EC111 Test 2

If 2010 is the base year, then the inflation rate in 2015 equals

((CPI in 2015-CPI in 2014)/(CPI in 2014))*100

Which of the following involves financial intermediation?

a bank makes a loan, household buys stock issued by a corporation, a foreign government purchases U.S. government bonds

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

inflation

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expec

lower interest rates and greater investment in 2011 than in 2010.

Emeril is the owner of a restaurant. He decides to raise the wages of his workers even though he faces an excess supply of labor. His decision

might increase profits if it attracts a better pool of workers to apply for jobs at his restaurant.

If an economy is closed and if it has no government, then

national saving = private saving

How is net national product (NNP) calculated?

Depreciation losses are subtracted from the total income of a nation's citizens.

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products changes, changes in quality are still a problem because quality is so hard to measure.

GDP

GDP is to a nation's economy as household income is to household

For monitoring fluctuations in the national economy, which measure of income is best?

It does not matter very much which measure we use

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

Output will rise but by less than it did when the previous unit was added

Which of the following countries benefited significantly from the catch-up effect in the last half of the twentieth century?

South Korea

Which of the following is not correct?

The process by which unions and firms agree on the terms of employment is called a strike.

A German citizen buys an automobile produced in the United States by a Japanese company. As a result,

U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.

The natural unemployment rate includes

both frictional and structural unemployment.

Some persons are counted as out of the labor force because they have made no serious or recent effort to look for work. However, some of these individuals may want to work even though they are too discouraged to make a serious effort to look for work. If these individuals were counted as unemployed instead of out of the labor force, then

both the unemployment rate and labor-force participation rate would be higher.

According to the theory of efficiency wages, if a firm stops paying efficiency wages it is likely to see a(n)

decrease in the number of job applicants and a decrease in how long workers stay on the job.

Country A experienced a growth rate of real GDP per person of 0.5 percent per year throughout the 1900's. In view of other countries' experiences, country A's growth was

exceptionally low.

If all workers and all jobs were the same such that all workers were equally well suited for all jobs, then there would be no

frictional unemployment.

Noah is an unpaid stay-at-home father who is not currently searching for paid work. Pete is a full-time student who is not looking for a job. Who is included in the labor force by the Bureau of Labor Statistics?

neither Noah nor Pete

Banks

play a role in creating an asset that people can use as a medium of exchange.

Nominal GDP will definitely increase when

prices increase and output increases

A larger budget deficit

raises the interest rate and reduces investment.

If the supply for loanable funds shifts to the left, then the equilibrium interest rate

rises and the quantity of loanable funds falls.

Long-term bonds are

riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was -2 percent. It follows that

the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 6 percent.

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

the interest rate would rise and investment would fall

Which of the following items is the one type of household expenditure that is categorized as investment rather than consumption?

the purchase of a new house

If net exports is a negative number for a particular year, then

the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year.

If an inexpensive alternative to oil were found, the price of oil adjusted for inflation

would decline as the alternative would reduce the demand for oil.

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

would decrease and investment would increase.