Midterm - ECON 202

Unemployment

The natural rate of unemployment is the unemployment that occurs as a normal part of the functioning economy. It is the sum of frictional unemployment and structural unemployment

Structural unemployment

The result of changes in the industrial structure of the U.S. economy

Frictional unemployment

The result of short-run job/skill matching problems

Opportunity Cost

1. Human wants are unlimited but resources are not 2. All decisions involve trade-offs 3. Opportunity cost is the best alternative that we give up when we make a choice or a decision

labor force

= employed + unemployed

Total adult population

= labor force + not in labor force

Labor force participation rate

= labor force / total adult population (which is labor force + not in labor force) * 100%

Unemployment rate

= unemployed / the labor force - unemployed / (unemployed + employed)

Cyclical unenployment

Due to a reduction in output during economic recessions and depressions

As shown in class, which is the first and so far the only country in the world to have officially adopted gross national happiness (instead of GDP) as the main development indicator? a) China b) Bhutan c) Cuba d) Bangladesh e) Venezuela

b) Bhutan

Per capita gross national income (GNI) decreases when a) GNI and the population increase at the same rate b) GNI does not change and the population increases c) GNI and the population decrease at the same rate d) GNI increases and the population does not change

b) GNI does not change and the population increases

The value of what Fuyao Glass (a Chinese company) produces in Moraine, Ohio is included in China's ___ and in the United States' a) GDP; GNP b) GNP; GDP c) GNP; GNP d) GDP; GDP

b) GNP; GDP

Who is considered as the founding father of macroeconomics? a) Bill Clinton b) John Maynard Keynes c) Adam Smith d) Karl Marx e) George W. Bush

b) John Maynard Keynes

A prolonged and deep recession is called a) a business cycle b) a depression c) a stagflation d) hyperinflation

b) a depression

There is a ____ relationship between disposable income and consumption. a) a negative b) a positive c) either a negative or a positive d) an inverse

b) a positive

Real GDP is gross domestic product measured a) in the prices of a base year b) in current dollars c) at a constant output level but at current prices d) as the difference between the current year's GDP and last year's GDP

a) in the prices of a base year

Mike has just graduated from college and is now looking for a job but has not yet found one. This causes the unemployment rate ___ a) increase; increase b) stay the same; stay the same c) increase; decrease d) increase; stay the same

a) increase; increase

GDP

1. Only final goods and services are included in the calculation of GDP. All intermediate goods and services need to be excluded in order to avoid "double-counting" 2. Nominal vs. Real GDP Nominal GDP is measured in current prices while real GDP is measured in constant prices (base year prices). Therefore, real GDP is corrected for inflation (or deflation) 3. There are some limitations of using GDP as a measure of happiness or well-being or overall economic activities GDP does not take into account a number of important indicators of social welfare such as value of leisure, value of unpaid housework, and value of other nonmarket activities. in addition, GDP accounting rules do not adjust for production that pollutes the environment. Also, the underground economy is not reflected in the official GDP.

Production Possibility Frontier

1. PPF is a graph that allows all of the combinations of goods and services that can be produced if all of society's resources are used efficiently 2. PPF curve has a negative slope, which indicates a trade-off between producing one good or another 3. Points inside of the curve mean that resources are either unemployed or used inefficiently 4. Points outside the curve are desirable but currently unattainable 5. Outward shifts of the curve represent economic growth

Inflation/Deflation

1. The GDP deflator is the broadest measure of prices, including those of consumption goods and services as well as investment goods for business

Consumer Price Index (CPI)

Based on a bundle of goods and services meant to represent the "market basket" purchased monthly by the typical urban consumer. CPI uses fixed weights, it tends to overestimate inflation compared to GDP deflator

Calculate CPI for any year

CPI year x = cost of market basket year x / cost of market basket base year * 100% or rate of inflation (between year x and year y) - CPI year y - CPI year x / CPI year x * 100%

Costs of unemployment

Costs of unemployment include a reduction in total output and associated economic hardship, and as well as a number of societal problems and personal ills Official unemployment rate ( as calculated and reported by the BLS) tends to underestimate the real/true unemployment rate. (For instance, the official rate does not include the underemployed and discouraged workers).

Producer Price Indexes (PPI)

Indexes of prices producers receive for products in all stages of the production process

Costs of expected inflation

Inflation even expected, could still change the distribution of income Expected inflation creates administrative costs and inefficiencies from changing price tags, reprinting catalogues, and making more frequent ATM visits

Costs of unexpected inflation (2)

Money lenders (creditors) and money borrowers (debtors) are affected differently by unexpected inflation. Inflation that is higher than expected benefits debtors (and hurts creditors); inflation that is lower than expected benefits creditors (and hurts debtors) Unanticipated inflation could result in increased risk and slower economic growth

GDP deflator

The broadest measure of prices, including those of consumption goods and services as well as investment goods for businesses

Assume that apples cost $0.50 in 2012 and $1 in 2020, whereas oranges cost $1 in 2012 and $1.50 in 2020. If 8 apples were produced in 2012 and 5 in 2020, whereas 4 oranges were produced in 2012 and 5 in 2020, then real GDP (in 2012 prices) in 2020 was: a) $9.50 b) $14 c) $6.50 d) $11 e) None of the above

a) $9.50

According to the table above, the value added to the grocer is a) 0.10 b) 0.35 c) 0.65 d) 0.75 e) none of the above

a) 0.10

The slope of the line between Points A and B is a) 0.4 b) 1.2 c) 2.4 d) indeterminate from this information e) none of the above

a) 0.4

The GDP deflator in year 2 us 110 using year 1 as a base year. This means that, on average, the price of goods and services is a) 10% higher in year 2 than in year 1 b) 5% higher in year 1 than in year 2 c) 110% higher in year 2 than in year 1 d) 110% higher in year 1 than in year 2 e) none of the above

a) 10% higher in year 2 than in year 1

In Macroland, nominal GDP is $20 million and real GDP is $100 million. The GDP deflator is a) 20 b) 80 c) 120 d) 500 e) none of the above

a) 20

The broadest-based price index available is the a) GDP deflator b) producer price index (PPI) c) consumer price index (CPI) d) wholesale price index e) federal reserve index

a) GDP deflator

Which of the following is a topic studied in macroeconomics? a) Gross domestic product b) The wage of auto workers c) The price of IBM computers d) The amount of pizza produced e) All of the above

a) Gross domestic product

Inflation is expected to run at 10% this year. Instead, it slows to 3%. This change will hurt a) debtors b) creditors c) creditors and debtors equally; because it's the same for both parties d) neither; because inflation is over

a) debtors

When an individual quits his/her job and decides to stay at home for a while, the labor-force participation rate a) decreases b) increases c) stays the same d) may increase or decrease, depending on the length of time he/she stays at home

a) decreases

When an economics professor quits his/her job at a university and starts looking for a better job in another university, she/he is a) frictionally unemployed b) structually unemployed c) cyclically unemployed d) naturally unemployed e) none of the above

a) frictionally unemployed frictional unemployment - results from short run/skill matching problems

Bob is unemployed if a) he is temporarily laid off b) he is not looking for a job c) he has looked for a job for two months and then quit looking d) both A and C are correct

a) he is temporarily laid off requirements - 1. is not working 2. is available for work 3. has made specific efforts to look for work during previous 4 weeks

You own the Star Wars six DVD set. The opportunity cost of watching these DVDs for the second time a) is the value of the alternative use of the time you spend watching the DVDs b) is one-half the cost of the DVDs, as this is the second time you have watched it c) is zero d) cannot be calculated

a) is the value of the alternative use of time you spend watching the DVDs (all decisions involve trade-offs

If unemployment rate in the U.S. decreases from 10% to 7%, the U.S. economy will a) move closer to a point on the production possibility frontier (PPF) b) move away from the PPF towards the origin c) remain on the PPF d) remain on the origin

a) move closer to a point on the PPF

If the unemployment rate in the US decreases from 12% to 8%, the economy will a) move closer to a point on the production possibility frontier (PPF) b) move away from production possibility frontier (PPF) to the origin c) remain on the PPF d) remain on the origin e) None of the above is correct

a) move closer to a point on the production possibility frontier (PPF)

An improvement in technology will cause the a) production possibility frontier to shift outward b) production possibility frontier to shift outward c) economy to move down the production possibility frontier d) economy to move closer to its production possibility frontier

a) production possibility frontier to shift outward

Since 1970, the U.S. economy has experienced six a) recessions b) period of stagflation c) deflations d) periods of high inflations

a) recessions

According to Keynes, the economy a) requires fine-tuning to reach full employment b) is self-correcting c) will never be at full employment d) has sticky prices in every industry

a) requires fine-tuning to reach full employment

Labor-saving robots are introduced into a car assembly line. The resulting unemployment is a) mechanical b) structural c) seasonal d) frictional e) cyclical

a) structural structural unemployment- results from changes in the industrial structure in the U.S. economy

Which of the following is NOT a topic studied in macroeconomics? a) the price of donuts b) the growth of real GDP c) the inflation rate d) the unemployment rate e) all of the above are macroeconomic topics

a) the price of donuts

"Double counting" in the calculation of GDP occurs when a) the value of intermediate inputs - such as flour for baking pastries - is included b) gross investment is not adjusted for losses due to depreciation c) the expenditure approach equals the income approach d) economists play hopscotch e) None of the above is correct

a) the value of intermediate inputs - such as flour for baking pastries - is included

Unemployment implied that in the labor market a) there is an excess supply of labor b) there is an excess demand of labor c) there are too few workers for the jobs available d) quantity demanded of labor exceeds quantity supplied e) quantity demanded for labor equates quantity supplied

a) there is an excess supply of labor

Diane lost her job and immediately started looking for another job. As a result the a) unemployment rate increases b) labor force increases c) labor force decreases d) unemployment rate remains constant e) none of the above

a) unemployment rate increases

Assume that total output consists of 5 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is: a) 11 pieces of fruit b) $8 c) $10 d) $7

b) $8

If Mr. Garrison is paid an interest rate of 4% on his savings, but the inflation rate is 7%, the real interest rate Mr. Garrison earns is a) 4% b) -3% c) -7% d) 28% e) none of the above

b) -3% 4% - 7%= -3%

employed - 14,000 people unemployed - 3,000 people not in the labor force - 4,000 people The labor force equals a) 14,000 people b) 17,000 people c) 18,000 people d) 21,000 people e) none of the above

b) 17, 000 people labor force = employed + unemployed

The unemployment rate in Macroland was approximately employed - 95 million unemployed - 10 million not in the labor force - 50 million a) 5% b) 9.5% c) 10.5% d) 13.3% e) none of the above

b) 9.5% Unemployed/LF *100%

Which of the curves or lines has a slope that is first positive and then negative a) A b) B c) C d) D e) none of the above

b) B

The concept of opportunity cost a) is relevant only to economics b) can be applied to the analysis of any decision-making process c) applied to consumers and not to firms d) refers only to actual payments and incomes

b) can be applied to the analysis of any decision-making process

Real GDP means the value if goods and services measured in a) current prices b) constant prices c) international prices d) average prices

b) constant prices

The index used most often to measure inflation is the a) producer price index b) consumer price index c) wholesale price index d) GDP deflator e) Big Mac index

b) consumer price index

Before the Great Depression, the classical economists assumed that wages were a) flexible; not flexible b) flexible; flexible c) not flexible; not flexible d) not flexible; flexible

b) flexible; flexible

You own the Godfather DVD set. The opportunity cost of watching these DVDs for the fifth time a) is one-fifth the cost of the DVDs, as this is the fifth time you have watched them b) is the value of the alternative use of the time you spend watching the DVDs c) is zero, since you own them and you already remember everything in these movies d) must be the same as the opportunity cost of watching them for the first time e) cannot be calculated

b) is the value of the alternative use of the time you spend watching the DVDs

In which of the following conditions is the inflation rate likely to fall and the unemployment rate likely to rise? a) hyperinflation b) recession c) boom d) stagflation

b) recession

The reason that opportunity costs arise is that a) an economy relies only on money to facilitate exchange of goods and services b) resources are scare c) there are no alternative decisions that could be made d) people have limited wants e) none of the above

b) resources are scarce

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are a) administered prices b) sticky prices c) regulatory prices d) market prices e) none of the above

b) sticky prices

Which of the following is included in both the U.S. GDP and GNP a) The value of all cars produced by Ford in Mexico b) The value of all cars produced by General Motors in the U.S. c) The value of all cars produced by Toyota in the U.S. d) The value of cars produced by Nissan in Japan and U.S.

b) the value of all cars produced by General Motors in the U.S.

GDP includes a) the value of all intermediate goods and services b) the value of all final goods and services c) the value of both intermediate and final goods and services d) the value of all transactions

b) the value of all final goods and services

It has become conventional to classify an economic downturn as a recession when aggregate output declines for a) three consecutive quarters b) two consecutive quarters c) a year d) six consecutive quarters

b) two consecutive quarters

Assume year 2012 is the base year and that apples cost $1.50 each in 2012 and $1 each in 2020, while oranges cost $0.50 each in 2012 and $1 each in 2020. If 4 apples were produced in 2012 and 6 in 2020, while 9 oranges were produced in 2012 and 10 in 2020, then real GDP (in 2012 prices) in 2020 was: a) $ 10.50 b) $13 c) $14 d) $16 e) none of the above

c) $14

Based on the above information, real 2021 GDP in 2000 prices was: a) $275 billion b) $350 billion c) $400 billion d) $425 billion e) $500 billion

c) $400 billion

According to the table above, the contribution to the GDP from the production of a load of bread a) 1.95 b) 1.20 c) 0.75 d) 0.65 e) 0.10

c) 0.75

Real GDP in a particular year was $3,847 while nominal GDP for the same year was $4,527. Then, the GDP must have been approximately a) 8.5 b) 1.25 c) 117.7 d) 84.98 e) none of the above

c) 117.7

If nominal GDP is $8 trillion and real GDP is $6 trillion, the GDP deflator is a) 48 b) 75 c) 133.33 d) 480 e) none of the above

c) 133.33

If the price index in period 2 is 109 and the price index in period 3 is 125, the rate of inflation between period 2 and period 3 is a) 16% b) 9% c) 14.7% d) 8.7% e) none of the above

c) 14.7%

employed - 14,000 people unemployed - 3,000 people not in the labor force - 4,000 people The unemployment rate is a) 4.9% b) 25.0% c) 17.6% d) 16.7% e) 14.3%

c) 17.6% unemployment rate = unemployment/labor force * 100%

The labor force participation rate in Macroland was approximately employed - 95 million unemployed - 10 million not in the labor force - 50 million a) 90.5% b) 66.7% c) 67.7% d) 61.3% e) none of the above

c) 67.7% LF/ TAP * 100%

Which of the curves or lines has a zero slope throughout? a) A b) B c) C d) D e) none of the above

c) C

The value of what KFC produces in Japan is included in the U.S. ________ and in the Japanese ________. a) GDP; GDP b) GNP; GNP c) GNP; GDP d) GDP; GNP

c) GNP; GDP

Which of the following would be counted in 2020's GDP a) The value of a loan you take in 2020 b) The value of a TV that would be produced in 2015 but not sold until 2020 c) The bonus check a stockbroker gets from his/her company in 2020 d) The value of a bond sold by the federal government in 2020 e) All of the above would be counted in 2020's GDP

c) The bonus check a stockbroker gets from his/her company in 2020

Which of the following is a good or service counted in GDP a) tires Ford buys to put on a car b) a used tire you buy for your personal car c) a new tire you buy for your personal car d) used tires bought by used car dealer to out on a car on his lot

c) a new tire you buy for your personal car

In the U.S., the single largest expenditure component in GDP is a) government spending b) investent c) consumption d) net exports

c) consumption

In the US, the single largest expenditure component in GDP is a) imports from Asia including China and Japan b) federal government spending and borrowing c) consumption d) investment in real estate

c) consumption

The sum of frictional and structural unemployment is sometimes thought of as a) frictional unemployment b) natural unemployment c) cyclical unemployment d) structural unemployment

c) cyclical unemployment cyclical unemployment - results from changes in output during economic recessions and depressions

Economics is the study of a) how to invest in the stock market b) the role of money in markets c) how society uses limited resources d) how government officials decide which goods and services are produced

c) how society uses limited resources

An increase in the overall price level is known as a) deflation b) recession c) inflation d) stagflation

c) inflation

According to Classical economists, the economy a) requires fine-tuning to reach full employment b) has sticky prices in many industries c) is self-correcting d) will never be at full employment e) all of the above

c) is self-correcting

Gross Domestic Product measured in current dollars is called ____ GDP a) current b) real c) weighted d) inflation-adjusted e) nominal

c) nominal

Inflation is an increase to a) the price of one item b) average income level c) the overall price level d) stagflation

c) overall price level

Nominal GDP was $600 billion in 2006 and $800 billion in 2018. If prices doubled between 2006 and 2018, then: a) nominal GDP in 2006 must have been $300 billion b) real 2006 GDP (in 2006 prices) was $400 billion c) real 2018 GDP (in 2006 prices) was $400 billion d) real 2018 GDP in (2006 prices) was $600 billion e) none of the above

c) real 2018 GDP (in 2006 prices) was $400 billion

According to Keynes, the level of employment is determined by a) wages and prices b) interest rates c) the level of aggregate demand for goods and services d) all of the above e) none of the above

c) the level of aggregate demand for goods and services

Which of the following is NOT included in 2020's US GDP a) the value of a motorcycle produced in the US in 2020 and exported to Japan b) the profit earned in 2020 from selling a stick that you purchased in 2010 c) the value of a motor that is used in the 2020 production of a lawn mower d) the commission earned by a headhunter in 2020 when she locates a job for a client e) All of the above should be included in 2020's GDP

c) the value of a motor that is used in the 2020 production of a lawn mower

The Consumed Price Index went from 110 in 2021 to 121 in 2022. The annual rate of inflation between 2021 and 2022 was a) 12 b) 11 c) 9.1 d) 10 e) none of the above

d) 10% 110 -> 121

If period 1 is the base year, the bundle price of goods in period 1 is $300, and the bundle of price goods in period 2 is $320, the period 2 price index is a) 93.8 b) 106.2 c) 93.3 d) 106.7 e) none of the above

d) 106.7 Price Index for period 2 = (cost of goods in period 2 / cost of base year (period 1)) * 100

You want to make a 10% real return on a loan you are planning to make, and the expected inflation during the period of the loan is 4%. You should charge a nominal interest rate of a) 6% b) -6% c) 10% d) 14% e) none of the above

d) 14% real interest rate (rate of return) - nominal interest rate - inflation rate nominal interest rate = 10% (real interest rate) + 4% (inflation rate) = 14%

The GDP deflator in year 2 was 115 using year 1 as the base year. This means that, on average, the price of goods and services is a) 10% higher in year 1 than in year 2 b) 5% higher in year 1 than in year 2 c) 115% higher in year 2 than in year 1 d) 15% higher in year 2 than in year 1 e) none of the above

d) 15% higher in year 2 than in year 1

Since 1970, the U.S. economy has experienced ___ recessions a) 2 b) 4 c) 5 d) 6 e) 7

d) 6

employed - 14,000 people unemployed - 3,000 people not in the labor force - 4,000 people The labor-force participation is a) 75.0% b) 66.7% c) 77.8% d) 81.0% e) 91.0%

d) 81.0% labor force participation rate = labor force/ total adult population (which is labor force + not in labor force) * 100%

Which of the following is an example of a final good or service? a) Wheat a bakery purchases to make bread b) Coffee beans Starbucks purchases to make coffee c) Lumber purchases by a construction company to use in building houses d) A computer purchases by Federal Express to track shipments e) None of the above is an example of a final good or service

d) A computer purchased by Federal Express to track shipments

A decrease in unemployment may be represented by the movement from a) B to A b) B to D c) A to C d) C to D

d) C to D

Which of the curves or lines has an infinite slope throughout? a) A b) B c) C d) D e) None of the above

d) D

Which of the following is NOT an opportunity cost of attending college? a) The tuition you pay b) The income you could have earned if you didn't attend college c) The alternative uses of the time you spend studying d) The cost of the food that you consume while attending college

d) The cost of the food that you consume while you are attending college

The economy moves from Point A to Point D. This could be explained by a) a reduction in unemployment b) an improvement in technology c) an increase in economic growth d) a change in society's preferences for motorcycles versus hybrid cars e) none of the above

d) a change in society's preferences for motorcycles versus hybrid vehicles

GDP is not a perfect measure of social welfare and the society;s economic well-being because a) it does not say anything about the distribution of income b) GDP accounting rules donot adjust for production that causes negative externalities c) it does not include all economic activities in the economy d) all of the above e) None of the above is correct

d) all of the above

Unemployment implies in the labor market a) quantity supplied of labor exceeds quantity demanded b) there are not enough jobs for everyone who wants one c)there is a surplus of workers d) all of the above e) none of the above is correct

d) all of the above

For you to be considered out of the labor force, you can be a) a full-time student b) a full time volunteer c) a full-time retiree d) any of the above e) none of the above

d) any of the above

A period during which aggregate output rises is known as a(n) a) recession b) inflation c) hyperinflation d) expansion

d) expansion

Suppose the economy suffers a high rate of unemployment. According to Keynesian economists, the government should increase employment by a) decreasing money supply b) balancing the budget c) not doing anything d) increasing government spending

d) increasing government spending

Discouraged workers a) are considered cyclically unemployed b) considered structurally unemployed c) considered frictionally unemployed d) not considered as part of the labor force

d) not considered as part of the labor force

Nominal GDP was $180 billion in 2006 and $60 billion in 2018. If prices tripled between 2006 and 2018, then: a) real 2006 GDP (2006 prices) was $60 billion b) real 2018 GDP (2006 prices) was $180 billion c) real 2018 GDP (2006 prices) was $120 billion d) real 2018 GDP (2006 prices) was $20 billion e) none of the above are correct

d) real 2018 GDP (2006 prices) was $20 billion

Unemployment generally ____ during recessions and ____ during expansions a) falls; rises b) falls; falls c) rises; rises d) rises; falls

d) rises; falls

The demand for auto mechanics increased in the summer of 2019, but the starting wages paid to auto mechanics were still the same at the end of 2019. This is an example of a a) price control b) flexible price c) highly regarded market d) sticky pricey price

d) sticky price

The total value added in the table above is the same as a) the value of the wheat before the miller turned it into flour b) the retail value of the load of bread minus the wholesale value of the bread c) the sum of all sales transactions d) the final retail price of the loaf of bread e) the wholesale value of the loaf of bread plus the final market value of the bread

d) the final retail price of the loaf of bread

The point where only motorcycles are produced is a) A b) B c) C d) D e) E

e) E

Which point cannot be produced with the current state of technology? a) A b) C c) D d) E e) F

e) F

Which of the following would be counted in 2021's GDP? a) The value of Amazon stock you bought in 2021 b) The value of a 2015 Ram 1500 truck sold in 2021 c) The 2021 salary of a real estate agent for selling houses built in 2011 d) All of the above should be counted in 2021's GDP e) None of the above should be counted in 2021's GDP

e) None of the above should be counted in 2021's GDP

Inflation and unemployment a) are the focus of normative economics b) are a focus of positive economics c) are a focus of institutional economics d) are a focus of microeconomics e) area focus of macroeconomics

e) are a focus of macroeconomics

Studying how Joshua allocates his time between school and video games is an example of a) macroeconomics b) individual economics c) descriptive economics d) welfare economics e) microeconomics

e) microeconomics