Econ 101 Midterm 2 6-10 HW Answers

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Your father earned​ $34,000 per year in 1984. To the nearest​ dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is​ 104?

$70,288

If a​ 3-month Treasury bill pays​ 5.5% and the change in the consumer price index​ (CPI) is​ 4.7%, what is the real interest rate​ (the true return to​ lending)?

0.8%

Although _____ percent of all firms are corporations, corporations account for _________ of revenue and profits earned by all firms

20; the majority

If real GDP equals​ $11,567 billion in 2006 and​ $11,916 billion in​ 2007, and assuming population is constant over those two​ years, how many years will it take for real GDP per capita to​ double? _____ years.

23.2

What are the four major categories of​ expenditure?

Consumption, investment, government​ purchases, and net exports.

CPI equation

Cost of the market basket in current year/Cost of the market basket in base year x 100

personal income minus personal taxes.

Disposable personal income

What is the general relationship between the business cycle and unemployment and​ inflation?

During an​ expansion, unemployment falls and inflation increases.

Suppose John Q. Worker is currently unemployed. Each​ day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of​ skills, abilities, and interests. If someone asks John Q. what he does for​ work, he tells them that he is currently​ "in-between jobs." Which of the following best classifies John​ Q.'s unemployment​ status?

Frictionally unemployed

Why is GDP an imperfect measurement of total production in the​ economy?

GDP does not include household production or production from the underground economy.

National income is

GDP minus depreciation.

Which of the following does NOT lead to long-run economic growth​?

Increase in average wages

Why is the unemployment​ rate, as measured by the Bureau of Labor​ Statistics, an imperfect measure of the extent of joblessness in the​ economy?

It does not account for inaccurate responses to the Current Population Survey, Underemployed people are considered employed, It fails to account for illegal activities, Discouraged workers are not considered unemployed

Which of the following takes place in the direct finance​ market?

Loans to corporations are made from the sale of corporate bonds.

Even perfectly anticipated inflation imposes costs.​ Why?

Menu costs, Paper money loses its purchasing power by the rate of inflation, Some wages will fail to keep up with anticipated inflation

Which of the following is the most important of the over minus the minus counter ​markets?

NASDAQ

GDP deflator equation

NGDP/RGDP x 100

Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment​ rate?

Number of unemployed/Number in labor force x 100

national income minus retained corporate earnings plus government transfer payments and interest on government bonds.

Personal income

Which of the following can give an early warning of future increases in the price​ level?

Producer price index

Which of the following would be included in the gross national product​ (GNP) of the United​ States?

Production from a U.S. firm that operates in Mexico.

Firms that act as financial intermediaries match households that have excess funds with firms that want to borrow funds. What other key services does the financial system provide to savers and​ lenders? ​(Mark all that​ apply.)

Provides an easy method of exchanging a financial security for money, Allows savers to spread their money among many financial investments, Collects and communicates information about borrowers to savers

the difference between the value of a​ corporation's assets and the value of its​ liabilities; also known as net worth.

Stockholders' equity

Suppose that Sally J. Society recently lost her job as an underwater welder. In looking for a new​ job, she discovers that the only available jobs are for economists and that there are no openings for underwater welders because the trade is now obsolete. If Sally J. Society decides to return to school to earn an Economics​ degree, what is the best classification of her unemployment​ status?

Structurally unemployed

Which of the following causes changes in the CPI to overstate the true inflation​ rate?

Substitution bias, increase in quality bias, new product bias

Public Savings formula

T-G-TR

Real GDP per capita LOADING... is often used as a measure of general​ well-being. While increases in real GDP often do lead to increases in the​ well-being of the​ population, why is real GDP not a perfect measure of​ well-being?

The value of leisure is not included, The costs of pollution are not included, GDP does not include crime rates or income distribution.

The loanable funds market is given in the figure above. If the current real interest rate is 5​ percent, which of the following is​ true?

There is a surplus of loanable funds in the market.

How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment​ rate?

They decrease the opportunity cost of job search.

Private Savings formula

Y+TR-T-C

In a closed​ economy, which of the following equations reflects​ investment? (Y​ = GDP, C​ = Consumption, G​ = Government​ purchases, T​ = Taxes, and TR​ = Transfers)

Y-C-G

Government Purchases Formula

Y-C-I

n a closed​ economy, private saving is equal to which of the​ following? ​ (Y =​ GDP, C​ = Consumption, G​ = Government​ purchases, T​ = Taxes, and TR​ = Transfers)

Y-C-T+TR

Which of the following equations sums up the components of Gross Domestic Product​ (GDP)?

Y=C+I+G+NX

Which of the following transactions represents the purchase of a final​ good?

Your father buys a new John Deere riding lawn mower.

a firm owned jointly by two or more persons and not organized as a corporation

a partnership

The high point of economic activity is called

a peak

The period between the high point of economic activity and the following low point is called

a recession

The low point of economic activity is called

a trough

A bond is a financial security that represents a promise to repay

a yearly interest payment and a principal payment.

The principal-agent problem occurs when

an agent pursues his own interests rather than the interests of the principal who hired him.

It is the role of​ ________ to transfer funds from savers to borrowers.

an economy's financial system

The period between the low point of economic activity and the following high point is called

an expansion

Economic profit is equal to a​ firm's revenues minus its​ costs, _______________________. Accounting profit is _____________ economic profit.

both explicit and implicit; larger than

An income statement shows a​ firm's

costs, profits, & revenues

During the recession phase of the business​ cycle, production,​ employment, and income________

decrease

If Walmart issues​ $250 million in new stock to finance the renovation of their retail​ stores, this is an example of

direct finance

When Twitter sells newly issued shares of stock this is an example of

direct finance in a primary market.

payments by a corporation to its shareholders.

dividends

he financial system of a country is important for​ long-run economic growth because

firms need the financial system to acquire funds from households.

Crowding out occurs when

governments must borrow funds which causes interest rates to rise and thus private investment is reduced.

Bonds​ ________ and stocks​ ________.

have a fixed number of interest​ payments; may pay dividends forever

During the expansion phase of the business​ cycle, production,​ employment, and income________

increase

Potential GDP

increases over time as technological change occurs, increases over time as the labor force grows

A flow of funds from savers to borrowers through financial intermediaries such as banks is ______ finance, while a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange is _____ finance

indirect; direct

Even though individuals earn interest on financial investments such as​ bonds, mutual​ funds, and certificates of​ deposits, they may still hold wealth in checking accounts because

individuals need money that is available to be spent on goods and services.

The owners of corporations have

limited liability

The ease with which a financial security can be exchanged for money is referred to as

liquidity

Changes in the value of a​ firm's stocks and bonds offer important information for a​ firm's managers. If the price is decreasing investors are​ _______ and are providing information that indicates the​ firm's managers might want to​ _________ the business.

more pessimistic; contract

In a closed​ economy, which of the following components of GDP is not​ included?

net exports

Subtracting the value of a​ firm's liabilities from the value of its assets leaves its

net worth

Which of the following is the best measure of the standard of living of the typical person in a​ country?

real GDP per person

When compared to the Great​ Depression, the typical length of unemployment in the modern​ (post-Great Depression-era) U.S. economy is

relatively brief

Profits that are reinvested in a firm rather than paid to the​ firm's owners are called

retained earnings

Potential GDP is

sometimes​ greater, sometimes​ less, and sometimes equal to actual real GDP.

​A(n) ​ _____ is a financial security that represents partial ownership of a​ firm, while a​ _____ is a financial security that represents a promise to repay a fixed amount of funds.

stock; bond

An increase in the government budget deficit will shift the​ ________ curve for loanable funds to the​ ________ and the equilibrium real interest rate will​ ________.

supply; left; rise

Gross Domestic Product is calculated by summing up

the total market value of final goods and services produced in the economy during a period of time.

When the economy is at full​ employment,

the unemployment rate is greater than zero, all remaining unemployment is either frictional or structural, the natural rate of unemployment prevails.

In August​ 2013, the​ working-age population of the United States was 245.9 million. The​ working-age population is divided into those in the labor force​ (155.5 million) and those not in the labor force​ (90.4 million). The labor force is divided into the employed​ (144.2 million) and the unemployed​ (11.3 million). Those not in the labor force are divided into those not available for work​ (84.1 million) and those available for work​ (6.3 million).​ Finally, those available for work but not in the labor force are divided into discouraged workers​ (0.9 million) and those currently not working for other reasons​ (5.4 million).

unemployment rate: 11.3 million/155.5 million x 100 = 7.3% labor force participation rate: 155.5 million/245.9 million x 100 = 63.2%

The largest component of gross domestic income is

wages

What are the four categories of​ income?

​Wages, Interest,​ Rent, and Profit.


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