ECON 2301 Midterm Exam (Ch.5-8)

(5.2) The expenditure approach measures GDP by

(5.2) adding together consumption expenditure (C), investment (I), government expenditure (G), and net exports (NX)

(6) What does the BLS count by employed?

- Worked at least 1 hour in a paid job or 15 hours unpaid in a family business - Didn't work but were temporarily absent from a job

(6) What does the BLS count by unemployed?

- have no job - were available for work and either: - Had made previous efforts to find a job during the previous four weeks, or - Were waiting to be recalled to a job from which they had been laid off

(6) What are the four types of unemployment?

-Frictional unemployment, -structural unemployment, -seasonal unemployment, -Cyclical unemployment

Although imperfect, which of the following is used as a measure of the standard of living? A) real GDP ÷ population B) real GDP × population C) nominal GDP × population D) nominal GNP ÷ populationE) nominal GNP × population

A) real GDP ÷ population

Recovery​ won't improve unemployment Despite some optimism about the seeds of​ recovery, the Congressional Budget Office​ (CBO) sees joblessness rising. The CBO sees unemployment peaking at​ 10.4% next year from an average of​ 9.3% this​ year, before it falls to​ 9.1% in 2011. ​Source: Fortune​, August​ 25, 2009 Why does unemployment continue to rise as an expansion​ begins? A. As an expansion​ begins, previously marginally attached workers look for​ jobs, exceeding the number of people hired. B. The unemployment rate is a leading indicator of the business​ cycle, so unemployment continues to rise as an expansion begins. C. In the early stages of an​ expansion, unemployment increases as firms lay off workers in an attempt to cut costs. D. In the early stages of an​ expansion, the labor force decreases.

A. As an expansion​ begins, previously marginally attached workers look for​ jobs, exceeding the number of people hired.

Constructing the CPI involves which of the following stages i. conducting the monthly price survey. ii. converting the CPI to an international index. iii. selecting CPI market basket. A. i and iii B. i only C. ii only D. iii only E. ​i, ii, and iii

A. i and iii

In the United States over the last 50​ years, A. the labor force participation rate for women has increased to about 60 percent. B. both​ women's and​ men's labor force participation rates have increased due to technology. C. the labor force participation rate for women has increased to match that for women in other developed countries. D. the change in​ men's labor force participation rate explains the behavior of the unemployment rate. E. ​women's earning power has remained fairly constant.

A. the labor force participation rate for women has increased to about 60 percent.

The New York Times thinks the​ _______ measure of unemployment is more relevant than the official unemployment rate. In​ mid-2019, this measurement was​ _______. A. ​U-6; 7 percent B. ​U-5; 7 percent C. ​U-6; 5 percent D. ​U-3; 5 percent

A. ​U-6; 7 percent

How does cyclical unemployment change between a business cycle trough and a business cycle​ peak? At a business cycle​ trough, cyclical unemployment is​ _______ and at a business cycle​ peak, cyclical unemployment is​ _______. A. ​high; zero B. ​negative; positive C. ​positive; negative D. ​zero; low

A. ​high; zero

(6) Which statement correct describes the U.S. unemployment​ rate? The U.S. unemployment rate​ _______. A. increases in recessions B. shows an upward trend C. is calculated as the percentage of the working-age population who are unemployed D. is calculated as the percentage of the working-age population who are unemployed or discouraged

A. increases in recessions

(6) Who in the following statements is a discouraged worker​? A. Ned is available to work and has been sending job applications whenever he sees any suitable opportunity. B. Dan is available to work but has not looked for a job in the past eight weeks because of repeated applications but no single offer. C. Nick is changing his job because he has had differences with his​ co-workers in his current company. D. Rachel does not find her current job profile interesting and is looking for alternate opportunities.

B. Dan is available to work but has not looked for a job in the past eight weeks because of repeated applications but no single offer.

5.1 Part 2) Classify each of the following items as a final good or an intermediate​ good, and identify whether it is a component of consumption​ expenditure, investment, or government expenditure on goods and​ services: Item 1. New airplanes bought by United Airlines. Item 2. A new limousine for the president. Item 3. Aluminum sheets bought by Boeing. Item 4. Starbuck's grande mocha frappuccino bought by a student. A. a final good that is investment​; a final good that is consumption expenditure B. a final good that is investment​; a final good that is government expenditure C. an intermediate good​; a final good that is consumption expenditure D. an intermediate good​;

B. a final good that is investment​; a final good that is government expenditure

What is the effect of an increase in the income tax rate and more generous unemployment benefits on the labor​ market? An increase in the income tax rate​ _______ and more generous unemployment benefits​ _______. A. decreases the supply of​ labor; decrease the supply of labor B. decreases the supply of​ labor; increase the demand for labor C. increases the demand for​ labor; decrease the supply of labor D. increases the demand for​ labor; increase the demand for labor

B. decreases the supply of​ labor; increase the demand for labor

(5) Government expenditure on goods and services is​ _______. A. the sum of all payments paid by all levels of government minus all taxes collected by all levels of government B. expenditure by all levels of government on goods and services C. the expenditure incurred to pay to run all levels of government D. the sum of all expenditures incurred by Congress

B. expenditure by all levels of government on goods and services

Gross domestic product is the market value of all the​ _______ in a given time period. A. goods and services bought by Americans B. final goods and services produced by all firms located in the United States C. goods and services produced by American companies in all countries D. ​U.S.-produced goods and services bought in the United States

B. final goods and services produced by all firms located in the United States

Over the business​ cycle, A. neither real GDP nor potential GDP fluctuate because they just grow smoothly along their trends. B. only real GDP fluctuates around its trend and potential GDP remains equal to its trend. C. real GDP fluctuates around its trend. D. only potential GDP fluctuates around its trend and real GDP remains equal to its trend. E. potential GDP fluctuates around its trend.

B. only real GDP fluctuates around its trend and potential GDP remains equal to its trend.

What happens in the labor market when the following event​ occurs? Suppose that the number of jobs in the fishing industry decreases but the number of jobs in the travel industry increases. Initially, ​_______. A. there is a shortage of workers in both sectors B. structural unemployment increases C. the unemployment rate does not change D. cyclical unemployment increases

B. structural unemployment increases

GDP =

C + I + G + (X-M)

Who published The General Theory of​ Employment, Interest, and Money​? In what year was it​ published? What was his​ theory? ​_______ published The General Theory of​ Employment, Interest, and Money in​ _______. A. Donald​ Trump; 2015 B. Adam​ Smith; 1776 C. John Maynard​ Keynes; 1936 D. Milton​ Friedman; 1967 His theory was that​ _______. A. an economy will gradually work itself out of depression with no government intervention B. prices and wages react quickly to shocks in the economy C. too much government spending is the cause of depression and recession D. too little private spending is the cause of depression and recession

C. John Maynard​ Keynes; 1936 D. too little private spending is the cause of depression and recession

4. If the current unemployment rate equals the natural unemployment​ rate, what is the output​ gap? A. The output gap is cyclical. B. The output gap is negative. C. There is no output gap. D. The output gap is positive.

C. There is no output gap.

(5) An intermediate good or service is​ _______. A. produced by union labor B. a good or service that is used by businesses but not by households C. a good or service that is used as a component of a final good or service D. less expensive than a final good or service

C. a good or service that is used as a component of a final good or service

(6) Which statement correctly describes the U.S. labor force participation​ rate? The U.S. labor force participation rate​ _______. A. for women is higher than the female labor force participation rates in Canada and the United Kingdom B. is calculated as the percentage of the working-age population who are employed C. decreased between 2000 and 2019 D. has an upward trend that is mainly accounted for by the increasing participation of men in the labor market

C. decreased between 2000 and 2019

U.S real GDP A. precisely measures the improving standard of living in the United States. B. is not as accurate as nominal GDP when measuring standard of living changes over time. C. excludes the value of underground production and leisure time. D. includes the value of underground production but excludes the value of leisure time. E. measures the change in the price level over time.

C. excludes the value of underground production and leisure time.

(6)What occurs in the labor market when cyclical unemployment increases and other things remain the​ same? When cyclical unemployment increases and other things remain the​ same, _______. A. the amount of structural unemployment decreases B. the natural unemployment rate increases C. the natural unemployment rate does not change D. the amount of frictional unemployment decreases

C. the natural unemployment rate does not change

(6) How does cyclical unemployment change between a business cycle trough and a business cycle​ peak? At a business cycle​ trough, cyclical unemployment is​ _______ and at a business cycle​ peak, cyclical unemployment is​ _______. A. ​zero; low B. ​high; zero C. ​positive; negative D. ​negative; positive

C. ​positive; negative

Unemployment benefits in western Europe are more generous than in the United States. As a​ result, ________ in the United States. A. cyclical unemployment is higher B. seasonal unemployment is lower C. frictional unemployment is higher D. frictional unemployment is lower E. structural unemployment is higher

C. frictional unemployment is higher

What is in the CPI market​ basket? The CPI market basket consists of items that​ _______ buy and​ _______. A. all​ households; the reference base period changes whenever the market basket changes B. all​ households; a greater weight is put on the items purchased by urban households C. urban​ households; the Consumer Expenditure Survey is used to update it frequently D. urban​ households; it is updated every month

C. urban households; the Consumer Expenditure Survey is used to update it frequently

(5.1 Part 1) Classify each of the following items as a final good or an intermediate​ good, and identify whether it is a component of consumption​ expenditure, investment, or government expenditure on goods and​ services: Item 1. New airplanes bought by United Airlines. Item 2. A new limousine for the president. Item 3. Aluminum sheets bought by Boeing. Item 4. Starbuck's grande mocha frappuccino bought by a student. Item 1 is​ _______ and item 2 is​ _______. A. an intermediate good​; a final good that is investment B. a final good that is investment​; a final good that is government expenditure C. an intermediate good​; a final good that is government expenditure D. a final good that is investment​;

D. a final good that is investment​; a final good that is investment​

The GDP price index is an average of the current prices of​ _____ included in the​ GDP, expressed as a percentage of base year prices. A. import goods B. the services of factors of production C. the intermediate goods and services D. all the goods and services

D. all the goods and services

At full​ employment, there is no A. unemployment. B. frictional unemployment. C. structural and seasonal unemployment. D. cyclical unemployment. E. structural unemployment.

D. cyclical unemployment.

(6) What does the relationship between the unemployment rate and the natural unemployment rate tell us about cyclical​ unemployment? When the unemployment rate is​ _______ than the natural unemployment​ rate, cyclical unemployment is​ _______. A. ​greater; negative B. ​less; positive C. ​greater; is increasing D. ​less; negative

D. ​less; negative

A newspaper headline reads​ "A New Wave of Workers Enters the Job​ Market!" This wave of​ young, new entrants to the labor market is likely to lead to A. a decrease in the unemployment rate. B. a decrease in the​ country's potential GDP. C. a decrease in the natural unemployment rate but an increase in the actual unemployment rate. D. an increase in the natural unemployment rate. E. no effect on the unemployment rate.

D. an increase in the natural unemployment rate.

The amount of frictional unemployment depends on A. international competition. B. the phase of the business cycle. C. demographic factors and unemployment compensation. D. the time of the year. E. Both answers A and B are correct.

E. Both answers A and B are correct.

Who published The General Theory of​ Employment, Interest, and Money​? In what year was it​ published?

John Maynard​ Keynes; 1936

(6) labor force participation rate

Labor force/​Working-age ​population ×100

Who in the following statements is a ​part-time worker for economic reasons​? A. Julie works at Bank of America for 8 hours each day from Monday through Friday. B. Sherrie is a graduate who started working at Safeway pharmacy for 4 hours each​ day, three days a​ week, as they do not currently have a​ full-time opening. C. Meryl recently retired from work and started working at the public library for a couple of hours on weekdays. D. Amy works at a community college for 6 hours each​ day, only two days a​ week, to be able to spend time with her kids.

Sherrie is a graduate who started working at Safeway pharmacy for 4 hours each​ day, three days a​ week, as they do not currently have a​ full-time opening.

(6) What event would increase the unemployment rate at full​ employment?

The government makes unemployment benefits more generous

The U.S. National Income and Product Accounts divide incomes into two big categories:

Wage income and Interest, rent, and profit income

Recession

_____ is a period during which real GDP decreases for at least two successive​ quarters; or defined by the NBER as​ "a period of significant decline in total​ output, income,​ employment, and​ trade, usually lasting from six months to a​ year, and marked by contractions in many sectors of the​ economy."

(6) discouraged worker

a marginally attached worker who has not made specific efforts to find a job within the past four weeks because previous unsuccessful attempts to find a job were discouraging

(7) CPI is the measure of

average prices paid by consumers for a fixed basket of goods and services

Real GDP measures the value of goods and services produced in a given year using

base year prices.

(7.1.3) The CPI market basket

determines how the spending patterns of the average urban household change from month to month.

(5) A​ _______ good or service is a good or service that is produced for its final user and not as a component of another good or service.

final

(5) Nominal GDP

is always calculated on current year prices

(5) consumption expenditure

is the expenditure by households on consumption goods and services.

(5) investment

is the purchase of new capital goods​ (tools, instruments,​ machines, buildings) and additions to inventories.

(6) labor force

members of the working age population who are employed or unemployed

(6) Part-time workers are divided into two​ groups

part time for economic reasons and part time for noneconomic reasons

(6) working age population

people aged 16 years and older, not in jail, hospital, institutionalized care, armed forces

(6) Part time workers for economic reasons

people who work 1 to 34 hours per week but are looking for​ full-time work and cannot find it because of unfavorable business conditions.

(6) cyclical unemployment

the higher than normal unemployment at a business cycle trough and the lower than normal unemployment at a business cycle peak

(5.2) disposable personal income

the income received by households minus personal income taxes paid

(6) The unemployment rate is

the percentage of the people in the labor force who are unemployed

(6) labor force participation rate is

the percentage of the​ working-age population in the labor force

net domestic product at factor cost

the sum of the wages, interest, rent, and profit

(6) natural unemployment rate

the unemployment rate

(6) Full employment is defined as a situation in which​

the unemployment rate equals the natural unemployment rate

John Maynard​ Keynes theory was that

too little private spending is the cause of depression and recession

(6) The unemployment rate

unemployed/labor force x 100

(6.3) full unemployment

unemployment rate equals the natural unemployment rate

(6) natural unemployment

unemployment that arises from frictions and structural change

(6) structural unemployment

unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs

China GDP growth slows to​ 27-year low ​China's economic growth slowed to​ 6.2% in the second​ quarter, its weakest pace in at least 27​ years, as demand at home and abroad faltered in the face of mounting U.S. trade pressure. ​Source: Reuters, July​ 15, 2019 How does​ China's real GDP growth compare with that of the United​ States? If​ China's growth slows​ further, would that mean it was in a​ recession? China's real GDP growth is​ _______ than that of the United States. If​ China's growth slows​ further, China​ _______. A. ​smaller; may or may not be in a recession. It depends on the relationship between real GDP and potential GDP B. ​greater; will not be in a recession because​ China's real GDP growth is greater than U.S. real GDP growth and we know that the United States is not in a recession C. ​greater; will not be in a recession because real GDP growth although slowing is still positive D. ​greater; will be in a recession because real GDP growth is slowing

​A. smaller; may or may not be in a recession. It depends on the relationship between real GDP and potential GDP

The reference base period is a period for which the​ _____ is defined to equal​ _____. Currently, the reference base period is​ 1982-1984.

​CPI; 100