Chapter 5,6,7

Producer Price Index (PPI)

A measure of the average changes in the prices received by domestic producers for their output

Marginally Attached

The classification a person is given if he or she is available for work and has actively looked for work in the past year but not in the past four weeks

To determine the new salary . . .

The old salary must be multiplied by the current year's index divided by the previous year's index.

Labor Force

The total number of those employed and unemployed

What is included in the producer price index (PPI)?

commodity price indexes

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% in the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2% . . .

creditors gain at debtors' expense.

If personal income taxes and business taxes increase, then this will

decrease aggregate demand and aggregate supply

Jessie has been out of work for more than a year and has given up trying to get a new job until the economy gets better. Jessie is considered to be a . . .

discouraged worker

What is NOT a problem for the producer price index as a measure of inflation?

exclusion of changes in sales promotions

An increase in productivity will

increase aggregate supply

The saving schedule is drawn on the assumption that as income increases,

saving will increase absolutely and as a percentage of income.

Consumer Price Index (CPI)

A measure of the average change in prices paid by urban consumers for a typical market basket of consumer goods and services

GDP Deflator

An index of the average prices for all goods and services in the economy, including consumer goods, investment goods, government goods and services, and exports. It is the broadest measure of inflation in the national income and product accounts (NIPA)

Unemployment Rate

The number of unemployed divided by the labor force; expressed as a percent (Total Labor Force / Unemployed) x 100

Cyclical Unemployment

Unemployment that results from changes in the business cycle, and where public policymakers can have their greatest impact by keeping the economy on a steady, low inflationary, solid growth path

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because

a portion of a tax cut will be saved.

Government actions that were taken in order to stimulate the economy during the Great Recession of 2007-09 included the following, except

a sharp increase in the natural rate of unemployment.

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to

consume is 3/5

The periodic fluctuations around the natural rate of unemployment are caused by . . .

cyclical unemployment

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing . . .

deflation.

The ability to use physical resources in creative ways to produce goods and services is known as: labor. natural resources. physical capital. entrepreneurial ability, technology, and ideas.

entrepreneurial ability, technology, and ideas.

A change in which one of the following factors would shift the aggregate supply curve in the short run?

government regulation

A cost-of-living index requires . . .

information on how consumers will respond to changes in product prices and income.

Cheryl lost her job six months ago and filled out her last job application about two months ago. The Bureau of Labor Statistics would classify her as . . .

marginally attached

What would lead to higher prices?

strong consumer demand, higher gas prices, and an increase in the supply of money

For more than 10 years Kenneth has worked at a job fixing machinery used to produce textiles. As more and more clothing manufacturers moved overseas to lower labor costs, his services have been less and less in demand until ultimately he found himself out of a job. What type of unemployment does this contribute to?

structural unemployment

What is the primary explanation for the rapid growth of the U.S. economy over the last century? increases in the number of immigrants increases in human capital increases in government spending for the infrastructure technological progress

technological progress

The slope of the consumption schedule between two points on the schedule is

the ratio of the change in consumption to the change in disposable income between those two points.

If a country's population increases at a higher rate than the growth in its real GDP: GDP per capita has increased. the standard of living in the country has declined. average output per person remains constant. the country's rate of inflation has increased.

the standard of living in the country has declined.

The investment demand curve suggests that

there is an inverse relationship between the real rate of interest and the level of investment spending.

Full employment is reached when . . .

there is only frictional and structural unemployment.

If the real interest rate increase,

there will be a movement upward along the investment demand curve

Tiffany, who is going on interviews, hoping to get her first job would be considered . . .

unemployed.

In the aggregate expenditures model, technological progress will shift the investment schedule

upward and increase aggregate expenditures

According to Joseph Schumpeter, what is the driving force behind business cycles? waves of inventions weather cycles waves of innovations consumer spending

waves of innovations

If an unintended increase in business inventories occurs,

we can expect businesses to lower the level of production.

If there are 1,500 in the population, 900 are employed, and 100 are unemployed, what is the unemployment rate?

10%

If the MPC is 0.75, the multiplier will be

4

When investment remains the same at each level of GDP in a private closed economy, the slope of the aggregate expenditures schedule

= MPC

What happened to the unemployment rate in the United States between 1940 and 2000?

It generally decreased.

Full employment

Not the same as zero unemployment, since frictional and structural unemployment will always be present

Underemployment

Occurs when one who is forced to take a job that does not fully exploit his or her education, background, or skills

Natural Rate of Unemployment

That level of unemployment at which price and wage decisions are consistent; a level at which the actual inflation rate is equal to people's inflationary expectations and where cyclical unemployment is zero

Discouraged Workers

To continue to be counted as unemployed, those without work must actively seek work (apply for jobs, interview, register with employment services, etc.). These workers have given up actively looking for work and, as a result, are not counted as unemployed

Structural Unemployment

Unemployment caused by changes in the structure of consumer demands or technology. It means that demand for some products declines and the skills of this industry's workers often become obsolete as well. This results in an extended bout of unemployment while new skills are developed

Frictional Unemployment

Unemployment for any economy that includes workers who voluntarily quit their jobs to search for better positions, or are moving to new jobs but may still take several days or weeks before they can report to their new employers

Efficiency Wages

Wages above market equilibrium that can reduce turnover, motivate workers to work harder, and remain with their present employer, but can also prevent employers from hiring new workers, thus contributing to unemployment

The investment demand curve is drawn with the amt of investment on the

horizontal axis and the expected rate of return and interest rate on the vertical axis.

What would NOT lead to higher prices?

increases in the supply of food

If actual unemployment is at its natural rate . . .

inflation is very low.

The most important determinant of consumption and saving is the

level of income

One limitation of the unemployment rate as a measure of labor market health is that it does not include . . .

marginally attached workers.

Cyclical unemployment is . . .

the difference between current unemployment and what the unemployment rate would be if the economy were at full employment.

Gordon was a manager at Countrywide Home Loans until it collapsed and was acquired by Bank of America in 2008. Unable to find a comparable position in the financial industry, Gordon works in the garden area at Home Depot. He is considered to be . . .

underemployed.

If your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be, assuming the CPI has risen from 110 to 114?

$51,818

If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was: 0.625%. 2.5%. 7.5%. 10%.

0.625%.

If a set basket of goods costs $6,000 in the current year and $5,000 in the base year, what is the consumer price index?

120

If the current year's consumer price index is 214 and last year's was 209, then the rate of inflation is . . .

2.5%

If an economy's GDP will double in 25 years, then its growth rate must be about: 2.5%. 2.8%. 25%. 28%.

2.8%

John has an escalator clause in his labor contract by which his salary increases automatically by the amount of the previous year's inflation rate. If John's salary is $100,000, this year's consumer price index is 105, and the previous year's CPI was 100, by what percent will John's salary be increased?

5%

The size of the MPC is assumed to be

> 0 but < 1

Deflation

A decline in overall prices throughout the economy; the opposite of inflation

Which of the following is CORRECT? A. APC + APS = 1. B. APC + MPS = 1. C. APS + MPC = 1. D. APS + MPS = 1

APC + APS = 1

The recent global financial instability: slowed down economic growth. harmed standards of living. caused severe credit crunches. All of the answers are correct.

All of the answers are correct.

Which of the following is CORRECT? A. MPC + MPS = APC + APS. B. APC + MPS = APS + MPC. C. APC + MPC = APS + MPS. D. APC −APS = MPC − MPS.

MPC + MPS = APC + APS

Which of the following will not tend to happen if the U.S. dollar depreciates against the euro? A. Europeans will find U.S. goods become less expensive in euro terms. B. Americans will find European goods become more expensive in dollar terms. C. Many Americans will switch and buy domestic goods instead of imports from Europe. D. Many Europeans will switch and buy their own products instead of imports from the U.S.

Many Europeans will switch and buy their own products instead of imports from the U.S.

The classical form of the production function states that: Output = f(L / K) Output = f(N, K) Output = f(L, K) Output = f(N / K)

Output = f(L, K)

In an economy, for every $10 million increase in disposable income, saving increases by $2 million. It can be concluded that the

Slope of the consumption schedule is 0.8

Why is the consumer price index a conditional cost-of-goods index?

The CPI is a conditional cost-of-goods index because it measures only private goods and services.

Price Level

The absolute level of a price index, whether the consumer price index (CPI; retail prices), the producer price index (PPI; wholesale prices), or the GDP deflator (average price of all items in GDP)

Disinflation

The absolute level of a price index, whether the consumer price index (CPI; retail prices), the producer price index (PPI; wholesale prices), or the GDP deflator (average price of all items in GDP) A reduction in the rate of inflation; an economy going through this will typically still be facing inflation but at a declining rate

Which of the following factors is NOT generally viewed by economists as critical to economic growth? strong and fair legal system stable monetary system access to large amounts of natural resources economic freedom

access to large amounts of natural resources

Planned investment plus unintended increases in inventories equals

actual investment

At equilibrium real GDP in a private closed economy,

aggregate expenditures and real GDP are equal.

Which combination of factors would most likely increase aggregate demand?

an increase in consumer wealth and a decrease in interest rates

Developing countries can achieve higher productivity per unit of capital because they can use technologies developed by other countries. This is known as the: increasing returns to capital effect. copycat effect. catch-up effect. productivity effect.

catch-up effect.

What are problems for the producer price index (PPI) as a measure of inflation?

changes in product quality, products removed from the market, and manufacturers exiting their industries

If the MPC is 0.8 and disposable income is $200, then

consumption and saving cannot be determined from that information

Tessa's break-even income is $10,000, and her MPC is 0.75. If her actual disposable income is $16,000, her level of

consumption spending will be $14,500.

Other things equal, a serious recession in the economies of U.S. trading partners will

depress real output and employment in the U.S. economy.

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the

determinants of aggregate demand

Inflation was about 5.5% in the middle of 2008 but had fallen to near zero by the end of the year. This is an example of . . .

disinflation.

In the aggregate expenditures model, it is assumed that investment

does not change when real GDP changes.

People are counted as employed if they have done any work at all for pay or profit . . .

during the survey week.

David works as a software developer, but he recently took paternity leave after he and his wife had a child. During the time he is on leave and not at work, David is considered to be . . .

employed.

Monica is a social worker on vacation. While away, she is considered to be . . .

employed. (Monica has a job to return to once her vacation is over)

The government decides to subsidize the development of a new communications network. It is acting in its role to promote economic growth by: ensuring a stable legal system. enhancing physical and human capital. ensuring a stable and secure financial system. promoting free and competitive markets.

enhancing physical and human capital.

The level of aggregate expenditures in the private closed economy is determined by the

expenditures of consumers and businesses.

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

fell by about 1%.

In the CPI, core inflation can be found by removing . . .

food and energy.

According to the classical model, which of the following developments does NOT contribute to economic growth? labor productivity more capital technological change higher interest rate

higher interest rate

A private closed economy includes

households and businesses, but not government or international trade.

The GDP deflator is an index that includes prices of all but . . .

imports.

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will

increase by $100 billion

Other things equal, an increase in an economy's exports will

increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

The twin perils of the modern macroeconomics are said to be . . .

inflation and unemployment.

In 2011 the Chinese price level increased by 6.5%. This is an example of . . .

inflation.

A decline in investment will shift the AD curve to the

left by a multiple of the change in investment

Developed nations tend to have: limited labor supplies but lots of capital. low capital-to-labor ratios. limited amounts of both labor and capital. large amounts of both labor and capital.

limited labor supplies but lots of capital.

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the

multiplier effect

The simple multiplier 1/MPS

overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.

In a private closed economy, when aggregate expenditures equal GDP,

planned investment = savings

If aggregate expenditures exceed GDP in a private closed economy,

planned investment will exceed saving

The relationship between economic freedom and per capita GDP is: negative. positive. negative for advanced economies and positive for developing economies. positive for advanced economies and negative for developing economies.

positive.

Over the past century, when worker productivity rose: real wages rose. fewer public goods were available. nominal prices rose. capital fell.

real wages rose.

Imports have the same effect on the current size of GDP as

saving

A production function: shows the output that is produced using different combinations of inputs combined with existing technology. shows the output that is produced using different combinations of technology combined with existing inputs. shows the output that is most highly valued by consumers. shows the most desired production method for a given level of output.

shows the output that is produced using different combinations of inputs combined with existing technology.

If Trent's MPC is 0.80, this means that he will

spend 8/10 of any increase in his disposable income

(Consider This) During the Great Recession of 2007-2009, both real interest rates and investment spending declined. This suggests that

the investment demand curve shifted inward

Which of the following groups had the highest unemployment rate in 2012?

those with less than a high school diploma (11.7%)

The change in real GDP resulting from an initial change in spending can be calculated by

multiplying the multiplier by the initial change in spending.

At the equilibrium GDP for a private open economy,

net exports may be either +/-

If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift

rightward by $150 billion at each price level

If net exports decline from zero to some negative amount, the aggregate expenditures schedule would

shifts downward

What is a person's classification if he or she is available for work and has actively looked for work in the past four weeks?

unemployed

Inflation

A measure of changes in the cost of living; a general rise in prices throughout the economy

Hyperinflation

An extremely high rate of inflation; above 100% per year

The nominal rate of interest is 8.5 percent, and the real rate is 5 percent. The expected rate of return on an investment is 8 percent. The firm should

The nominal rate of interest is 8.5 percent, and the real rate is 5 percent. The expected rate of return on an investment is 8 percent. The firm should

Which is NOT an example of infrastructure? Hoover Dam the federal highway system airports Walmart stores

Walmart stores

The relationship between consumption and disposable income is such that

a direct and relatively stable relationship exists between consumption and income.

According to Malthus, a fixed quantity of land and a growing human population will eventually produce: a stationary state in which the economy grows but at a fixed rate. accelerating economic growth. continuous yet variable economic growth. a stationary state in which growth will cease.

a stationary state in which growth will cease.

Which of the following is a correct statement of the effects of a lump-sum tax?

Disposable income will decline by the amount of the tax, and consumption at each level of GDP will decline by the amount of the tax multiplied by the MPC

Which statement about the multiplier is correct? A. If a $20 billion increase in spending creates $20 billion of new income in the first round of the multiplier process and $15 billion in the second round, the multiplier in the economy is 5. B. If a $40 billion increase in spending creates $40 billion of new income in the first round of the multiplier process and $20 billion in the second round, the multiplier in the economy is 4. C. If a $60 billion increase in spending creates $60 billion of new income in the first round of the multiplier process and $50 billion in the second round, the multiplier in the economy is 5. D. If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4.

If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4.