Test Two - Economics

Economists believe that changes in investment spending are important for forecasting the business cycle because

Investment is a key determinant of economic growth

National Bureau of Economic Research

Is a non profit research organization that dates business cycles in the US

The natural rate of unemployment

Is associated with the economy's maximum sustainable output rate

GDP includes the value of illegal transactions, which means the level of economic activity in a country is overstated

False

Macroeconomics studies economic activity from the level of one individual or firm

False

The brand of car you buy is a topic of interest for macroeconomics

False

The nominal value of wages explains how much the consumer can pay for goods and services.

False

Unemployment rates differ little by education, age, or ethnic group

False

When an economy has reached a zero unemployment rate, it is said to have reached full employment

False

Arline got a 5% raise while the rate of inflation was 6%. Arlina's standard of living

Fell by about 1%

Dylan quits his job in Topeka, KS and moves to Austin, TX, to get involved in live music. He is unemployed for three months while he looks for a new job. Dylan is frictionally unemployed.

True

Marci is 11. She walks her neighbors' dogs for cash. Her income from this service is probably part of the informal economy

True

The fact of discouraged workers tends to cause the official unemployment rate to understate the actual rate

True

The key to being counted as unemployed by the Bureau of Labor Statistics is to be:

actively seeking work

The largest component of GDP is

consumption expenditure

The mortgage crisis caused a lot of consumers to stop spending money. The decrease in spending led to a decrease in production. Which type of unemployment resulted?

cyclical

Janet is receiving a 5% pay raise. If the rate of inflation is 2%, then Janet's purchasing power is:

rising

Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of employment is

3%

The inflation rate is 4%. Social security payments automatically rise 4%. This adjustment is authorized by an:

Escalator clause

A major appliance is an example of a non durable good

False

A microprocessor purchased by Dell is an example of a final good

False

A recession is always followed by a depression

False

A trough in the business cycle usually means that the economy is operating at capacity

False

An advantage of using GDP per capita to measure the standard of living in a country is that it declines if economic growth results in deterioration of the environment

False

Changes in inventories are NOT included in the calculation of gross private domestic investment

False

Crude oil produced in Nigeria by Exxon-Mobil, a company with HQ in the US, would be included in UD GDP

False

Debtors are hurt more than creditors by inflation

False

Discouraged workers are counted in the labor force

False

Disinflation is a decline in overall prices throughout the country

False

During a recession, firms hire more workers to take advantage of lower wages

False

Full employment is defined as zero employment

False

In the US, if an individual has stopped actively seeking work, he or she is considered to be unemployed

False

Inflation hurts individuals with fixed rate mortgages

False

Leisure time is included in the GDP accounts

False

The consumer price index measures the average changes in the prices received by domestic producers for their output

False

The formula for price change is [(CPI in Current Year / CPI in Original Year) x 100] - 100 = Percent Change in Price

False

When an economy is going through disinflation

Prices are rising at a slowing pace

During the 1970s, when handheld calculators became popular and replaced slide rules in performing computations, workers in the slide rule industry lost their jobs. These workers' unemployment status is:

Structural

______ unemployment is caused by changes in consumer demands or technology

Structural

Investment in structures, equipment, software, and net inventory is known as:

gross private domestic investment

A criticism of GDP per capita is that it

might not fully reflect the standard of living of the typical citizen

A politician who called a rate of inflation of 15% hyperinflation would be criticized by an economist for using inaccurate terminology

True

An American corporation builds a factory in a poverty stricken country. The company hires lots of local workers but releases chemical toxins into the air during the production process. A US citizen visiting this country suggests that living standards in the country may have declined as a result of the new factory but that this information will not be captured in the countries GDP figures

True

Because GDP excludes nonmarket transactions, the level of economic activity in a country is understated

True

Child care provided by a nanny is not included in the GDP if the parents pay the nanny under the table

True

GDP per capita is found by dividing GDP by population

True

Gross domestic investment is a key factor behind economic growth in the US

True

Marco is an undocumented worker who follows the harvest, picking vegetables. His income from this work is probably part of the informal economy

True

People often resort to bartering for goods and services during periods of hyperinflation because money is virtually worthless

True

The main idea of a circular flow diagram is that every dollar spent in an economy becomes a dollar of income to someone else

True

The phases of the business cycle vary in duration and in intensity

True

Underemployed workers have the desire and ability to contribute significantly more to GDP but cannot do it in their present job

True

Scott, who has a Ph.D. in physics, waits on tables for a living. Scott is categorized as:

Underemployed

If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals

$140

There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is the size of Markestan's labor force?

10 million

If the labor force is 20 million and the total employed is 18 million, what is the unemployment rate?

10%

The nation of Workovia has a population of 15 million, of whom 10 million are in the labor force and 9 million are working. Workovia's unemployment rate is

10%

Last year the consumer price index (CPI) was 115 and this year's CPI is 125. The rate of inflation is:

8.7%

An economy has historically grown at a rate of 2.25%. Currently, this economy is growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, and the monetary authorities are concerned that inflation may increase. This economy is probably in the _________ stage of the business cycle

Expansion

Unemployed workers who voluntarily quit their job to search for a better position are categorized as _____ unemployed

Frictionally

Dave brags to his dad that his $45,000 starting salary as a computer programmer is much higher than his dads $28,000 starting salary some years ago. If the consumer price index the year Dave begins work is 180.5 and the year his dad started work it was 110.8, Dave is

Mistaken. Adjusting for price changes, his salary is less than his dads salary

Alternating periods of macroeconomic expansion and contraction are known as

business cycles

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the

circular flow diagram

Net exports equal

exports minus imports

At one time, Pittsburgh, Pennsylvania, was known for its poor air quality. Locals said that a man wearing a white shirt when he walked into the city would have a black shirt when he left it. Since that time, the city has greatly reduced its air and water pollution. As a result of cleaner air and water

the standard of living of the citizens of Pittsburgh increased, even though the improvement in the environment was not reflected in its GDP

______ unemployment is the result of changes in the business cycle

Cyclical

Last year, Megan's salary was $65,000. The CPI increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be?

$68,578

(Table) According to the table, net exports of goods and services are equal to

-505.4 billion

If the years consumer price index is 214 and last years was 209, then the rate of inflation is

2.4%

If a car is produced in Detroit in 2013 but not sold until 2014, it should be included in _____ GDP, and its value should be counted in _____

2013's; inventory changes

The ____ is (are) equal to the total market value of all final goods and services produced in the US

GDP

Suppose the Department of Homeland Security purchases a computer to improve the productivity of its workers. Which spending category in the national income and product accounts would this purchase fall under?

Government

____ are almost 70% of GDP, while _____ are about 15% of GDP

Personal consumption expenditures; gross private domestic investments

The high point of a business cycle is called the

Peak

A benefit of using GDP per capita instead of GDP is that it:

Takes into account the size of the population when measuring the value of the goods and services a country produces

A business cycle is

The periodic fluctuation of economic activity

From 1999 to 2002, the Japanese inflation rates were, respectively, - 0.3%, - 0.6%, - 0.7%, and - 0.7%. During this time, the Japanese economy experienced:

deflation

For your purchasing power to stay the same, your wages must:

increase at the same rate as inflation

Other things equal, if a recession gets worse, the number of discouraged workers ____, and the number of those in the labor force ____

increases, decreases

Since the invention of automatic teller machines, many bank tellers have lost their job. This is an example of ______ unemployment.

structural