Macroeconomics Test 2

In 2011, Armenia had a real GDP of $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. What was Armenias economic growth rate from 2011 to 2012? A. 3.8 percent B. 9.0 percent C. 0.38 pecent D. 8.3 percent

B. 9.0 percent

Of the following, the largest component of GDP is: A. net exports of goods and services B. gross private domestic investment C. personal consumption expenditure D. government expenditure on goods and services

C. personal consumption expenditure

Real GDP decreases during A. the movement from below potential GDP back to potential GDP B. the movement from trough to peak C. the movement from peak to trough D. a decrease in unemployment

C. the movement from peak to trough

Because of a bank merger, Ms. Davis lost her position as Vice President and had to seek work with other banks. Ms. Davis has the skills necessary to find a new job, thus she is best considered as A. cyclically unemployed B. structurally unemployed C. naturally unemployed D. frictionally unemployed

D. frictionally unemployed

The labor force is defined as the number of: A. people with jobs, both part-time and full-time B. unemployed people C. people 16 and over D. people who are employed and unemployed

D. people who are employed and unemployed

A recession is commonly defined as occurring when: A. real GDP decreases for a period of 12 or more months B. the unemployment rises above 5 percent for 12 or more months C. the unemployment rate rises above 7.5 percent for 6 or more months D. real GDP decreases for a period of 6 or more months

D. real GDP decreases for a period of 6 or more months

sustainable long-run economic growth

long-run growth that can continue in the face of the limited supply of natural resources and the impact of growth on the environment

price index

measures the cost of purchasing a given market basket in a given year, where that cost is normalized so that it is equal to 100 in the selected base year

imports

goods and services purchased from other countries are imports

exports

goods and services sold to other countries

natural rate of unemployment

is the unemployment rate that arises from the effects of frictional plus structural unemployment

national GDP

is the value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced

real wage

is the wage rate divided by the price level

frictional unemployment

is unemployment due to the time workers spend in job search

the national income and product accounts OR national accounts

keep track of the flows of money between different sectors of the economy

structural unemployment

more people are seeking jobs in a particular labor market than there are jobs available at the current wage rate, even when the economy is at the peak of the business cycle

unemployment rate formula

number of unemployed/labor force x 100

value added

of a producer is the value of its sales minus the value of its purchases of intermediate goods and services

interest rate

on a loan is the price, calculated as a percentage of the amount borrowed, that lenders charge borrowers the use of their savings for one year

Recession

periods of economic downturns when output and employment are falling

Expansion

periods of economic upturn when output and employment are rising

Self-regulating economy

problems such as unemployment are resolved without government intervention, through the working of the invisible hand

marginally attached workers

would like to be employed and have looked for a job in the recent past but are not currently looking for work (have looked in the past 12 months but not in the last 4 weeks)

Fiscal Policy

uses changes in government spending and taxes to affect overall spending

Monetary Policy

uses changes in the quantity of money to alter interest rates and affect overall spending

diminishing returns to physical capital

when, holding the amount of human capital per worker and the state of technology fixed, each successive increase in the amount of physical capital per worker leads to a smaller increase in productivity

disinflation

is the process of bringing the inflation rate down

menu cost

is the real cost of changing a listed price

Long-run economic growth

is the sustained upward trend in the economy's output over time

If real GDP per person is growing at 4 percent per year, approximately how many years will it take to double? A. 17.5 B. 8 C. 25 D. 4

A. 17.5

Over the last 100 years, the average U.S. growth rate in real GDP per person was about A. 2 percent per year B. 12.5 percent per year C. 1 percent per year D. 6 percent per year

A. 2 percent per year

At the end of last year the CPI was equal to 157.5 and at the end of this year it was equal to 163.8. What is the inflation rate over this time period? A. 4.0 percent B. 3.85 percent C. 10.1 percent D. 6.3 percent

A. 4.0 percent

Suppose that last year the CPI was 124; this year it is 130.7. What was the inflation rate between these years? A. 5.4 percent B. 5.1 percent C. 30.7 percent D. 6.7 percent

A. 5.4 percent

Over the past four decades A. U.S. real GDP per person has increased B. the growth rate of real GDP per person in the United States has been increasing C. U.S. real GDP per person has fallen below that of the other rich industrial countries D. both answers A and C are correct

A. U.S. real GDP per person has increased

An indirect tax is exemplified by A. a sales tax B. a subsidy C. an income tax D. none of the above answers is correct

A. a sales tax

Suppose the country of Tiny Town experienced frictional unemployment. This frictional unemployment would A. be considered a natural occurrence in a growing economy B. signal that there are more job leavers than job losers C. definitely signal that the country is in a recession D. signal that the number of discouraged workers is growing

A. be considered a natural occurrence in a growing economy

gross domestic product can be calculate: A. either by valuing the nation's output of goods and services or by valuing the income generated in the production process B. by adding up the income tax returns of all members of the society C. by adding up the value of all intermediate goods used in the economy D. by adding up the personal consumption of all members of society

A. either by valuing the nation's output of goods and services or by valuing the income generated in the production process

Net investment equals: A. gross investment-depreciation B. depreciation+addition to inventories C. savings-depreciation D. gross investments+depreciation

A. gross investment-depreciation

The historical record for the United States for the past 100 years shows A. growth in real GDP per person during most years B. economic growth for about half the years and economic decline for the other half C. continuous economic growth, although at different rates throughout the entire century D. growth until 1970 and then a period of constant per person real GDP

A. growth in real GDP per person during most years

Proprietors' income is a component of which approach to calculating GDP? A. incomes approach B. cost approach C. output approach D. expenditure approach

A. incomes approach

Which of the following is NOT one of the components for computing GDP based upon the income approach? A. investment B. net interest C. corporate profits D. compensation of employees

A. investment

Frictional unemployment is the result of A. normal labor market turnover B. a slowdown in the rate of economic expansion C. technological change or foreign competition D. irresponsible workers with poor work habits

A. normal labor market turnover

If the CPI is 120, this means that A. prices are 20 percent higher than in the reference base period B. prices are 0.12 times higher than in the reference base period C. prices are 120 percent higher than in the reference base period D. the inflation rate must be positive

A. prices are 20 percent higher than in the reference base period

By common definition, a recession occurs when: A. real GDP decreases for at least two successive quarters B. the government budget deficit exceeds the national debt C. the international deficit worsens for at least two successive quarters D. the inflation rate exceeds 3.5 percent

A. real GDP decrease for at least two successive quarters

According to the Economic Times, Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has average 7 percent growth in GDP since 1997. Based on this story, it is most likely that the slowdown reflects a A. temporary business cycle slowdown B. shrinkage of India's economy C. temporary business cycle expansion D. change to India's long-term economic growth rate

A. temporary business cycle slowdown

Over the past fifty years, there has been substantial closure of the gap in real GDP per person between which of the following groups of countries A. the United States and Japan B. Central and South America and Africa C. Over the past 100 years, on the average real GDP per person grew 2 percent per year D. the average annual growth rate of real GDP per person in the United States was rapid during World War 2

A. the United States and Japan

Which of the following statements regarding U.S. economic growth is NOT correct? A. the growth rate of real GDP per person accelerated between 1973 to 1984 B. in the 1930s, real GDP fell well below its trend C. Over the past 100 years, on the average real GDP per person grew 2 percent a year D. The average annual growth rate of real GDP per person in the United States was rapid during World War 2

A. the growth rate of real GDP per person accelerated between 1973 to 1984

Which of the following people would be considered unemployed by the Bureau of Labor Statistics? 1. Mrs. X retires from her job at the age of 55 and does not look for another job 2. Mr. Y was laid off from his job as a welder, but expects to be rehired in 8 months A. 1 only B. 2 only C. both 1 and 2 D. neither 1 or 2

B

Which of the following is CORRECT? A. aggregate expenditure equals GDP but is less than aggregate income B. Aggregate income, aggregate expenditure and GDP are all equal C. Aggregate income is greater than GDP but equal to aggregate expenditure D. Aggregate income is greater than aggregate expenditure but equal to GDP

B. Aggregate income, aggregate expenditure and GDP are all equal

The use of purchasing power parity prices A. increase the amount by which U.S. GDP is larger than that of any other nation B. accounts for differences in the prices of the same goods in different countries when measuring real GDP C. weakens the validity of cross country comparisons of economic welfare D. decreases the real GDP per person statistics published by the international monetary fund

B. accounts for differences in the prices of the same goods in different countries when measuring real GDP

In the circular flow of economic activity: A. aggregate expenditure measures the dollar value of purchases of factors B. aggregate expenditure measures the dollar value of purchases of final goods and services C. aggregate expenditure is measure as it moves through the financial markets D. aggregate income measures the dollar value of labor resources only

B. aggregate expenditure measures the dollar value of purchases of final goods and services.

The nation's structural unemployment will increase when A. there is influx into the labor market of new college graduates B. an increase in textile imports displaces older textile workers who do not have the skills necessary to find new jobs C. there is an increase in post-Christmas layoffs of workers D. bad economic policies send the economy into a recession

B. an increase in textile imports displaces older textile workers who do not have the skills necessary to find new jobs

The growth rate of real GDP per person in the United States has A. has consistently been 2 percent per decade over the past century B. averaged approximately 2 percent per year over the past century C. has been the highest in the world over the past 5 decades D. has increased every year over the past century

B. averaged approximately 2 percent per year over the past century

Suppose an economy has some inflation. Then, after a base year, the value of real GDP will: A. not be different from nominal GDP B. be greater than nominal GDP C. will be approximately half the value of nominal GDP D. be less than nominal GDP

B. be greater than nominal GDP

When economists speak of full employment, they refer to the case in which the sum of frictional and structural unemployment is A. equal to zero B. equal to the actual amount of unemployment C. greater than the level of deficient demand unemployment D. falling over time

B. equal to the actual amount of unemployment

We are interested in long-term growth primarily because it brings A. lower price levels B. higher standards of living C. trade wars with our trading partners D. higher price levels

B. higher standards of living

The natural unemployment rate A. is equal to cyclical unemployment B. is the unemployment rate that occurs when the economy is at full employment C. is a constant figure of about 4-percent D. fluctuates with the rate of inflation

B. is the unemployment rate that occurs when the economy is at full employment

The historical record for the United States over the last 100 years shows A. growth until 1970 and then a period of constant per person real GDP B. mostly positive economic growth, though the Great Depression caused actual GDP to dip well below potential GDP C. economic growth for about half the years and economic decline for the other half D. continuous economic growth for each year, although at different rates throughout the entire country

B. mostly positive economic growth, though the Great Depression caused actual GDP to dip well below potential GDP

Which of the following best fits the definition of unemployed? A. working less than a full work week B. not working but looking for a job C. not working and not looking for work D. retired and not working

B. not working but looking for a job

Which of the following is used to calculate the standard of living? A. the one-third rule B. real GDP/population C. (real GDP in current year-real GDP in previous year)/(real GDP in previous year)x100 D. real GDP/aggregate hours

B. real GDP/population

The unemployment rate is found by dividing the number of unemployed people by the A. number of the working-age population, and multiplying by 100 B. sum of working individuals plus unemployed workers and multiplying by 100 C. number in the labor force, and dividing by 100 D. number of working individuals and multiplying by 100

B. sum of working individuals plus unemployed workers, and multiplying by 100

Looking at inflation rates in the United States since the 1970s we see that A. the inflation rate increased with increased growth of the 1990s B. the 1970s experienced the highest inflation rates C. inflation fell the most during the 1970s productivity slowdown D. the highest inflation rates were the double digits during the 1990s

B. the 1970s experienced the highest inflation rates

Potential GDP is A. always different from real GDP B. the maximum amount of GDP that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation C. another name for real GDP D. the level of GDP not adjusted for price changes

B. the maximum amount of GDP that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation

The unemployment rate is measured as A. an indicator to determine long-term economic growth B. the percentage of people in the labor force who are unemployed C. an indicator for potential inflation D. the number of people that want to work but cannot find jobs out of the entire population

B. the percentage of people in the labor force who are unemployed

Hyperinflation is defined as A. declining inflation rates B. very high inflation rates C. very low inflation rates D. rising but low inflation rates

B. very high inflation rates

If the CPI basket of goods cost $200 in the reference base period and $450 in a later year, the CPI in the later year equals A. 450 B. 300 C. 225 D. 250

C. 225

Convergent of the income gap has been most dramatic between A. South America and the United States B. African and the United States C. Hong Kong and the United States D. The central European countries and the United States

C. Hong Kong and the United States

According to Economic times, Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Which of the following is TRUE? A. India's PPF has been shifting leftward since 1997 B. India's PPF has not shifted since 1997 C. India's PPF has been shifting rightward since 1997 D. India has been moving from a pint within its PPF to points beyond its PPF

C. India's PPF has been shifting rightward since 1997

during the 1990s, which of the following experienced the slowest rate of growth in real GDP per person? A. United States B.The big 4 nations of Europe C. Japan D. Canada

C. Japan

Which of the following people would be counted as is employed in the Current Population Survey? A. Misty, who just quit her job to return full-time to school B. April, who just graduated from college and is looking for work C. Rich, who is working 20 hours a week but wants a full-time job D. Jason, who was laid off from work less than 6 months ago but who has stopped looking for work

C. Rich, who is working 20 hours a week but wants a full-time job

The best definition for economic growth is A. a sustained expansion of production possibilities measured as the increase in nominal GDP over a given period B. a sustained expansion of consumption goods over a given period C. a sustained expansion of production possibilities measured as the increase in real GDP over a given period D. a sustained expansion of production goods over a given period

C. a sustained expansion of production possibilities measured as the increase in real GDP over a given period

Which type of unemployment increases during a recession? A.the natural unemployment rate B. structural unemployment C. cyclical unemployment D. frictional unemployment

C. cyclical unemployment

Depreciation is defined as the: A. increase in stock of capital due to investment by firms B. decrease in the stock of capital due to investment by firms C. decrease in the stock of capital due to wear and tear D. increase in the stock of capital due to wear and tear

C. decrease in the stock of capital due to wear and tear

A person quits her job in order to spend time looking for a better-paying job. This type of unemployment is example of A. cyclical unemployment B. structural unemployment C. frictional unemployment D. seasonal unemployment

C. frictional unemployment

When real GDP is.............potential GDP, the unemployment rate is................... the natural unemployment rate A. greater than; greater than B. less than; equal to C. greater than; less than D. equal to; greater than

C. greater than; less than

Which of the following relationships is CORRECT? A. consumption expenditure=net investment-depreciation B. net investment=gross investment+depreciation C. gross investment=net investment+depreciation D. depreciation=gross investment-consumption expenditure

C. gross investment=net investment+depreciation

An increase in exports of goods or services with no change in imports of goods or services: A. decreases GDP B. has no effect on GDP C. increases GDP D. may increase or decrease GDP depending on whether it is the export of goods or the export of services that increased

C. increases GDP

An expansion: A. is defined as a period of negative real GDP growth B. comes just before a trough C. is defined as a period of real GDP increases D. follows a peak

C. is defined as a period of real GDP increases

In calculation GDP, household production is A. included under employee compensation B. included as part of consumption C. not included because there is no market transaction D. ignored because it is not a larger amount

C. not included because there is not market transaction

Frictional unemployment increases when A. discouraged workers drop out of the work force B. workers are replaced by machines and the unemployed workers do not have the skills to perform new jobs C. the number of workers who quit one job to find another increases D. real GDP decreases and the unemployment rate rises

C. the number of workers who quit one job to find another increases

The Consumer Price Index is a measure of the average of the prices paid by ................. for a fixed basket of consumers goods and services A. consumers living in cities with a population greater than 100,000 B. urban wage earners and clerical workers C. urban consumers D. all consumers

C. urban consumers

The labor force participation rate is the percentage of the............. who are in the labor force: A. people under age 65 B. people over age 16 C. working-age population D. population

C. working age population

In 2011 Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. Armenias real GDP per person in 2012 was A. $132 B. $1,413 C. $380 D. $1,545

D. $1,545

If consumption expenditures are $500 million, net investment is $100 million, depreciation equals $5 million, imports are $50 million, exports are $55 million, government expenditure on goods and services is $220 million, and government transfer payments are $20 million, then GDP is: A. $790 million B. $850 million C. $800 million D. $830 million

D. $830 million

Which of the following is included in "compensation of employees" part of the income appraoach to measuring GDP? 1. Wages and Salaries 2. Pension fund contributions 3. Social Security contributions A. 1 only B. 1 and 2 C. 1 and 3 D. 1, 2, and 3

D. 1, 2, and 3

Of the following sequences of price levels, which CORRECTLY represents a 5 percent inflation A. 100, 105, 105, 105 B. 100, 105, 110,115 C. 100, 100, 100, 100 D. 100, 105, 110.25, 115. 76

D. 100, 105, 110.25, 115.76

Suppose a country is producing $20 million of real GDP. If the economy grows at 10 percent per year, approximately how many years will it take for real GDP to grow to $80 million? A. 4 B. 30 C. 7 D. 14

D. 14

Which of the following is true regarding the business cycle? 1. cycles are predictable 2. in each cycle, a peak follows an expansion 3. potential GDP fluctuates around real GDP A. 1 and 2 B. 1 and 3 C. 2 and 3 D. 2 only

D. 2 only

During 2013, the country of Economia had a real GDP of $115 billion and the population was 0.9 billion. In 2012, real GDP was 105 billion and the population was 0.85 billion. Economia's growth rate of real GDP per person is A. 5.88 percent B. 5 percent C. 9.52 percent D. 3.23 percent

D. 3.23 percent

Gross domestic product is the: A. total amount that buyers spent on the final goods and services produced in a country during a specific time B. total amount of income earned in producing the final goods and services in a country during a specific time. C. value of the final goods and services produced in a country during a specific time D. All of the above answers are correct

D. All of the above answers are correct

Of the following Asian countries, which has the lowest level of real GDP per person A. Hong Kong B. Korea C. Singapore D. China

D. China

In the United States, GDP is typically measured: A. weekly B. daily C. monthly D. Quarterly

D. Quarterly

A loaf of bread purchased by one of your instructors would be best described as: A. a used good B. a financial asset C. an intermediate good D. a final good

D. a final good

GDP equals: A. aggregate expenditure B. the value of the aggregate production in a country during a given time period C. aggregate income D. all of the above

D. all of the above

GDP can be computed as the sum of: A. all sales that have taken place in an economy over a period of time B. the total expenditures of consumption, investment, and government expenditure on goods and services over a period of time C. the total expenditures of consumers and business over a period of time D. the total expenditures of consumption, investment, government expenditure on goods and services an net exports over a period of time

D. the total expenditures of consumption, investment, government expenditure on goods and services and net exports over a period of time.

gross domestic product (GDP)

is the total value of all final goods and services produced in the economy during a given year

market basket

a hypothetical set of consumer purchases of goods and services

intermediate goods and services

are goods and services bought from one firm by another firm that are inputs for production of final goods and services

final goods and services

are goods and services sold to the final, or end, user

discouraged workers

are nonworking people who are capable of working but have given up looking for a job given the state of the job market

unit-of-account costs

are the costs arising from the way inflation makes money a less reliable unit of measurement

net exports

are the difference between value of exports and the value of imports

government purchases of goods and services

are total expenditures on goods and services by federal, state, and local governments

efficiency wages

are wages that employers set above the equilibrium wage rate as an incentive for better employee performance

physical capital

consists of human-made resources such as buildings and machines

Keysian Economics

economic slumps are caused by inadequate spending and can be mitigated by government intervention

growth accounting

estimates the contribution of each major factor in the aggregate production function to economic growth

GDP deflator

for a given year is 100 times the ratio of nominal GDP to real GDP in that year

unemployment rate

is the percentage of the total number of people in the labor force who are unemployed

shoe-leather costs

increased costs of transactions caused by inflation

convergence hypothesis

international differences in real GDP per capita tend to narrow over time

GDP per capita

is GDP divided by the size of the population; it is equivalent tot he average GDP per person

aggregate production function

is a hypothetical function that shows how productivity (real GDP per worker) depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology

aggregate price level

is a measure of the overall level of prices in the economy

jobless recovery

is a period in which the real GDP growth rate is positive but the unemployment rate is still rising

technological progress

is an advance in the technical means of the production of goods and services

labor force

is equal to the sum of employment and unemployment

consumer spending

is household spending on goods and services

real income

is income divided by the price level

investment spending

is spending on productive physical capital-sucha s machinery and construction of buildings-and on changes to inventories

total factor productivity

is the amount of output that can be achieved with a given amount of factor inputs

cyclical unemployment

is the deviation of the actual rate of unemployment from the natural rate due to downturns in the business cycle

human capital

is the improvement in labor created by the education and knowledge embodied in the workforce

nominal interest rate

is the interest rate expressed in dollar terms

chained dollars

is the method of calculating changes in real GDP using the average

real interest rate

is the nominal interest rate minus the rate of inflation

employment

is the number of people currently employed in the economy, wither full time or part time

unemployment

is the number of people who are actively looking for work but aren't currently employed

underemployment

is the number of people who work part time because they cannot find full-time jobs

inflation rate

is the percent change per year in a price index-typically the consumer price index

labor force participation rate

is the percentage of the population aged 16 or older that is in the labor force

Business Cycle Peak

the point at which the economy turns from expansion to recession

Business Cycle Trough

the point at which the economy turns from recession to expansion

Business Cycle

the short-run alternation between recessions and expansions

aggregate spending

the sum of consumer spending, investment spending, government purchases of goods and services, and total spending on domestically produced final goods and services in the economy.