ECO 202 Unit 1
Monthly expenditures for a family of 4 in 2015 averaged $1400. In 2016, the cost of the same purchases was $1500. If 2015 is the base year, what was the CPI in 2016?
107
If consumers decide to be more frugal and same more out of their income, then this will cause
A shift in the supply curve for loanable funds to the right
An example of a transfer payment is
A welfare payment
What would an example of a worker experiencing frictional unemployment be?
A worker quits his job at the Post Office to find more interesting work
Suppose that in 2016, the national income in the United States was $200 billion, depreciation was $15 billion, personal taxes were $20 billion and transfer payments were $10 billion. Gross domestic product in 2016 is
$215 billion
CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200. The value added of CANOES-R-US for each canoe equals
$500
According to the National Bureau of Economic Research, the United States has experienced ___ recessions since 1950.
10
The formula for calculating the CPI is
(Expenditures in current year/Expenditures in base year) *100
Suppose that real GDP for 2015 was $10,000 billion and real GDP for 2016 was $9500 billion. What is the rate of growth of real GDP between 2015 and 2016?
-5%
According to the "Rule of 70" how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%?
14 years
If an economy is growing at a rate of 2.5% per year, how long will it take the economy to double?
28 years
You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. If inflation over the year is 2%, what is the real interest rate you are paying?
3%
If real GDP is a small country in 2015 is $8 billion and real GDP in the same country in 2016 is $8.3 billion, the growth rate of real GDP between 2015 and 2016
3.75%
If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?
5%
If, between 2006 and 2016, the economy's real GDP grew from $20 billion to $40 billion, what was the average annual growth rate in the economy?
7%
Which of the following goods is directly counted in GDP? -Plastic sandwich bags for Subway -A 12 inch Subway sandwich -Bread Subway purchases -Lettuce Subway purchases
A 12 inch Subway sandwich
The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase in future years, and these higher deficits might "pose a threat to the economy by crowding out business investment and threatening a spike in interest rates." This crowding out of business investment would be represented graphically by
A movement to the left along the demand curve for loanable funds
Structural unemployment is the result of
A persistent mismatch between the skills and characteristics of workers and the requirements of the jobs
In 2015, Ford Motor Company's sales were rising. These events were caused by
An economic expansion
An increase in cyclical unemployment will result in
An increase in the unemployment rate
Which of the following is the smallest portion of the market basket of goods that makes up the CPI? -Housing -Transportation -Food and beverages -Apparel
Apparel
Increases in real GDP would overstate the increase in the well-being of a country over time if, over that time period, the
Average hours worked per week increased
The GDP deflator is a measure of the
Average level of prices of final goods and services in the economy
Macroeconomics, as opposed to microeconomics, includes the study of what determines the
Average price level of goods and services in the economy
Financial securities that represent promises to repay a fixed amount of funds are known as
Bonds
In comparison to a government that runs a balanced budget, when the government runs a budget deficit
Business investment will fall
When lumber from Brazilian forests is used by a U.S.-owned company to produce furniture in Canada, the value of the furniture produced will be counted as a final good in
Canada's GDP
Which of the following is not a durable good? Furniture Clothing Refrigerator Automobile
Clothing
To calculate GDP by the expenditure method, one must add
Consumption spending, investment spending, government spending and net exports
Following the September 11, 2001, terrorist attacks, the managers of many hotels expected a prolonged period of reduced travel and responded by laying off workers and postponing or cancelling new construction. The CEO of Four Seasons Hotels decided to
Continue expanding and was able to maintain or enhance the company's market share
Nominal GDP is another term for
Current-dollar GDP
Most of the unemployment that occurred during the Great Depression was
Cyclical unemployment
Workers laid off as a result of a recession suffer
Cyclical unemployment
In 2015, JP Morgan Chase announced it was laying of employees. The employees who were laid off due to the business cycle would be considered
Cyclically unemployed
The demand for durable goods
Declines by a greater percentage than does GDP during a recession
A recession begins with a(n) ___ in spending by firms on capital goods and a(n) ___ in spending on durable goods by households.
Decrease, decrease
Since 1948, the labor force participation rate for adult men has ___ and for adult women has ___.
Decreased; increased
The U.S. work week has declined from 60 hours in 1890 to 40 hours today. The impact of the decline in working hours
Decreases U.S. GDP and increases the well-being of a typical working person in the U.S.
Which of the following is NOT one of the key services provided by the financial system? -Risk sharing -Generating information -Liquidity -Decreasing taxes
Decreasing taxes
Borrowers are ___ of loanable funds and lenders are ___ of loanable funds.
Demanders, suppliers
The real wage equals the nominal wage ___ the CPI, all times 100.
Divided by
In the circular flow model, the value of total production for an economy ___ the value of total expenditures on final goods and services.
Equals
Why do European countries have unemployment rates that are higher than in the United States?
European countries offer higher unemployment benefits than the United States
From 1991 until 2001, the United States was in a period of
Expansion
If your nominal wage rises more slowly than the price level, we can say your real wage has ___ and the purchasing power of a dollar has ___.
Fallen, fallen
For the last few decades, the labor force participation rates of men have ___, and the labor force participation rates of women have ___.
Fallen; risen
Real GDP per capita is calculated by dividing the value of real GDP for a country by the country's adult population. True or False
False
The values of real GDP and real GNP are almost the same in countries where a significant fraction of domestic production takes place in foreign-owned firms. True or False
False
Actual real GDP will be above potential GDP if
Firms are producing above capacity
When a recession ends
Firms increase the amount of borrowing
Efficiency wages cause unemployment because
Firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied
GDP is NOT a perfect measure of well-being because
GDP is not adjusted for pollution.
Which of the following would decrease the unemployment rate? -Government aid to retrain unemployed workers -Increase in labor union membership -Increase in the efficiency wage -Increase in the minimum wage
Government aid to retrain unemployed workers
What would contribute to a sustained high rate of economic growth in the long run in an economy?
Growth in capital per hour accompanied by technological change
Which of the following is NOT an example of a transfer payment? -Social Security Payment to retirees -Social Security Payment to disabled persons -Health insurance payments to an army private -Unemployment insurance payments
Health insurance payments to an army private
If net taxes fall by $80 billion, we would expect
Household saving to rise by less than $80 billion
According to Robert Fogel, economic growth ___ health, and health ___ economic growth.
Improves, improves
An advantage of the household survey over the establishment survey of the labor market is that the household survey
Includes the number of self-employed persons
When the economy reaches a trough in a business cycle, what will occur?
Income, production, and employment will begin to rise
IN 1986, an Apple computer with 65 kilobytes of memory cost around $1500. Today a $1500 iMac comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?
Increase in quality bias
Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would
Increase the measured labor force participation rate.
An increase in unemployment insurance payments would, in effect, ___ the amount of time spent searching for a job, which would increase ___ unemployment.
Increase, frictional
Which of the following describes the growth in real GDP per person in the United States from 1900 to the present? -Doubled -Decreased -Increased by more than 8 times -Increased twenty times
Increased by more than 8 times
During a business cycle expansion, total production ___ and total employment ___.
Increases, increases
What is not directly counted in GDP?
Intermediate goods
In a closed economy, public saving plus private saving is equal to
Investment
The purchase of a new house is included in
Investment expenditures
When a government runs a budget deficit, we would expect to see that
Investment will fall
The Philippines and Vietnam have roughly the same size population. Suppose the GDP of the Philippines is $1000 billion and the GDP of Vietnam is $10,000 billion. You should conclude
It is not possible to make a good comparison of the economic well being of a typical individual in the 2 countries without additional information.
What kind of transaction would take place in the Underground Economy?
John makes chain-link belts and necklaces and sells them at a local flea market for cash to avoid paying taxes
What would be directly counted in GDP in 2016?
Kitchen cabinets purchased from Home Depot in 2016 to be installed in a house built in 1997
The deflation of the 1930s impacted the U.S. economy because it led some consumers to ___ and because it ___.
Led consumers to postpone purchases while they waited for prices to fall even lower and because it increased the burden on borrowers
The United States has ___ social insurance programs, and generally has a ___ unemployment rate, as compared to Canada and Western Europe
Less generous, lower
Inflation that is ___ than what is expected benefits ___ and hurts ___.
Less, lender, borrowers
What has Corning, Inc. experienced since being established in 1851?
Long-run growth interrupted by periods of business cycle recession
In 2014, which component of GDP had a negative value?
Net exports
The purchase by a foreign government of an airplane produced in the United States is included in U.S.
Net exports
The "new product bias" in the consumer price index refers to the idea that
New products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers
The effect of a recession on a company like Whirlpool Corporation is such that
Sales decline more sharply for Whirlpool as compared to firms that do not produce durable goods
If Ebenezer Scrooge spends rather than saves his vast wealth, he will
Slow economic growth because he is reducing the amount of funds available for investment
The measure of production that values production using current prices is called
Nominal GDP
The stated interest rate on a loan is the
Nominal interest rate
Real GDP will increase
Only if the quantity of final goods and services produced rises
Discouraged workers are classified by the BLS as
Out of the labor force
Full employment is NOT considered to be zero unemployment, because
People do not find jobs instantaneously
Gross national product, GNP, of the United States is the market value of all final goods and services
Produced by citizens of the United States anywhere in the world.
During the expansion phase of the business cycle
Production increases
The only way the standard of living of the average person in a country can increase is if ___ increases faster than ___.
Production, population
A good measure of the standard of living is
Real GDP per capita
A(n) ___ comes to an end with a business cycle ___.
Recession; trough
Recessions typically cause the unemployment rate to ___ and the inflation rate to ___.
Rise, fall
What is one difference between stocks and bonds?
Stocks represent partial ownership in a firm, while bonds do not.
There is a government budget surplus if
T -TR > G
What will most likely be able to sustain economic growth in an economy?
Technological change
What two factors are the keys to determining labor productivity?
Technology and the quantity of capital per hour worked
The unemployment rate is an important economic statistic that can tell us about the health of the economy. If the unemployment rate turns out to be high or higher than anticipated, we would expect
That stock prices are more likely to fall.
If the CPI is currently 202, what does this tell you about inflation between last year and this year
The CPI measures only the level of prices in a given year, not the percentage change in prices from one year to the next.
Human capital refers to what?
The accumulated knowledge and skills workers acquire from education and training or from their life experiences
What does the PPI measure?
The average of the prices received by producers of goods and services at all stages of the production process
Liquidity refers to
The ease with which a financial security can be traded for cash
Suppose the government launches a successful advertising campaign that convinces workers with high school degrees to quit their jobs and become full time college students. This would cause
The labor force participation rate to decrease
Potential GDP refers to
The level of GDP attained when all firms are producing at capacity
What is not true of the composition of GDP in 2014?
The majority of consumer spending is on durable goods
The real rate of interest in
The nominal interest rate minus the inflation rate
Suppose that nominal GDP in 2016 was less than real GDP in 2016. Given this information, we know for certain that
The price level in 2016 was less than the price level in the base year
Increases in real GDP since 1900 can actually underestimate growth in the standard of living for Americans since 1900 because
The quality of health care that exists today was not available in 1900
If labor productivity growth slows down in a country, this means that the growth rate in ___ has declined.
The quantity of goods or services that can be produced by one hour of work
Labor productivity is
The quantity of output produced by one worker or by one hour of work
Gross domestic product understates the total production of final goods and services because of the omission of
The underground economy
Suppose that the labor movement has a revival in the United States and the majority of workers join labor unions. As a result we would expect
The unemployment rate to rise
When an economy is at its natural rate of unemployment, which of the following will be true? -Labor force participation is 100% -Unemployment rate will be greater than 0% -Only structural unemployment will exist in the economy -Unemployment rate will be 0%
The unemployment rate will be greater than 0%
What would be included in both the U.S. GDP and U.S. GNP?
The value of all cars produced by General Motors in the United States
Suppose in 2016, you purchase a house built in 2003. Which of the following would be included in the gross domestic product for 2016? -Value of the house in 2016 -Value of real estate agent services -Value of the house in 2003 -Value of the house in 2016 minus depreciation
The value of the services of the real estate agent
If inflation is positive and is perfectly anticipated
Those that hold paper money lose
Developing countries with large informal sectors tend to have firms that invest less in capital equipment. True or False
True
Excluding underground economy production from measured GDP causes errors in GDP growth estimates in the long run. True or False
True
GDP accounting rules do not adjust for production that pollutes the economy. True or False
True
The GDP deflator is a measure of the price level which is calculated as nominal GDP divided by real GDP and multiplied by 100. True or False
True
The consumer price index assumes that consumers purchase the same amount of each product in the market basket each month. True or False
True
What would cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness?
Unemployed persons falsely report themselves to be actively looking for a job
Typically, as an economy begins to emerge from a recessionary phase of the business cycle
Unemployment continues to rise
Why have fluctuations in real GDP have become less volatile in the United States since 1950?
Unemployment insurance and other government transfer programs are more prevalent since the 1950s
To reduce the bias in the consumer price index, the Bureau of Labor Statistics
Updates the market basket every two year, rather than every 10 years
Nominal GDP is GDP in a given year
Valued in the prices of that year
In a closed economy, private saving is equal to which of the following? Y-G-T+TR Y-C-T Y+TR-C-T Y-G-T
Y+TR-C-T
The cost to firms of changing prices
is called a menu cost
The nominal interest rate equals the real interest rate ___ the inflation rate.
plus