typical American works fewer than 40 hours per week. In​ 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the​ population's economic​ well-being?

The increase in real GDP per capita between 1890 and today understates​ well-being because the value of leisure is not included in GDP.

Political commentator B.​ Bruce-Biggs once wrote the following in the Wall Street​ Journal: ​"This is not to say that the case for international free trade is​ invalid; it is just irrelevant. It is an​ 'if only everybody. argument. In the real world almost everybody sees benefits in economic​ nationalism." Choose the correct answer that might refer to​ "economic nationalism."

The use of​ non-tariff barriers to protect domestic industries, The use of tariffs to protect domestic industries, The use of quotas to protect domestic industries.

What is the difference between the value of a​ firm's final product and the value added by the firm to the final​ product?

The value of a​ firm's final product is the sale​ price; value added is the difference between the sale price and the price of intermediate goods.

An important conclusion to draw from the​ circular-flow diagram is that

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.

Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the​ next?

When nominal GDP increases from year to​ year, the increase is due partly to changes in prices and partly to changes in quantities.

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.

Economic historians Roger Ransom and Richard Sutch have estimated that​ African-American farmers in the U.S. South after the Civil War worked about 30 percent fewer hours per year than they had as slaves before the Civil War. If after the Civil​ War, African-American farmers had continued to work these additional​ hours, their production and income would have been higher and so would have been U.S. GDP. The​ farmers' well-being?

Would not have been higher as a result of working these additional hours because value of an​ individual's well-being is not included in GDP calculation.

Which equation represents the relationship between GDP and the four major expenditure​ components?

Y=C+I+G+NX

According to the analysis by Hufbauer and​ Lowry, of the additional​ $1.1 billion consumers spent on tires as a result of the tariff on Chinese​ tires, the workers whose jobs were saved in the U.S. tire industry received only about​ $48 million in wages. Would it have been cheaper for the federal government to have raised taxes on U.S. consumers and given the money to tire workers rather than to have imposed a​ tariff? and

Yes, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers more than​ $900,000 per year for each job saved in the tire industry. and the United Steelworkers Unions had sufficient political power to persuade Congress to pass this tariff.

Would the services of a real estate agent who helped sell​ (or helped​ buy) the house be included in GDP for​ 2017?

Yes. GDP for 2017 includes the market value of final goods and services. This includes real estate services.

Is the value of intermediate goods and services produced during the year included in Gross Domestic Product (GDP)? For​example, is aluminum used to produce a new mountain bikemountain bike included in​ GDP?

Yes. The value of the aluminum is not directly counted in​ GDP, but the production of aluminum is included in the​ value-added method of measuring GDP.

An article in the Wall Street Journal states that a​ "change in ... inventories subtracted 0.57 percentage point​ from" what would have been the increase in GDP. For this result to​ occur, the change in inventories would have to have been.

a decrease because this would reduce investment and GDP.

If government cannot accurately measure​ GDP?

businesses will not be able to correctly gauge the​ market, and the government will be unable to design efficient tax policies.

An article in the Economist on the revisions to​ Nigeria's GDP​ commented, "The GDP revision is not mere trickery. It provides a truer picture of​ Nigeria's size by giving due weight to the bits of the​ economy, such as​ telecoms, banking and the Nollywood film​ industry, that have been growing fast in recent​ years." The phrase​ "giving due​ weight" to the sectors of the economy that have been growing quickly means that analysts?

developed better measures of those sectors of the​ economy, which then allowed for better GDP estimates.

What is the name given to the sale of a product for a price below its cost of​ production?

dumping

Instagram is a smartphone app now owned by Facebook. According to an article that discusses the climate for software firms in the San Francisco Bay​ Area, the success of Instagram​ "is a tale about the culture of the Bay Area tech​ scene, driven by a tightly woven web of entrepreneurs and investors who nurture one​ another's projects with​ money, advice and introductions to the right​ people." Being located in the Bay Area gives​ start-up software firms an advantage because of. and 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.

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.

In​ 2015, several U.S. paper manufacturers asked the federal government to impose tariffs on paper imported from​ China, Indonesia,​ Brazil, Portugal, and Australia. According to an article in the Wall Street Journal​, firms in these countries were accused of​ "dumping certain types of uncoated paper on the U.S.​ market, including that used for such things as computer​ printers, book​ publishing, junk mail and​ envelopes." ​"Dumping" is. and If the U.S. firms succeed in having tariffs imposed on imports of​ paper,

selling a product for a price below its cost of production. and consumers will lose as paper prices rise but domestic paper firms will gain.

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

In the real​ world, specialization is not complete. Why do countries not completely​ specialize?

Because production of most goods involves increasing opportunity costs,Because tastes for products differ, Because not all goods are traded internationally.

An underground economy involves all of the following except?

Buying and selling of goods and services by obtaining a permit from the government.

An article in the New York Times describes the much greater use of​ cash, as opposed to checks and credit​ cards, in buying and selling in China. The article describes someone bringing several bags of cash containing the equivalent of​ $130,000 into a car dealership to buy a new BMW. Another article​ notes: ​"Many economists believe that the rise in​ [use of] cash is strongly related to growth in the​ so-called underground​ economy." The underground economy is the?

Buying and selling of goods and services that is concealed from the government.

At one​ time, Eastman Kodak was the​ world's largest producer of photographic​ film, employing nearly​ 145,000 workers​ worldwide, including thousands at its headquarters in​ Rochester, New York. The firm eventually laid off most of those workers because its sales declined as it failed to adjust to digital photography as quickly as many of its foreign competitors. A member of Congress from Rochester described the many new firms that were now located in buildings that were formerly owned by Kodak. A New York Times columnist​ concluded, "Which, of​ course, is precisely the way globalization is supposed to​ work." When the New York Times columnist concluded that this​ was, "... precisely the way globalization is supposed to​ work" he meant that. And The outcome in Rochester shows that globalization

when an industry​ changes, jobs will be created in other sectors. Is good for​ some, like the consumers of digital​ cameras, and bad for​ others, like the unemployed Kodak workers.

Suppose you are explaining the benefits of free trade and someone​ states, ​"I don't understand all the principles of comparative advantage and gains from trade. I just know that if I buy something produced in​ America, I create a job for an​ American, and if I buy something produced in​ Brazil, I create a job for a​ Brazilian." Are they correct in asserting that free trade costs U.S.​ jobs?

​No, since free trade creates more jobs for the U.S. economy than it costs the U.S.

Using the economic concept of comparative​ advantage, explain under what circumstances it would make sense for the United States to produce all of the​ T-shirts purchased in the United States. The United States should produce all of the​ T-shirts purchased in the United States if the U.S. could produce

​T-shirts at lower opportunity cost than other countries.

To calculate personal income from national​ income, which of the following must the BEA​ do?

Add government transfer payments.

"If real GDP stayed the same while nominal GDP declined between 2008 and​ 2009, then the GDP deflator must also have​ declined."?

Agree. If nominal GDP declined between 2008 and​ 2009, then the the GDP deflator must also have declined.

"If nominal GDP is less than real​ GDP, then the price level must have fallen during the​ year."?

Agree. Nominal GDP will be less than real GDP if the price level falls and is lower than the base​ year's prices.

What is a voluntary export​ restraint?

An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country.


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