Econ Exam 2

What are the 3 types of unemployment?

Frictional, Structural, and Cyclical.

National income?

GDP minus the conumption of fixed capital: GDP Depreciation.

The best measure of a country's standard of living is...

GDP per capita.

Joseph Schumpeter?

Gale of creative destruction and entrepreneur = economic growth.

The output of Mexican citizens who work in Texas would be included in the...

Gross national product of Mexico

What cannot be measured by GDP?

Household production and underground economy.

Personal Income?

Income recieved by households.

During the expansion phase of the business cycle, what eventually increases?

Income, production, and employment.

Inflation tends to ___ during the expansion phase of the business cycle and ___ during the recession phase of the busines cycle.

Increase; decrease.

What factors affect labor productivity growth?

Increases in capita per hour worked, technological change, and property rights.

What is not counted in GDP?

Intermediate Goods.

Why do growth rates matter?

Poor growth rate results in previous rich countries lagging behind.

Why do countries with low - income lack in growth?

Fails to enforce rule of law, wars and revolutions, poor education and health, and low rates of saving and investment.

Structural unemployment is the result of...

a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.

Because of diminishing returns, and economy can continue to increase real GDP per hour worked only if...

there is technological change.

Presently, GDP is___ to compensate for the costs of environmental damage.

not adjusted

Financial Intermediares?

Borrow funds from savers and lend them to borrowers.

Suppose your grandfather earned a salary of 12,000 dollars in 1964. If the CPI is 31 in 1964 and 219 in 2016, then the value of your grandfathers salary in 2016 dollars is approximately...

$84,775.

CPI Formula?

(expenditures in the current year/expenditures in the base year) x 100.

Disposable personal income?

Personal income minus personal tax payments.

If nominal GDP is 5 trillion dollars and real GDP is 4 trillion dollars, the GDP deflator is...

125.

How do we know we are in a recession?

2 consecutive quarters of declining real GDP.

A car that is produced in 2016 is not sold until 2017. According to the definition of GDP, what year should it be counted?

2016

Assume the average annual CPI values for 2015 and 2016 were 207.3 and 215.3. What was the percent increase in the CPI between these two years?

3.86

2015=207 CPI and 2016=215CPI. Consider the following values of the CPI for 2015 and 2016. The inflation rate for 2016 was equal to...

3.9%

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?

9.5%

Crowding out?

A decline in private expenditures as a result of an increase in government purchases.

Final goods and services?

A good or service purchased by a final user.

Price Level?

A measure of the average prices of goods and services in the economy.

What is GDP deflator?

A measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100.

New Growth Theory?

A model of long-run economic growth that emphasizes that technological change influences economic incentives and so is determined by the working of the market system.

Economic growth model?

A model that explains growth rates in real GDP per capita over the long run.

What describes a situation in which a person is hurt by inflation?

A person paid a fixed income during an inflationary period.

Real interest Rate?

Adjust for inflation.

Full employment?

All unemployment is due to frictional and structural unemployment.

Business Cycle?

Alternating periods of GDP per capita.

Producer Price Index? (PPI)

Average of the prices received by producers of goods and services at all stages of the production process.

What are 3 sources of technological change?

Better machinery and equipment, increases in human capital, and better means of organizing and management.

The per-worker production function shows the relationship between ___ per hour worked and ___ per hour worked, holding ___ constant.

Capital; real GDP; technology.

To calculate GDP by the expenditure method, one must add...

Consumption spending, investment spending, government spending, and net exports.

The purchase of a new house is included in...

Investment expenditures.

What determines how fast economies grow?

Labor Productivity.

What determines the rate of long run growth?

Labor productivity. The quantity of goods and services that can be produced by one worker or by one hour of work.

Capital?

Manufactured goods that are used to produce other goods and services.

What will likely increase measured GDP?

Marijuana becomes legal to grow and sell.

Consumer Price Index? (CPI)

Measure of the average changeover time in the prices a typical urban family of 4 pays for goods and services they purchase.

Through Growth rate, Is income all that matters?

No. We can still have high standards of living with out high incomes.

Protecting intellectual property?

Patents and copyrights.

Discouraged workers?

People who are available for work, but have not looked for a job during the previous 4 weeks because they believe no jobs are available for them.

2 main ways to measure the total economic activity in the econcomy, refer to GDP.

Production and income.

Gross National Product? (GNP)

Production performed by citizens of a nation, including overseas production.

What is the governments role in knowledge capital generation?

Protection and subsidizing.

Frictional unemployment?

Short-term unemployment that raised from the process of matching workers with jobs.

Employed?

Someone who currently has a job or who is temporarily away from his or her job.

Unemployed?

Someone who is not currently at work, but who is available for working who has actively looked for work during the previous month.

Government purchases?

Spending by federal, state, local government on goods and services such as teacher salaries, highways, air transportation, does not include transfer payments.

Investment?

Spending by firms on new factories, buildings, plus spending of new houses.

Consumption?

Spending by households in goods or services, not including new houses.

Nominal interest rate?

Stated interest rate on a loan.

Financial Markets?

Stocks and bonds are bought and sold.

What 4 things causes changed in the CPI to overstate the true inflation rate?

Substitution bias, Increase in quality bias, New product bias, and Outlet bias.

According to new growth theory...

Technological change is influenced by economic incentives.

Rule of Law?

The ability of a government to enforce the laws of the country, particularly with respect to protecting private property and enforcing contracts.

Countries with high rates of economic growth tend to have...

a labor force that is more productive.

Patent?

The exclusive right to produce a product for a period of 20 years from the date the patent is applied for.

Market for Loanable fund?

The interaction of borrowers and lenders that determines the market interest rate and the quantity of loanable funds exchanged.

Potential GDP?

The level of GDP attained when all firms are producing at capacity.

What is potential GDP?

The level of real GDP attained when all firms are producing at capacity.

Value Added?

The market value a firm adds to a product.

Gross Domestic Product (GDP)?

The market value of all final goods and services produced in a country during a period of time, typically 1 year.

Expenditure Approach?

The measurements of 4 major categories. Consumption, Investment, Government purchases, and Net exports.

We say that the economy is at full employment if the unemployment rate is equal to...

The natural rate of unemployment

Natural rate of unemployment?

The normal rate of unemployment, consisting of frictional unemployment and structural unemployment.

Inflation Rate?

The percentage increase in the price level from one year to the next.

Unemployment rate?

The percentage of the labor force that is unemployed.

Labor force participation rate?

The percentage of the working age population in the labor force.

Catch-Up?

The prediction that the level of GDP per capita in poor countries will grow faster than rich countries. Due to additional capital is greater, and greater advances in technology.

Long run economic growth?

The process by which rising productivity increases the average standard of living.

Per-worker production function?

The relationship between real GDP per hour worked and capital per hour worked, holding the level of technology constant.

Property rights?

The rights individuals or firms have to the exclusive use of there property, including the right to buy or sell it.

Labor Force?

The sum of employed and unemployed workers in the economy.

Financial System?

The system of financial markets and intermediaries through which firms acquire funds from households.

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.

What is the macroeconomics of savings and investment?

The total value of saving in the economy must equal the total value of investment.

Net Exports?

The value of export minus the value of imports.

What is nominal and real GDP used for?

To see what caused the increase in GDP.

The aggregate expenditure model focuses on the relationship between ___ and ___ in the short run, assuming ___ is constant.

Total spending; real GDP; the price level.

T or F. GDP accounting rules do not adjust for production that pollutes the economy?

True

T or F. The unemployment rate will be greater than 0% when an economy is at its natural rate of unemployment.

True.

T or F. There was an unplanned decrease in inventories when aggregate expenditure is more than GDP?

True.

Cyclical unemployment?

Unemployment caused by a business cycle recession.

Structural unemployment?

Unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs.

Real GDP?

Value of final goods and services evaluated at base year prices.

Nominal GDP?

Value of final goods and services evaluated at current year prices.

The consumer price index is the...

average of the prices of the goods and services purchased by a typical urban family of 4.

An economic growth model explains...

changes in real GDP per capita in the long run.

What would best measure the cost of living?

consumer price index.

To measure total output in a given year, we measure the goods and services produced only...

in that given year.

If property rights are not enforced in a country...

entrepreneurs are unlikely to risk their own funds investing in such an economy.

Creative destruction means that...

firms develop new products that replace old products in the economy, thereby encouraging economic growth.

Inventories?

goods that have been produced but not yet sold.

Gross domestic product understates the total production of final goods and services because of the omission of...

household production or the underground economy.

New growth theory and knowledge capital?

knowledge capital, physical capital, rival and non-rivial, excluded and non excludable, private good vs public good.

The demand for loanable funds is downward sloping because the ___ the interest rate, the ___ the number of profitable investment projects a firm can undertake, and the ___ the quantitiy demanded of loanable funds.

lower; greater; greater

The Bureau of labor Statistics would catergorize a retiree who is not working as...

out of the labor force.

Long-run economic growth requires all of the following except...

politcial instability.

The unemployment rate is...

the percentage of the labor force that is unemployed.

Frictional unemployment is the result of...

the search process of matching workers with jobs.