ECON 1022 Exam 2 (Chapter 5, 6, 10, and 7)
According to research by Robert Fogel, people in Brititain grew taller because of
higher caloric intake. This increase in height is associated with higher productivity.
By far the largest category of goods and services in the CPI basket is
housing
Jai Li just lost her job, and she has not yet started looking for a new one. The Bureau of Labor Statistics counts Jai Li as
neither in the labor force nor unemployed.
If a country increases its saving rate, which of the following permanently grow at a higher rate?
neither real GDP per person nor productivity.
Technological knowledge (A)
society's understanding of the best ways to produce goods and services
Which of the following is included in the investment component of GDP?
spending on new business equipment such as power tools but not spending on stocks and bonds
Productivity (Y/L)
the average quantity of goods and services produced per unit of labor input Y/L
Cyclical unemployment
the deviation of unemployment from its natural rate associated with the business cycle
Economists use the term inflation to describe a situation in which
the economy's overall price level is rising.
A U.S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the nail guns to a U.S. construction company. In which quarter(s) is (are) GDP higher?
the first but not the second.
All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,
the increase in output was greater last year than this year.
Natural resources (N/L)
the inputs into production that nature provides N/L
Human capital (H/L)
the knowledge and skills workers acquire through education, training, and experience H/L
Natural rate of unemployment
the normal rate of unemployment around which the actual unemployment rate flucuates
Discouraged workers are not included in
the number of unemployed, the labor force, frictional employment
Physical capital (K/L)
the stock of equipment and structures used to produce goods and services K/L
The rule of 70
the value of a variable will double in approximately (70 ÷ annual growth rate) years
The labor-force participation rate measures the percentage of the
total adult population that is in the labor force.
Gross Domestic Product measures
total income of everyone in the economy. total expenditure on the economy's output of goods and services.
Labor force
total number of workers, including the employed and unemployed
Consumption (C)
total spending by households on goods and services ex) TV, cars, food, clothing, haircuts, medical care, education
Investment (I)
total spending on goods that will be used in the future to produce more goods.
Nominal GDP
values output using current prices NOT corrected for inflation
Real GDP
values output using the prices of a BASE YEAR IS corrected for inflation
Frictional unemployment is inevitable because
sectoral shifts are always happening.
A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that covers his time and expenses to the homeowner. How much do these transactions add to GDP?
$1,200
Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. Ruth's 1931 salary was equivalent to a 2012 salary of about
$1,208,421
In the economy of Talikastan in 2015, consumption was $3000, GDP was $5500, government purchases were $1000, imports were $1000, and investment was $1000. What were Talikastan's exports in 2015?
$1,500
If the CPI was 127 in 1972 and is 324 today, then $10 in 1972 purchased the same amount of goods and services as
$25.51 purchases today.
If the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount of goods and services as
$40 purchased in 1975.
Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about
$40,950
A U.S.-owned automobile factory uses $100,000 worth of parts purchased from foreign countries along with U.S. inputs to produce 30 cars worth $20,000 each. Twenty of these cars are sold and 10 are left in inventory. How much did these actions add to GDP?
$500,000
Inflation Rate
(CPI this year-CPI last year/CPI last year) x100
GDP Deflator
(NGDP/RGDP) x 100
CPI
(cost of basket in current year/cost of basket in base year) x 100
For an imaginary economy, the value of the consumer price index was 138.75 in 2016, and the inflation rate was 10 percent between 2015 and 2016. The consumer price index in 2015 was
126.1
The Bureau of Labor Statistics reported in 2005 that there were 28.19 million people over the age of 25 who had no high school degree or its equivalent, 11.73 million of whom were employed and 1.04 million of whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group?
45.3% and 8.1%
The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced
5 percent deflation between the first and second years, and 3 percent deflation between the second and third years.
If in some year nominal GDP was $28 trillion and real GDP was $32 trillion, what was the GDP deflator?
87.5
Alexis and Tara both mine salt. Alexis mines 300 lbs in 20 hours and Tara mines 400 lbs in 40 hours. Which of the following is correct?
Alexis's productivity is greater than Tara's. The difference could be explained by Alexis having more physical capital than Tara.
Curtis has looked for work as an accountant for some time. While the demand for accountants does not appear to be falling, there seems to be more people applying than jobs available.
Curtis is structurally unemployed.
Tangible goods
DVDs, bikes, beer
Intangible goods
Dry cleaning, concerts, cell phone services
Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP?
Ellen's but not Sam's.
Jenna is searching for a job that suits her tastes about where to live. Mary is looking for a job that makes best use of her skills.
Jenna and Mary are both frictionally unemployed.
John is a stockbroker. He has had several job offers, but he has turned them down because he thinks he can find a firm that better matches his tastes and skills.
John is frictionally unemployed.
Net Exports (NX)
NX = exports - imports
When ranking movies by nominal box office receipts, what important fact is overlooked?
Prices, including those for movie tickets, have been rising over time.
The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?
Returns to capital become increasingly smaller as the amount of capital per worker increases.
Which of the following statements is correct?
Technological knowledge is a determinant of productivity.
The U.S. government pays an economist at the U.S. Department of Commerce $100,000 in salary in 2013. The economist then retires. In 2014, the government pays him $60,000 in Social Security benefits. Which of the following is correct?
The 2013 payment is included in 2013 GDP as government purchases, but the 2014 payment is not included in 2014 GDP.
The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?
The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.
Which of the following is consistent with the catch-up effect?
The United States had a higher growth rate before 1900 than after. After World War II the United States had lower growth rates than war-ravaged European countries. Although the United States has a relatively high level of output per person, its growth rate is rather modest compared to some countries.
Which of the following is NOT an explanation for the existence of unemployment in the long run?
The business cycle.
Which of the following is NOT correct?
The consumer price index is used to measure the quantity of goods and services that the economy is producing.
In early 2010 Molly paid $200,000 for a house built in 2000. She spent $30,000 on new materials to remodel the house. Although Molly lived in the house after she remodeled it, its rental value rose. Which of the following contributed to real GDP in 2010?
The cost of the remodeling materials and the increase in rent, but not the price of the house.
Which of the following transactions adds to U.S. GDP for 2015?
When Ken and Kim were both single, they lived in separate apartments and each paid $800 in rent. Ken and Kim got married in 2015 and they bought a previously unoccupied house that, according to reliable estimates, could be rented for $1,700 per month.
Unemployment Insurance
a government program that partially protects workers' incomes when they become unemployed
Government Purchases (G)
all spending on the goods and services purchased by government at the federal, state, and local levels
In the 1990's Ireland made unemployment benefits less generous. This change would likely have reduced
both frictional unemployment and the natural rate of unemployment.
An increase in the price of dairy products produced domestically will be reflected in
both the GDP deflator and the consumer price index.
An increase in a country's population may contribute to the rate of technological progress because a larger population
brings with it more scientists, inventors, and engineers.
Sectoral shifts
changes in composition of demand across industries or regions of the country
Not in the labor force
everyone else
Durable Good
ex) TV, cars
Structures
factories, office buildings, houses
Non-durable Good
food and clothing
If a Japanese company opens a new factory in South Korea, it makes
foreign direct investment. The factory will make a bigger impact on South Korea's GDP than on its GNP.
Inventories
goods produced but not yet sold
Suppose that the U.S. undertakes a policy to increase its saving rate. This policy will likely
gradually raise the level of real GDP per person.
Services (intangible items)
haircuts, medical care, education
When the consumer price index rises, the typical family
has to spend more dollars to maintain the same standard of living.
Japan's status as a rich nation is attributable to
international trade, but not to Japan's domestic quantities of natural resources.
Frictional unemployment results from
job searching. It is often thought to explain relatively short spells of unemployment.
Human capital is
knowledge and skills that workers have acquired.
Capital equipment
machines, tools
Unemployment insurance
may improve the ability of the economy to match workers with appropriate jobs, reduces the job search efforts of the unemployed, increases the amount of frictional unemplopyment in the economy
Which of the following causes of unemployment is associated with a wage rate above the market equilibrium level?
minimum wage laws, unions, efficiency wages
Cyclical unemployment is caused by
neither frictional nor structural unemployment
Structural unemployment
occurs when there are fewer jobs than workers longer-term
Frictional unemployment
occurs when workers spend time searching for the jobs that best suit their skills and tastes short-term
Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then
output in country A increases by less than in country B.
Employed
paid employees, self-employed, and unpaid workers in a family business
Unemployed
people not working who have looked for work during the previous 4 weeks
Suppose Turkey increases its saving rate. In the long run
productivity and real GDP per person increase.