Econ 104 Test 2

Refer to Table 7.1. The unemployment rate is A) 14.3%. B) 16.7%. C) 17.6%. D) 25.0%.

C)17.6%

natural rate of unemployment

the combination of frictional and structural unemployment

Refer to Table 7.3. If 2008 is the base year, the price index in 2007 is A) 89.3. B) 96.0. C) 104.0. D) 111.9.

A) 89.3

labor force

employed and unemployed people over the age of 16

Depression

severe prolonged economic downturns during which millions of people can be out of work for several years

Refer to Table 7.1. The labor force equals A) 14,000 people. B) 17,000 people. C) 18,000 people. D) 21,000 people.

B) 17,000 people

Gross national product is the total market value of A) all final goods and services produced in a country in a given year, regardless of who owns the resources. B) all final goods and services produced by resources owned by a country, regardless of where production takes place. C) all final and intermediate goods and services produced in a country, regardless of who owns the resources. D) all final and intermediate goods and service produced by resources owned by a country in a given year.

B) All final goods and services produced by resources owned by a country, regardless of where the production takes place

3 Effects of inflation

1) hurts people who's income increases less rapidly 2) hurt people that lend money and help people that borrow money 3) investors become reluctant to invest in capital and make long term commitments

population

= labor force + not in labor force = (employed + not employed) + not in labor force

Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. If year 1 is the base year, the value for this economy's real GDP in year 2 is A) $168. B) $179. C) $202. D) $214.

A) $168

Refer to Table 7.3. The lowest inflation rate is between the years A) 2008 and 2009. B) 2009 and 2010. C) 2007 and 2008. D) cannot be determined from the given information

A) 2008 and 2009

The government wants to encourage consumer spending through cutting income taxes. This is an example of A) a fiscal policy. B) a supply-side policy. C) an incomes policy. D) a monetary policy.

A) A fiscal policy

The equation for GDP using the expenditure approach is A) GDP = C + I + G + EX - IM. B) GDP = C + I + G + (IM - EX). C) GDP = C + I + G - EX - IM. D) GDP = C + I + G + EX + IM.

A) GDP = C + I + G + EX - IM

Which of the following statements is TRUE? A) Recessions may increase efficiency by driving the least efficient firms in the economy out of business. B) The costs of recessions are distributed equally among all groups of the population. C) A recession often leads to an increase in the inflation rate. D) Recessions tend to increase the demand for imports and therefore improve the nation's balance of payments.

A) Recessions may increase efficiency by driving the least efficient firms in the economy out of business

The government implements fiscal policy when it changes A) taxes and/or interest rate. B) taxes and/or spending. C) spending and/or interest rate. D) money supply and/or taxes.

B) Taxes and/or spending

Which of the following is included in both the U.S. GDP and GNP? A) The value of all cars produced by General Motors in the U.S. B) The value of all cars produced by Toyota in the U.S. C) The value of cars produced by Nissan in Japan and the U.S. D) The value of all cars produced by Ford in Mexico.

A) The value of cars produced by General Motors in the U.S.

The major lesson of the circular flow diagram is that A) total income in the economy must always equal total spending. B) saving must always be less than investment. C) tax receipts must be equal to transfer payments D) taxes must always be greater than government expenditures.

A) Total income in the economy must always equal total spending

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift: A) downward and to the left. B) downward and to the right. C) upward and to the left. D) upward and to the right.

A) downward to the left

Between a trough and a peak, the economy goes through a(n) A) expansion. B) hyperinflation. C) recession. D) bust

A) expansion

For the 1952-2010 period in the United States, output per worker hour A) fluctuated around an upward trend. B) decreased during the 1960s. C) showed the largest increase during the 1980s. D) increased at a constant rate.

A) fluctuated around an upward trend

If the short-run aggregate supply curve is horizontal, an increase in union aggressiveness that pushes wages up will result in ______ prices and ______ output in the short run. A) higher; lower B) lower; higher C) higher; higher D) lower; lower

A) higher; lower

In 2010, final sales equal $350 billion and the change in business inventories is -$60 billion. GDP in 2010 A) is $290 billion. B) is $295 billion. C) is $410 billion. D) cannot be determined from this information.

A) is $290 billion

If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect: A) level of output but not prices. B) prices but not level of output. C) both prices and level of output. D) neither prices nor level of output.

A) level of output but not prices

Which of the following is a desirable characteristic in an economy? A) low unemployment B) rapid increase in the general price level C) high inflation D) low employment

A) low unemployment

The productivity of workers is defined as the A) output produced by a worker per hour. B) total output produced by the labor force. C) number of hours a worker spends at work. D) number of workers needed to produce one day's volume of output.

A) output produced by a worker per hour

On two occasions in the 1970s: A) world oil prices rose rapidly, inflation was high, and the unemployment rate was high. B) world oil prices rose rapidly, inflation was moderate, and the unemployment rate was high. C) world oil prices rose rapidly, inflation was high, and the unemployment rate was moderate. D) oil prices rose rapidly, but the Fed used monetary policy to curb inflation.

A) world oil prices rose rapidly, inflation was high, and the unemployment rate was high

When an economics professor quits his/her job at a university and starts looking for a better job in another university, he/she is A) naturally unemployed. B) frictionally unemployed. C) cyclically unemployed. D) structurally unemployed.

B) Frictionally unemployed

The natural rate of unemployment is generally thought of as the A) sum of frictional unemployment and cyclical unemployment. B) sum of frictional unemployment and structural unemployment. C) ratio of the frictional unemployment rate to the cyclical unemployment rate. D) sum of structural unemployment and cyclical unemployment.

B) Sum of frictional unemployment and structural unemployment

A price index is A) a measurement showing how the GDP changes over time. B) a measurement showing the cost of a bundle of goods at a point in time. C) a decrease in the overall price level. D) a sustained increase in the overall price level.

B) a measurement showing the cost of a bundle of goods at a point in time

If in a year there is a positive inventory investment, then final sales A) equal GDP. B) are less than GDP. C) exceed GDP. D) are zero.

B) are less than GDP

The price level decreases and output increases in the transition from the short run to the long run when the short-run equilibrium is ______ the natural rate of output in the short run. A) above B) below C) equal to D) either above or below

B) below

(In the short-run aggregate supply curve is horizontal. In the long-run aggregate supply curve is vertical.) A change in the money supply will change ______ in the short run and change ______ in the long run. A) only prices; only output B) only output; only prices C) both prices and output; only prices D) both prices and output; both prices and output

B) only output; only prices

Assume that the economy starts from long-run equilibrium. If the Federal Reserve increases the money supply, then ______ increase(s) in the short run and ______ increase(s) in the long run. A) prices; output B) output; prices C) output; output D) prices; prices

B) output; prices

Diane lost her job and immediately started looking for another job. As a result the A) labor force increases. B) unemployment rate increases. C) unemployment rate remains constant. D) labor force decreases.

B) unemployment rate increases

Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. If year 1 is the base year, the value for this economy's GDP deflator in year 2 is A) 93.9. B) 100. C) 106.5. D) 179.

C) 106.5

Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. If year 1 is the base year, the value for this economy's inflation rate between year 1 and year 2 is A A) -6.1%. B) -5.5%. C) 6.5%. D) 79%.

C) 6.5%

(Exhibit: Shift in Aggregate Demand) In this graph, initially the economy is at point E, with price P0 and output Y. Aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD1. The economy moves first to point ______ and then, in the long run, to point ______. A) A; D B) D; A C) C; B D) B; C

C) C;B

Income Mexican citizens earn in the U.S. counts in A) U.S. GNP. B) Mexican GDP. C) Mexican GNP. D) both U.S. and Mexican GDP.

C) Mexican GNP

An individual who cannot find a job because his or her job skills have become obsolete is an example of A) cyclical unemployment. B) seasonal unemployment. C) structural unemployment. D) frictional unemployment.

C) Structural unemployment

Which of the following is an example of an intermediate good? A) the dough you buy to fix yourself a pizza for dinner B) lumber you buy to build a house for your dog C) the pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to D) the chocolate you buy to make yourself some cookies

C) The pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to

It has become conventional to classify an economic downturn as a recession when aggregate output declines for A) a year. B) three consecutive quarters. C) two consecutive quarters. D) six consecutive quarters.

C) Two consecutive quarters

The single largest expenditure component in GDP is A) net exports. B) investment. C) consumption. D) government spending

C) consumption

When GDP growth declines, investment spending typically ______ and consumption spending typically ______. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

C) decreases; decreases

The long run refers to a period: A) of decades. B) during which capital and labor are sometimes not fully employed. C) during which prices are flexible. D) during which output deviates from the full-employment level.

C) during which prices are flexible

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run, prices will ______ and output will ______. A) increase; increase B) decrease; decrease C) increase; decrease D) decrease; increase

C) increases; decrease

Which of the following is a topic studied in Macroeconomics? A) the functioning of individual industries B) the behavior of individual households C) aggregate behavior of households and industries D) the decision-making behavior of individual business firms

C)Aggregate behavior of households and industries

Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. The value for this economy's nominal GDP in year 3 is A) $204. B) $222. C) $250. D) $270.

D) $270

Refer to Table 7.1. The labor-force participation rate is A) 66.7%. B) 75.0%. C) 77.8%. D) 80.9%.

D) 80.9%

The demand for refrigerators falls when the economy enters a downturn. If a refrigerator manufacturer lays off workers during an economic downturn, this would be an example of A) frictional unemployment. B) structural unemployment. C) natural unemployment. D) cyclical unemployment.

D) Cyclical unemployed

The demanders in the goods-and-services market are A) households, the government, and the rest of the world. B) the government and business firms. C) households and business firms. D) households, the government, business firms, and the rest of the world.

D) Households, the government, business firms, and the rest of the world.

In which of the following conditions is the inflation rate likely to fall and the unemployment rate likely to rise? A) stagflation B) hyperinflation C) boom D) recession

D) Recession

Output in an economy can be increased by A) using fewer machines. B) limiting the work week. C) decreasing inflation. D) adding more workers and/or more machines

D) adding more workers and/or more machines

Gross domestic product measures A) the total income of everyone in the economy. B) the total spending of everyone in the economy. C) the value of all output in the economy. D) all of the above

D) all of the above

If output is rising and unemployment is falling, the economy MUST be in a(n) A) hyper-inflationary period. B) depression. C) contraction. D) expansion.

D) expansion

Nominal GDP measures the value of all goods and services A) in fixed dollars. B) in constant dollars. C) without inflation. D) in current dollars.

D) in current dollars

Business cycles are: A) regular and predictable. B) irregular but predictable. C) regular but unpredictable. D) irregular and unpredictable.

D) irregular and unpredictable

Exports equal A) imports + (exports + imports). B) net exports - imports. C) imports - net exports. D) net exports + imports.

D) net exports + imports

Starting from long-run equilibrium, if the velocity of money increases (due to, for example, the invention of automatic teller machines) and no action is taken by the government: A) prices will rise in both the short run and the long run. B) output will rise in both the short run and the long run. C) prices will rise in the short run and output will rise in the long run. D) output will rise in the short run and prices will rise in the long run.

D) output will rise in the short run and prices will rise in the long run

Labor force participation rate

Labor force / population

Producer Price Index

Uses prices that producers pay rather than the prices that consumers pay

Deflation

a decrease in the overall price level

Inflation

an increase in the overall level of prices in an economy

sustained inflation

increase in the price level over some significant time period

Consumer Price Index

index of a set of goods in the market basket

Recession

less severe downturn that doesn't last as long as a depression

unemployed

people who are out of work and have made an effort to find work within the last four weeks

Frictional unemployment

people who are out of work because they are in search of a job that they are more qualified for or are in desire of

Discouraged workers

people who have been unemployed and have since given up looking for a new job during a recession this can cause the unemployment rate to go down but in actuality there are less people working (discouraged worker effect)

unemployment rate

the ratio that compares the number of unemployed to the number of people in the labor force = unemployed / (employed + unemployed) = unemployed / labor force

Structural unemployment

unemployment due to changes in economic institutions, geographic displacement, technological change, and similar factors

Cyclical unemployment

when the economy takes a turn for the worst and the unemployment rate is above natural