ECON 211 Exam 2

A legal maximum price that can be charged for a product or service is known as a(n)

price ceiling

what is real GDP in 2014 dollars if nominal GDP in 2014 is $15,000 billion, the GDP deflator in 2014 is 110, and the GDP deflator in 2010 was 100? LOOK UP!

$13,636 billion

The key to being counted as unemployed by the Bureau of Labor Statistics is to be:

actively seeking work

According to the circular flow model, the value of the household sector and the value of the business sector will:

always be equal

Suppose the equilibrium price for a gallon of milk is $2.50, but due to government price supports, the minimum legal price is $2.75 per gallon. This price floor:

causes a surplus of milk in the market.

Suppose that the price of a good is $6 and equilibrium price is $3. Compared to market equilibrium:

consumer surplus is decreased and deadweight loss is increased

When the Bureau of Labor Statistics calculates the consumer price index, it assumes that

consumers do not substitute cheaper goods for goods when prices have risen

If the price lowered from $8 to $5, producer surplus:

decreases by $90 and deadweight loss increases by $70

The 2 approaches used by the government in estimating GDP:

expenditure and income

Which component is the smallest part of U.S. GDP?

net exports

Child care provided by a nanny is not included in the GDP if the parents pay the nanny "under the table."

True

Retirees and creditors:

are hurt by inflation because their purchasing power is reduced

What is an example of a final good?

bacon purchased at a grocery store

If one person consumes a public good:

others cannot be excluded from enjoying it.

The high point of a business cycle is called the:

peak

Which phase of the business cycle occurs immediately after a recovery?

peak

When prices fall below equilibrium:

producer surplus falls and it is uncertain what happens to consumer surplus

Karl's Keychain Company produces keychains that sell for $1 each. On January 1, 2015, the company had inventory of 8,000 keychains. During 2015, the company sold 900,000 keychains. At the end of the business year on December 31, 2015, the company's inventory of keychains was 9,000. What was the value of Karl's total production and inventory investment in 2015?

production = $901,000; inventory investment = $1,000

what stage of the business cycle would the NBER declare Econoland to be in during the 4th quarter of 2014?

recession

The simple circular flow diagram shows that economic aggregates can be calculated either by the _____ flows in the product market or by the _____ flowing to households in the resource market.

spending; income

If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, then they are experiencing:

structural unemployment

A business cycle is:

the periodic fluctuation of economic activity

If a price floor is set below the equilibrium price in the market, consumer surplus will be:

the same as it would be without the price floor

At equilibrium price:

the sum of consumer surplus and producer surplus is maximized

In the graph, which shape represents producer surplus?

the triangle jik

Markets tend to produce:

too much of a good exhibiting external costs.

Zach has been laid off from his job as an aircraft worker . He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is:

unemployed

If a price ceiling is set below the market price, it is

Effective

Which of the following is true about business cycles?

Every cycle is unique

______ unemployment includes workers who voluntarily quit their jobs to search for better positions.

Frictional

According to the table below, when using the expenditure approach, GDP is

$1,770 billion

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is consumer surplus?

$11

In the graph, the consumer surplus is equal to ______ (Question 49-graph)

$15

A sheep ranch produces $30 worth of wool. A suit manufacturer produces $60 worth of suits. A retail outlet sells a suit to a customer for $180. The change in GDP would be:

$180

According to the table, the GDP deflator for 2012 is

100

According to the table, what is the unemployment rate of this economy?

14.3%

According to the table, what is the labor force of this economy?

350 Labor force: number employed + number unemployed

Last year, the consumer price index (CPI) was 115 while the consumer price index for this year is 125. The rate of inflation is:

8.7%

Which situation involves an external cost?

Alma lives next to a freeway and the noise wakes her up every morning, against her wishes, at 6 o'clock

Suppose that a major hurricane hits Florida, causing widespread damage to homes and businesses. If the legislature imposes price controls in order to keep reconstruction costs reasonable, which of these is the MOST likely result?

a shortage of building materials

Which one of the following would NOT lead to higher prices?

an increase in the supply of food

Which is one of the four major reasons why markets fail?

asymmetric information

The largest component of GDP is:

consumption expenditure

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living:

fell by 1%

Consumer surplus is defined as the:

gap between the demand curve and the market price

Investment in structures, equipment, software, and net inventory is known as

gross private domestic investment.

The GDP deflator is an index that includes prices of all the following EXCEPT:

imports

A market with external costs:

tends to overproduce goods.

What is your new salary if you earned $40,000 last year, the consumer price index increased from 120 to 125, and your salary is adjusted by the rate of inflation annually?

$41,666.67

In the graph, which price would allow for an effective price ceiling? (Question 19-graph)

$5

In the graph, what is the sum of consumer and producer surplus? (Question 73-graph)

$50

_____ is an overall decline in prices throughout the economy.

Deflation

Suppose an economy has historically grown at a rate of 2.25%. The economy is growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, but monetary authoirites are concerned that inflation may increase. This economy is probably in the _______ stage of the business cycle.

expansion

Net exports equal:

exports minus imports

Which component of GDP includes inventory changes?

investment

Joe fixes cars in his driveway to earn his income. He works late at night and makes so much noise that Moe, his neighbor across the street, cannot sleep. Joe:

is imposing an external cost on Moe

Which of these is NOT a public good?

shirts at a clothing store

If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals:

$140

The associated table provides a hypothetical bundle of goods and their respective prices for three different years. If 2014 is selected as the base year, the cost of the market basket in 2017 would be: (Question 7-table)

$640.50 LOOK UP!

An economy has a population of 226,500, of whom 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is _____.

7.0%

What impact will a rising price level have on real GDP

Changes in the price level do not impact real GDP

When a recession gets under way:

firms start to lay off workers to reduce costs

. One of the key concepts involved in the circular flow diagram is that

one person's spending is another person's income

In the United States, our principal measure of inflation is:

the consumer price index.

Suppose a market basket of goods costs $10,000 in 2009, the base period, and that same basket of goods now costs $11,200. What is the CPI for that current period?

112.0

Suppose the Bureau of Labor Statistics collects the data presented in the following table: (Question 70-table)

125

The mortgage crisis caused a lot of consumers to stop spending money. The decrease in spending led to a decrease in production. Which type of unemployment resulted?

cyclical

Lexie works Monday to Friday from 4 P.M. to 6 P.M. in the after-school program at a school. She began looking for a full time job last week and has already scheduled three job interviews. According to the Bureau of Labor Statistics, Lexie is:

employed

The U.S. gross domestic product is equal to the total market value of all:

final goods and services produced by resources in the United States

Jennifer did not work during college. She just obtained a bachelor's degree in marketing, and she is now looking for a marketing job in the retail industry. Jennifer is considered:

frictionally unemployed

Producer surplus is defined as the

gap between the supply curve and the market price.

Inflation is a:

general rise in prices

Hannah is not at work because she broke her leg, but she will return once it heals. She is:

in the labor force

Other things equal, if a recession gets worse, the number of discouraged workers _____, and the number of those in the labor force _____.

increases; decreases

The natural rate of employment:

is the rate at which the actual inflation rate is equal to people's inflationary expectations

If there is only one provider of electricity in a city, then that market is likely to fail due to:

lack of competition