Ch. 6 ~ Economic Performance

consumer price index (CPI)

is a measure of the average change over time for the prices paid for an average basket of consumer goods and services, such as food, transportation, and medical services

deflation

is a negative inflation rate

GDP deflator

is a price index that is used to adjust the nominal GDP to find real GDP; the deflator measures the average prices of all finished goods and services produced within a country's borders over time

income redistribution

is an economic policy that is intended to smooth the dispersal of income or wealth in society through a direct or indirect shifting of income from the rich to the poor

demand-pull inflation

is inflation that occurs when aggregate demand for goods and services exceeds aggregate supply

poverty rate

is the percentage of people who are subsisting in poverty, indicating that they are earning below the amount of money considered essential by the federal government to have a basic standard of living

unemployment

is when an individual, who is contributor to the labor force and is actively searching for employment, is unable to find a job

regional unemployment

is when the industry that certain regions, states, or countries are dependent on declines from lack of demand and unemployment occurs throughout the given area

which of the following represents an increase in labor productivity within a country

GDP increased from 200 billion dollars to 400 billion dollars, while labor hours increased from 50 million to 75 million

cyclical unemployment

is a type of unemployment associated with the highs and lows of the business cycle. it happens during the contraction phase of the business cycle. the decreased demand for goods and services during the contraction causes businesses to lay off employees to stay profitable

frictional unemployment

is a type of unemployment when workers are in between jobs

contraction

economic growth deteriorates and slows down in this part of the business cycle, unemployment increases, and household spending declines. it begins at the peak and ends in the trough

in a hypothetical country, nominal GDP has increased by 5%. which of the following must be true

either price, economic output, or both has increased

net exports

equal to the value of all goods an economy exports minus the value of all goods an economy imports

In a hypothetical economy, current inflation-adjusted economic output is rising and is expected to continue rising in the coming months. This economy is currently in the

expansion stage of the business cycle

You overhear a classmate making the claim that productivity-enhancing technological improvements will immediately benefit everyone in the economy. This statement is

false since technological improvements can lead to certain jobs becoming obsolete

the unemployment rate fluctuates as economies move through various stages of a recurring business cycle. which of the following is the primary cause of this fluctuation

fluctuating cyclical unemployment

which of the following is used to calculate the income thresholds for the US official measure of poverty

food costs

cost-push inflation

form of inflation that occurs when overall prices rise (inflation) due to increases in the cost of production

which of the following goods would be included in the calculation of gross domestic product

french fries sold to customers at a restaurant notebooks sold to students

natural unemployment is the sum of

frictional and structural unemployment

unemployment associated with workers who are between jobs

frictional unemployment

which type of unemployment features members of the work force who are in the process of transitioning to new employment

frictional unemployment

intermediate goods

goods used for resale or as inputs in the production of finished goods

in addition to low economic output, recessions are usually characterized by

high unemployment

income distribution

how a country's total GDP is distributed among the working population

A tiny fictional country produces a single good. In 2010, the country produced a total of 5,000 units at a price of $2 per unit. In 2011, the country produced a total of of 6,000 units at a price of $3 per unit. Using 2010 as the base year, what was this country's real GDP in 2011

$12,000

The Supplemental Poverty Measure differs from the official poverty measure in a number of ways. What is one particular difference between the two

The Supplemental Poverty Measure includes nonmonetary benefits like housing subsidies and tax credits, while the official poverty measure does not.

which of the following individuals would be considered unemployed when calculating the unemployment rate

a 22-year-old teacher who recently lost his job and is currently looking for a new one

madicare

a US federal government healthcare insurance program for people 65 years or older and those with certain disabilities under age 65

disinflation

a decreasing inflation rate

social security retirement benefits

a federal government program that provides monthly payments to individuals who are at least 62 years of age and have paid into the system for 10 years or more

medicaid

a government program that provides health coverage based on financial need, regardless of age

which of the following illustrates an increase in human capital

a graphic designer attends a week-long seminar and learns advanced skills she can apply to her work

which of the following products would be classified as a finished good

a hamburger sold at a fast food restaurant

which of the following would be considered investment in the calculation of GDP

a manufacturing firm builds a new plant in mexico

depression

a more severe version of a recession with a more sustained and pronounced decline in economic growth and activity

recession

a prolonged economic contraction that occurs when there are two or more periods (6 months or more) of decline in real GDP. during a recession there usually a widespread drop in the stock market, high unemployment rates, and a reduction in the housing market

business cycle

a simple model that shows the long-run fluctuations of real GDP overtime. there are four distinct parts of any country's business cycle. they are called peak, contraction, trough, and expansion

which of the following will likely lead to cost-push inflation

a tornado destroys factories and lowers supply levels throughout the economy an increase in the price of oil has reduced supply of all goods and services that use oil as an input

great depression

a worldwide depression that occurred from 1929 to 1939. the US unemployment rate reached a high of 25% by 1933, with 13 million people out of work. GDP decayed by 27%

voluntary unemployment

able workers that simply choose not to participate in the workforce

which of the following illustrate improvements in productivity

after adopting a new typing strategy, a data scientist is able to provide more data services to clients after practicing at home, a dishwasher has doubled the number of dishes he can wash in a single shift

a country's gross domestic product for a given time period is the total market value of

all finished goods and services produced within the country's borders

with all other economic forces held constant, an increase in labor productivity throughout the economy implies

an increase in GDP with labor hours held constant

which of the following scenarios illustrates cost-push inflation

an increase in the price of raw materials decreases aggregate supply, pushing prices higher throughout the economy

inflation

an overall, constant upward movement of prices for goods and services in an economy

inflation is best described as

an upward, general trend of prices in the economy

in the US, the official poverty rate is the percentage of residents who

are earning a household income that is less than the threshold set by the government

progressive taxes

are where high-income individuals pay a more significant percentage of their earnings compared to low-income individuals

human capital

can be defined as the economic value of the qualities and abilities of labor that impact productivity

investments

capital expenditures by individuals or businesses

aggregate demand is traditionally calculated by summing

consumption, investment, government spending, and net exports

unemployment associated with the highs and lows of the business cycle

cyclical unemployment

Consumer behavior has changed in such a way that purchases of goods and services have increased throughout the economy. As a result of this increase in consumer demand, prices have risen dramatically. This situation illustrates

demand-pull inflation

which of the following will likely lead to an increase in the standard of living for american consumers

discovering an inexpensive way to make steel

a country's income distribution is the

distribution of total GDP among the working population

In a fictional country, 2,000 hours of labor are used in the production of all goods and services in the economy. The market values of these goods and services total $8,000. The following year, 3,000 labor hours produce all goods and services in the economy. The market values of these goods and services total $12,000. Assuming there is no inflation in this economy, which of the following is true

labor productivity remained the same through both years

which of the following might increase the probability of experiencing a recession

loans are made to non-creditworthy borrowers

the rate of inflation in a hypothetical economy is projected to be 1.5% in the coming quarter. given this information, the federal reserve is likely to

make efforts to raise the inflation rate because 1.5% is below the desired rate of inflation

which of the following policies might a government use to redistribute income from high-income earners to low-income earners

negative income tax

static effects

normal market fluctuations caused by changes in the free market conditions, changes in consumer behavior, or productivity of firms. these changes are recurring economic fluctuations, meaning that when the economy expands, it usually is followed by a period of contraction and when the economy contracts, it's usually followed by a period of expansion

services

not an actual physical product that can be held

seasonal unemployment

occurs in industries that operate mainly during specific seasons or time periods throughout the year and is the result of businesses having to decrease labor costs during the off-season

expansion

part of the business cycle when the economy is booming. it lies in between the trough and peak of a business cycle

peak

part of the business cycle when the economy is operating at full capacity, and unemployment tends to be at the lowest. it is the point in the business cycle when the expansion transitions into the contraction phase

trough

part of the business cycle where the economy hits rock bottom. unemployment hits a high spot, and overall GDP reaches a low. the business cycle is at its lowest part

in a given year, nominal GDP grew by approximately 4%, while real GDP grew by only 2.3%. this difference can be accounted for by the fact that

prices of goods and services increased during the year

finished goods

products that will not be sold again as part of some other good

welfare policies

programs in place to combat poverty and provide families with assistance in attaining basic needs

The distribution of income within the borders of a hypothetical country has begun troubling members of Congress. Specifically, the members of Congress are concerned that a very small minority commands a large portion of the country's total GDP. Which of the following methods might the government use to redistribute income from the high-income earners to lower-income earners

progressive tax

shocks

random and unpredictable events, such as wars and natural disasters that have profound effects on the economy

the business cycle illustrates the long-run fluctuations of

real GDP

if a country is maintaining a healthy amount of growth, which of the following accurately describes the behavior of real GDP over time

real GDP fluctuates but follows an upward-sloping trend line

if prices in an economy are rising but the quantity of goods and services remain constant, which of the following is true

real GDP is not changing

structural unemployment

refers to a bad fit between jobs available and the skill levels of the unemployed. this would be if a person was hired and ended up not having the right qualifications to perform the job. shifts in the economy cause a mismatch between skilled workers and the skills that employers require

A hurricane has recently disrupted supply chains and manufacturing plants in the Southeastern United States. How would this economic impact be classified

shock

which of the following is not an example of in-kind assistance

social security income

An individual has recently been fired from her job at a cellphone manufacturing plant. Her job consisted of testing cellphone components for defects, but the job has become automated by the company's purchase of industrial robots. She would like to find new work, but she will need to undergo significant training before she has the skill set that employers are looking for. What type of unemployment is this individual experiencing

structural unemployment

unemployment resulting from mismatches between employer needs and employee skills

structural unemployment

productivity

the amount of output that a particular amount of inputs (such as hours of labor) can produce

full employment

the condition where everyone willing to work at the going wage rate can get a job

which of the following would constitute a technological improvement

the discovery of a way to improve software speed that increases employee productivity

real GDP

the dollar value of all final goods and services produced within a country's borders in one year expressed in constant dollar value, meaning it is adjusted for inflation or deflation when comparing GDP between two years to examine whether an economy has grown or shrunk

nominal GDP

the dollar value of all final goods and services produced within the country's borders in one year expressed in current dollar value, meaning it is unadjusted for inflation

consumption

the finished goods and services that are purchased and consumed every day in the economy

Using 1984 as the base year, the Federal Reserve has calculated a CPI of 10.9 for 1916 and a CPI of 12.8 for 1917. Given this information, which of the following is true

the inflation rate in 1917 was approximately 17%

which of the following would be counted in the investment component of this year's GDP

the market value of new factories built this year

labor productivity

the measurement of output produced per hour of labor

poverty threshold

the measurement of poverty in the US

inflation rate

the percent change in the price level determined by comparing the percentage increase or decrease in the price level of goods and services from one time period to another

unemployment rate

the portion of the labor market that is jobless and is reported as a percentage

the consumer price index of any given year provides

the relative price of a basket of consumer goods as compared to base year prices

natural rate of unemployment

the sum of frictional and structural unemployment

aggregate demand

the total amount of goods and services demanded in the economy at a specified overall price level and in a set time period

GDP

the total monetary or market value of all the finished goods and services produced within a country's border in a specific time period

aggregate supply

the total of all goods and services produced by an economy over a given period

government spending

the total payments made by federal, state, and local governments for labor, infrastructure, and products

What is the minimum number of quarters with successive declines in real GDP that must occur before an economy is considered to be in a recession

two

which of the following is true during a period of economic contraction

unemployment increases

money supply expansion

when the money supply in an economy increases at a rate faster than the rate at which real output in the economy is growing, causing inflation