Econ Exam 2 Study Guide

The table shows consumer price index data for the United States. Based on this information, what is the rate of inflation in 2006? U.S. Consumer Price Index Year Consumer Price Index 2005 195.27 2006 201.56 2007 207.34 2008 215.25 2009 214.57 2010 218.08 A. 3.22% B. 1.64% C. 3.81% D. 2.87%

A. 3.22%

How is the GDP deflator calculated? Place the labels in the correct locations to produce the equation for the GDP deflator. Then, answer the multiple choice question. GDP deflator= The GDP deflator measures A. national output. B. price levels. C. income changes. D. national income.

GDP deflator = nominal GDP/real GDP x 100 B. price levels

Identify the appropriate areas of the graph according to the economic growth model's catch‑up prediction. Word Bank -less developed country -growth rate of real GDP per capita -Catch-up line -developed country -initial real GDP -initial real GDP per capita

Growth Rate of real GDP per Capita Less developed country Catch up line developed country Initial real GDP per capita

Shirts Year Price Quantity 2013 $7.50 750 2014 $12.00 600 Pants Year Price Quantity 2013 $12.50 4000 2014 $18.50 3500 I)What is nominal GDP in 2014? 2) What is real GDP in 2014? Use 2013 as the base year 3) Real output from 2013 to 2014 has A. decreased. B. experienced inflation. C. increased. D. stayed the same.

I) $71950 2) $48250 3) A. decreased.

The average rate of growth for slow-growth countries is around 2% per year, and for fast-growth, greater than 5% per year. I. Suppose the growth rate of the economy is 2%. The size of the economy roughly doubles every A. 50 years or more. B. 35 years. C. 20 years. D. 10 years. E. 5 years. II. If instead the growth rate is 7%, the doubling time for the economy is A. 10 years. B. 50 years or more. C. 5 years. D. 20 years. E. 35 years III. Economic growth is important to understand because A. growth guarantees that the rich get richer and the poor get poorer. B. it is closely tied to standard of living. C. understanding economic growth is key to getting a banking job after graduation. D. income equality cannot exist without growth.

I. B. 35 years II. A. 10 years III. B. it is closely tied to standard of living.

What is Uganda's real GDP if its nominal GDP is $27.5 billion (in current US$), and the GDP deflator is 163.4? A. $16.8 billion B. $12.4 billion C. $27.5 billion D. $44.9 billion

A. $16.8 billion

The table provides information on the production of a wooden chair. Use the information to answer the question. Production Cost Sale Price Lumberjack $0 $67 Carpenter $67 $113 N.C. Furniture $113 $171 Pottery House $171 $283 Use the value added approach to determine the contribution to GDP.

$283

Refer to the diagram of the circular flow of income. The key lessons from this diagram are that:(i) all flows of resources are matched by flows of money.(ii) the market value of total output must be equal to total spending.(iii) total spending must equal total income.(iv) all inputs are provided by businesses. A. (i), (ii), (iii), and (iv) B. (i), (ii), and (iii) C. (i) and (iv) D. (ii) and (iii)

B. (i), (ii), and (iii)

The government passes a new investment tax credit initiative. Which input in the production function changes, and what is the effect on economic growth in the country? A. Technological advance occurs, but there is no effect on economic growth. B. Human capital is enhanced, and economic growth is positively affected. C. The capital stock increases, and economic growth is positively affected. D. The capital stock decreases, and economic growth is negatively affected.

C. The capital stock increases, and economic growth is positively affected.

Classify the given goods according to whether or not they would be included in calculating the GDP for the United States. If a country is not specified, assume the action is performed in the United States. a. GM's assembly and sale of cars in Mexico A. Included in U.S. GDP B. Not included in U.S. GDP b. resale of used textbooks to college students A. Included in U.S. GDP B. Not included in U.S. GDP c. sale of wheat to Mrs. Baird's Bakery A. Included in U.S. GDP B. Not included in U.S. GDP d. Honda's assembly and sale of cars in the U.S. A. Included in U.S. GDP B. Not included in U.S. GDP e. Ocean Spray purchases plastic to make bottles A. Included in U.S. GDP B. Not included in U.S. GDP f. Old Navy purchases mannequins to display clothes A. Included in U.S. GDP B. Not included in U.S. GDP

a. B. Not included in U.S. GDP b. B. Not included in U.S. GDP c. B. Not included in U.S. GDP d. A. Included in U.S. GDP e. B. Not included in U.S. GDP f. A. Included in U.S. GDP

Country A and Country B start with the same GDP per capita of $50,000. Country A's GDP per capita grows at a constant rate of 2.8% and Country B's GDP per capita grows at a constant rate of 1.4%. Use the rule of 70 to compute the difference in GDP per capita for these two countries after 100 years, in thousands of dollars.

$600 thousand

Country A and Country B start with the same GDP per capita of $50,000. Country A's GDP per capita grows at a constant rate of 2.8% and Country B's GDP per capita grows at a constant rate of 1.4%. Compute the difference in GDP per capita for these two countries after 100 years, in thousands of dollars.

$600, 000

Pedro works for his uncle and makes $18/hour. If the CPI equals 242.6, what is Pedro's real wage rate? Round the answer to two decimal places. wage rate: $

$7.42

Match each description with the proper term. - Consumer Price Index (CPI) - Personal Consumption Expenditure (PCE) - Producer Price Index (PPI) - Gross Domestic Product Deflator (GDP Deflator) Answer Bank: - Measures the prices received by domestic producers for their output. - Measures the prices paid by urban consumers for typical market basket of consumer goods and services - Measures of the prices for all goods and services in the economy, including consumer goods, investment goods, government goods and services, and exports. - Measures the prices paid by consumers by focusing on consumer expenditures in the GDP accounts

- Consumer Price Index (CPI) ( Measures the prices paid by urban consumers for typical market basket of consumer goods and services) Personal Consumption Expenditure (PCE) (Measures the prices paid by consumers by focusing on consumer expenditures in the GDP accounts) Producer Price Index (PPI) (Measures the prices received by domestic producers for their output.) Gross Domestic Product Deflator (GDP Deflator) (Measures of the prices for all goods and services in the economy, including consumer goods, investment goods, government goods and services, and exports.)

Refer to the hypothetical data in the table to answer the three questions. Year : 2017 Nominal Interest Rate: 3% Real Interest Rate: - Inflation Rate: 5% Year: 2018 Nominal Interest Rate: 5% Real Interest rate: 5% Inflation Rate: - Year: 2019 Nominal Interest Rate: - Real Interest Rate: 1% Inflation rate: 3% 1. What was the real interest rate in 2017? 2. What was the inflation rate in 2018? 3. What was the nominal interest rate in 2019?

1. -2% 2. 0% 3. 2%

Use the information in the table to calculate a consumer price index (CPI) and the inflation rate. The base year is 1975. Round answers to two decimal places. Market Basket Quantity 1975 price A dozen eggs 25 $0.90 Calculator 18 $13.00 Microwave Oven 6 $160.00 Market Basket Quantity 1976 Price A dozen eggs 25 $1.50 Calculator 18 $16.00 Microwave oven 6 $200.00 1. What is the CPI for 1975? 2. What is the CPI for 1976? 3. What is the Inflation rate for 1976?

1. 100 2. 125.40 3. 25.4

Categorize each scenario with the appropriate bias associated with the Consumer Price Index (CPI) as a cost of living measure. 1. Households switching to an alternative good due to the price increase of good they had been buying. This switch diminishes the impact on their cost of living with a limited change in their quality of life. 2. The price of a high definition television remaining unchanged while its value increases due the introduction of new component parts, leading to higher screen resolution, lower power consumption, and easier adjustment of gain and bias. 3. New inventions increasing the variety of goods available can make it difficult to compare new goods to a base year when these goods did not exist. 4. Individuals tend to frequent discount stores more often and convenience stores less often. Answer Bank: -commodity substitution bias -quality change bias -new goods bias -outlet substitution bias

1. Commodity substitution Bias 2. Quality Change Bias 3. New Goods Bias 4. Outlet Substitution Bias

Consider the statements about a family in South America. Match each situation with the term that best describes it. Each term is used only once, so it is important to determine the situation that best fits the term. 1. As a teenager, Juan Carlos worked as an assistant to an electrician after school. Consequently, he learned a lot about being an electrician, an important skill that can result in gainful employment. 2. After graduating from high school, Juan Carlos was able to go to Canada to study. After he finished his college degree, he took a job at a prestigious Canadian firm, married his Canadian girlfriend, and settled in to stay in Canada. 3. Juan Carlos' father, Alberto, has always been envious of his neighbor's aging tractor. The tractor allowed the neighbor to produce 50% more than Alberto, even though their farms are virtually identical. 4. When the neighbor bought a second tractor for his son to drive, their farm's output increased again. But they found the second tractor did not increase their output as much as the first one. 5. Appreciative of his father's hard work, Juan Carlos buys Alberto a brand new tractor, the one with the air conditioned cab. Alberto is thrilled when the fancy new machine allows him to almost triple his output; he is now producing more than all of his neighbors, many of whom have old tractors 6. Alberto and his neighbors are troubled by the lack of water in the river that runs by their farms. The laws of their country allow farmers to take limited amounts of water from the river for crop irrigation, but a wealthy celebrity built a villa upstream of the farms and unlawfully diverted much of the water onto his land for a decorative stream and waterfall. Local officials refuse to do anything to help the farmers until they pay a small unofficial 'fee. Word Bank - Catch up effect -Property rights -Diminishing returns - human capital - brain drain -physical capital

1. Human capital 2. brain drain 3. physical capital 4. diminishing returns 5. catch-up effect 6. property rights

Classify each example as either relating to human capital, physical capital, or technology. 1. An increase in adult literacy affects 2. An increase in the number of company cars impacts 3. An increase in the number of college graduates impacts . 4. New distribution techniques affect 5. An increase in the number of company computers affects 6. More people graduating from culinary school affects 7. A new cancer treatment affects 8. A doctor's knowledge about a new cancer treatment affects Word bank -technology -human capital -physical capital

1. Human capital 2. physical capital 3. human capital 4. technology 5. physical capital 6. human capital 7. technology 8. human capital

Which of the following are examples of the investment component of GDP? 1. Floatin' Away Kayak Co. buys equipment to use in its factory. This ___ an example of investment spending. 2.The government purchases new military equipment. This ___ an example of investment spending. 3.All the Econs Consulting charges a foreign client $50,000 for services it has already provided. This ___ an example of investment spending. 4.Underfoot Sneaker Co. stores shoes that are produced in the current time period but not sold in inventory. This ___ an example of investment spending. 5.Tanya buys a computer for personal use. This ___ an example of investment spending. Word Bank - Is Not - Is

1. Is 2. Is not 3. Is not 4. Is 5. Is not

Classify each statement as either true or false. 1. New technological developments can help us adapt to depleting sources of natural resources. 2. Research and development funds from the government to private industry never pay off for the country as a whole; they only increase the profits of rich corporations. 3. In order for fledgling industries in poor nations to thrive, they must receive protection from foreign trade. 4. Countries with few natural resources will always be poor. 5. As long as real GDP (gross domestic product) grows at a slower rate than the population, per capita real GDP increases.

1. True 2. False 3. False 4. False 5. False

Complete the sentences on the role of government in promoting economic growth. a. The government's direct role in the production of physical capital is primarily focused on b. The government's direct role in creating human capital is primarily focused on c. Governments play an indirect role in private savings and investment through . Word bank -developing infrastructure -improving the education system -regulating the financial system

1. developing infrastructure 2. improving the education system 3. regulating the financial system

Which of the following is (are) included in investment? (i) military spending (ii) the purchase of an aircraft by a domestic airline (iii) the purchase of $45,000 worth of bonds (iv) the purchase of $32,000 worth of stock (v) social security payments (vi) the construction of a highway by the federal government A. (ii) only B. (i) and (vi) C. (ii), (iii), and (iv) D. (i), (ii), (v), and (vi)

A. (ii) only

Suppose the civilian noninstitutionalized working-age population is 35.93 million in in a hypothetical economy. Of these, 4.94 million are working part-time and 14.53 million are working full-time. Assume the Bureau of Labor Statistics (BLS) definitions are used for calculating unemployment data. Among those not working, the most recent job-search activity for 2.90 million happened less than two weeks ago, while 1.72 million most recently looked for work between two and four weeks ago. An additional 0.86 million most recently looked for work five weeks ago, and the remaining 10.99 million who do not have jobs have not looked for work in the past six weeks. Round your answers to two decimal places. A. What is the size of the total labor force? B. How many people are unemployed? C. What is labor force participation rate? D. What is the unemployment rate?

A. 24.05 B. 4.62 C. 66.99 D. 19.22

The consumer price index (CPI) can be used to measure inflation. There are potential problems with this process though that can result in inflation being overstated or understated. Place each statement according to whether it would cause inflation to be overstated, understated, or would give an accurate representation of inflation. a. Pat, a confirmed chocoholic, notices that a favorite candy bar shrank in size, but its price stayed the same. b. Sam loves bagels, but bagels are becoming more expensive. Sam replaces bagels with muffins in the breakfast routine because muffins remain relatively cheap. c. Mary and Bob replace their old minivan with a new one. The new van costs 15% more than the old van, but the new model has many updated features like a camera to assist with backing up, GPS, and better fuel economy. d. Chris is an avid runner, loyal to one particular brand of running shoe. She buys a new pair of the same shoe every few months. The price of the shoes has doubled in the last 15 years. Answer Bank: - Causes inflation to be understand -Causes inflation to be overstated -Does not cause inflation to be overstated or understand.

A. Causes Inflation to be understated B. Causes inflation to be overstated C. Causes inflation to be overstated D. Does not cause inflation to be overstated or understated.

Many economists think that long-run economic growth is important for the welfare of a nation. Classify the statements below regarding long-run economic growth as true or false. a. An economy that has experienced long-run economic growth has avoided painful recessions. b. Long-run economic growth is often a direct result of expansionary monetary policy. c. Long-run economic growth can be measured with per capita GDP. d. There has been more long-run economic growth in the last 100 years than occurred between the years 1000 and 1700. e. A nation with a shrinking population cannot experience long-run economic growth. f. Long-run economic growth is often a result of increases in productivity.

A. False B. False C. True D. True E. False F. true

You purchase a new car (produced this year) for $38,000. After six months, you sell the car for $31,500. How much does GDP rise because of these two transactions? A. GDP rises by $38,000. B. GDP rises by $69,500. C. GDP rises by $31,500. D. GDP rises by $6,500.

A. GDP rises by $38,000.

The potential output of an economy depends on three factors: human capital, physical capital, and technology. For each item below, indicate whether it affects human capital, physical capital, or technology. a. An improvement in adult literacy A. human capital B. physical capital C. technology B. An increase in the college student population A. human capital B. physical capital C. technology c. The development of smaller mp3 players A. human capital B. physical capital C. technology d. The acquisition of computers by companies A. human capital B. physical capital C. technology e. New distribution techniques A. human capital B. physical capital C. technology

A. Human capital B. Human Capital C. technology D. Physical E. Technology

Suppose the production function shifts up from Y to Y*. What is the most likely reason for this shift? The most likely reason is A. new technology. B. convergence. C. inflation. D. depreciation. Which factor can increase incentives for the change that shifts the production function upwards? Incentives are increased by A. decreases in human capital. B. the steady state. C. efficient institutions. D. increases in physical capital.

A. New technology C. efficient institutions.

What is the difference between real and nominal gross domestic product (GDP)? A. Nominal GDP for a given year is measured in dollars of that year, whereas real GDP is measured in dollars of some base year. B. Nominal GDP is another name of net domestic product, or NDP. C. Nominal GDP is measured in dollars, whereas real GDP is measured in terms of some consumption commodity, such as tons of coal, available in the economy right now. D. Nominal GDP is measured in dollars, whereas real GDP is a comparison to all other nation's production. E. There is no difference between real and nominal GDP. Real GDP measures the expenditure of a nation, whereas nominal GDP measures the income accounts that make up those expenditure measures.

A. Nominal GDP for a given year is measured in dollars of that year, whereas real GDP is measured in dollars of some base year.

Suppose the country of Altaria only produces one style of good, pink tutu. Last year, nominal GDP was $50,000 and this year it is $200,000. What can be definitively concluded? A. None of the statements are necessarily true. B. The rate of unemployment decreased. C. All of the statements are necessarily true. D. The standard of living in Altaria increased. E. Output in Altaria quadrupled.

A. None of the statements are necessarily true

One of the most striking disparities in the modern world is the difference between North Korea and South Korea. South Korea has a GDP twenty times larger than that of its northern neighbor. Which of the following is the most likely reason for this difference in GDP? A. The incentives that result from the economic institutions of North Korea and South Korea are dramatically different. B. The U.S. government wants North Korea to remain poor. C. The people in the two nations are radically different: South Koreans are known to be naturally more productive. D. Geographically, South Korean is in a more advantageous position than North Korea. E. Cultural differences between North and South Koreans.

A. The incentives that result from the economic institutions of North Korea and South Korea are dramatically different.

Southeast Asian countries experience high temperatures and high humidity during the monsoon seasons. This makes working conditions difficult. Because air conditioners are expensive and consume a lot of electricity, an alternative air cooler called an Eco-cooler was invented. This device does not use electricity, is made from readily available soda bottles, and works by funneling air into a room. This scenario is an example of: A. a technological innovation that can increase labor productivity and thus increase economic growth. B. a decrease in the labor force participation rate in Southeast Asian countries. C. a rise in productivity causing an increase in technology. D. the development of human capital.

A. a technological innovation that can increase labor productivity and thus increase economic growth.

The moral of the story of the Solow growth model is that: A. capital accumulation alone cannot lead to sustainable economic growth. B. human capital growth does not lead to economic growth. C. technological advance cannot sustain continuous economic growth. D. capital accumulation is the key to sustained economic growth.

A. capital accumulation alone cannot lead to sustainable economic growth

How does the rule of law affect growth? The rule of law A. contributes positively to growth because people can feel secure in their possessions and can rely on others' promises. B. contributes negatively to growth because it can be used to keep useful resources away from the most productive members of society. C. is at most a secondary contributor to growth. Informal agreements can be just as effective at promoting trust and are sometimes more flexible than rigid laws. D. contributes positively to growth because cooperation requires uniform standards of behavior. D. contributes negatively to growth because compliance with laws is costly and stifles otherwise productive ventures.

A. contributes positively to growth because people can feel secure in their possessions and can rely on others' promises.

An economy can increase its capital stock by A. reducing consumption spending. B. increasing consumption spending. C. reducing population growth. D. closing its borders to international trade. Because of diminishing returns, an increase in the savings rate A. will have a proportionally greater impact on productivity in well‑developed economies than in poor economies with very little capital to start with. B. will reduce spending on capital equipment. C. will have a proportionally smaller impact on productivity in well‑developed economies than in poor economies with very little capital to start with. D. will diminish the number of income tax returns received by the IRS.

A. reducing consumption spending. C. will have a proportionally smaller impact on productivity in well‑developed economies than in poor economies with very little capital to start with.

A constant returns to scale production function means that if all inputs are increased by 75%, this should lead to output: A. rising by 75%. B. falling by less than 75%. C. falling by more than 75%. D. rising by more than 75%.

A. rising by 75%.

Consider the data shown in the table. Assume that the economy produces only textbooks. What is the nominal GDP for last year? Last Year: Textbooks Sold= 5,000 Price= $50 This Year: Textbooks Sold= 5,250 Price= $55 A. $262,500 B. $250,000 C. $275,625 D. $288,750

B. $250,000

Consider the data shown in the table. Assume that the economy produces only textbooks. What is the growth rate of real GDP between the two years using last year as the base year? Last Year: Textbooks Sold= 5,000 Price= $50 This Year: Textbooks Sold= 5,250 Price= $55 A. 10% B. 5% C. 2.5% D. 15%

B. 5%

Which statement best summarizes the convergence, or catch‑up, prediction of the economic growth model? A. Once a country at a lower level of GDP per capita catches up to the level of GDP per capita of a major trade partner, trade between the two will diminish. B. Countries with lower levels of GDP per capita will have higher rates of growth in GDP per capita than will countries with a higher starting level of GDP per capita. C. If two countries with equal levels of GDP capita diverge because of unequal growth rates, they will eventually reconverge at the lower level of GDP per capita. D. If the GDP per capita of country A divided by the GDP per capita of country B is greater than the ratio of their populations, country B will never catch up to country A's level of GDP per capita. How have the empirical results matched the catch‑up prediction? A. Most higher‑income countries have caught up to the United States. B. Only in the developing economies has there been convergence with other developing economies. C. The catch‑up prediction has not been generally verified by actual results. D. A general pattern of high growth in countries with low GDP per capita has been consistent with the catch‑up prediction.

B. Countries with lower levels of GDP per capita will have higher rates of growth in GDP per capita than will countries with a higher starting level of GDP per capita. C. The catch‑up prediction has not been generally verified by actual results.

In Vinland, sanitation engineers are being replaced with garbage robots, which have fewer negative effects and many more significant benefits. However, the labor cost efficiency of garbage robots has driven down the price of collecting garbage so significantly that sanitation engineers can no longer compete. After six months, everybody has switched to the cheaper and better garbage robots. Assume that Vinland consumes the same quantity of collecting garbage now as they did six months ago. Please select the choice that best describes the short‑run effects of this industrial change on Vinland's GDP and its standard of living. A. GDP increases and standard of living decreases. B. GDP decreases and standard of living increases. C. GDP and standard of living both decrease. D. There is not enough information to answer the question. E. GDP and standard of living both increase.

B. GDP decreases and standard of living increases.

Which of the factors would decrease the rate of frictional unemployment? A. an increase in the number of jobs available due to an increase in GDP B. the advent of the Internet, which makes finding available jobs easier C. increased short-term unemployment benefits D. improvements in technology that make skills which were once valued by employers obsolete When the economy is doing well, a significant share of unemployment is frictional. A. false B. true

B. The advent of the Internet, which makes finding available jobs easier True

Ian works at an iron smelter in Pittsburgh, the center of iron production in America. Due to the difficulty in measuring the productivity of individual employees, Ian's employer as well as the other iron smelters all pay an efficiency wage. Adjust the wage line on the graph to reflect this situation. What characteristic of efficiency‑wage jobs is not supported by the situation shown in the graph? A. Efficiency wages result in an increase in the rate of unemployment. B. The wage rate will eventually return to the market‑clearing level. C. Efficiency wage jobs result in a surplus of workers at the wage being offered. D. Elevated wages serve as an economic incentive to work harder.

B. The wage rate will eventually return to the market‑clearing level.

Anita Job is the new Treasury Secretary, and she is trying to interpret the inflation measures for two consecutive years. In year one, the aggregate price level increased by 7% and, in year two, the aggregate price level increased by 1%. Which term describes the change in the price level from year one to year two? A. deflation B. disinflation C. conflation D. hyperinflation

B. disinflation

Which problem created by inflation results in the misallocation of resources as a result of producers misreading price changes as market signals? A. shoe‑leather costs B. price confusion C. menu costs D. wealth redistribution E. money delusion

B. price confusion

What does the investment component of GDP measure? A. spending on domestically produced goods by foreign buyers B. spending on goods to be used in future production C. spending by government agencies on goods and services D. spending by households on goods and services A good produced in the current time period but put into a firm's inventory instead of being sold A. is counted as consumption in current GDP since it was produced in the current time period. B. is only included as a part of consumption in future GDP when it is sold. C. is excluded from current GDP. D. is considered unsold inventory and counted as a part of investment in current GDP.

B. spending on goods to be used in future production D. is considered unsold inventory and counted as a part of investment in current GDP.

Along the same aggregate production function, the level of _____ is the same. A. labor B. technology C. economic growth D. capital

B. technology

Refer to the table below, which shows data for the United Arab Emirates (UAE). What was the economic growth rate in UAE in 2010? United Arab Emirates Year GDP per Person ($) 2007 $47,283.90 2008 $42,456.79 2009 $36,024.06 2010 $33,893.30 2011 $34,634.86 2012 $35,416.89 A. 2.26% B. -11.27% C. -5.91% D. -15.15%

C. -5.91%

Suppose Felix, a recent graduate of Johns Hopkins School of Medicine, is earning $100,000. The table reflects Felix's hypothetical job offers from different hospitals, along with the price index associated with the city where the hospital is located. 1. City: Mass General, Boston, MA Nominal Wage Per Year $145,000 Cost-of-living Index 132.5 2. City Northwestern Memorial, Chicago, IL Nominal wage per year $125, 000 Cost-of-living Index 116.9 3. City Mt. Sinai Medical Center, New York, NY Nominal Wage per Year $155,000 Cost-of-living Index 216.7 Suppose Felix is talking to his friend Neal about which of these offers will make him the best off. Neal points out that Felix should be wary of the money illusion trap. Neal is cautioning against A. failing to account for the biases of CPI, such as the substitution effect. B. failing to expect future cost-of-living increases C. mistaking a higher nominal wage for a higher real wage

C. mistaking a higher nominal wage for a higher real wage

If you see that inflation between last year and this year is 3%, this means that: A. the consumer price index rose by 3% more than the producer price index. B. the prices of each and every good and service went up by 3%. C. on average, prices went up across the economy by 3%. D. economic growth is also 3%.

C. on average, prices went up across the economy by 3%.

Which definition best describes real GDP? A. the production of goods and services valued at current prices B. the production of goods and services valued at tomorrow's prices C. the production of goods and services valued at constant prices D. the general change in prices of goods and services from one period to the next Consider a simple economy that produces two goods: pencils and pens. The table shows the economy's production over several years. Calculate the real GDP for 2007 using 2005 as the base year. Year: 2005 Price of Pencils: $6.00 Number of Pencils: 5 Price of Pens: $4.00 Number of Pens: 3 Year: 2006 Price of Pencils: $8.00 Number of pencils: 5 Price of Pens: $6.00 Number of Pens: 5 Year: 2007 Price of Pencils: $9.00 Number of Pencils: 6 Price of Pens: $9.00 Number of Pens: 6

C. the production of goods and services valued at constant prices Real GDP: 60

Place the income payments into the correct categories. All examples may not be placed. Categories 1 Capital Income Categories 2 Labor Income Answer Bank - Attorney's fees -a popular musician's percentage of record sales - rent paid to a landlord -wages direct deposited from an employer -interest on a corporate bond - profit earned by a start up company - Social Security check

Capital Income -Interest on corporate bond -rent paid to landlord -a popular musicians percentage pf record sales -profit earned by a start up company Labor Income - attorney's fees -wages direct deposited from an employer

Acquiring skills is thought of as an investment because it involves ________ today in anticipation of ________ in the future. Firms invest in their workers to increase _______ in the future. Word Bank -Productivity -Cost Benefits

Cost benefits productivity

In 1971, the cost of a four-year college degree from a public university was about $1,410. The consumer price index was 40.48 in January 1971. If the current consumer price index is 251.1, what is the approximate cost of the four-year degree in current dollars? A. $227 B. $9,422 C. $1,410 D. $8,746

D. $8,746

Based on the following statistics, how much are net exports? Consumption $13.312 trillion Investment $3.371 trillion Government Spending $3.412 trillion Exports $2.357 Trillion Imports $2.932 trillion A. $20.67 trillion B. $2.357 trillion C. $0.575 trillion D. -$0.575 trillion

D. -$0.575

You purchase a certificate of deposit and expect an inflation rate of 1.25% over the next year. Your nominal rate of interest is 2.1%. What is your expected real rate of return? A. -0.85% B. 1.25% C. -2.1% D. 0.85%

D. 0.85%

Which of the following correctly shows the steps needed to calculate the inflation rate? A. Tally up the cost of the basket of goods and services, subtract the value of goods and services that are no longer counted in the basket, and then calculate the inflation rate. B. Collect prices from the stores where people shop, assess the substitution that people make from low inflation to high inflation products, and calculate the difference in the prices that people pay. C. Find the total value of the basket of goods and services, assess quality changes from one period to the next, and measure the inflation rate. D. Find out what people typically buy, collect the prices from the stores where people shop, tally up the cost of the basket of goods and services, and calculate the inflation rate.

D. Find out what people typically buy, collect the prices from the stores where people shop, tally up the cost of the basket of goods and services, and calculate the inflation rate.

Which of the following shows the medium of exchange function of money? A. Wilma wants to sell her old car, and she values it at $2,400. B. Daniela goes to the store and purchases roses with U.S. dollars. C. Darius goes window shopping. D. Mena saves his money in a certificate of deposit at the bank.

D. Mena saves his money in a certificate of deposit at the bank.

What is the difference between microeconomics and macroeconomics? A. Microeconomics focuses only on the forces of individual demand and individual supply, whereas macroeconomics focuses only on policy making for the economy. B. Microeconomics is the study of the economy as a whole, whereas macroeconomics is the study of individual decisions in specific markets. C. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of government policies. D. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole.

D. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole.

Economics is characterized by many statistics and measurements. Suppose that an analyst is interested in comparing the economy of today with the economy ten years ago. Which term is least likely to be useful for this purpose? A. Real GDP B. Inflation C. Unemployment D. Nominal GDP

D. Nominal GDP

Dale is a stay-at-home-parent whose typical day consists of getting the kids ready for school, doing the laundry, cooking three meals, and cleaning the house. How are Dale's home activities counted in GDP? A. They are counted by subtracting Dale's opportunity cost in terms of lost income. B. They are counted at market value. C. They are counted by assigning a value that is equivalent to what it would have taken to pay a housekeeper to perform the same tasks. D. They are not counted.

D. They are not counted

Which example is not a source of economic growth? A. increases in the average hours per worker B. increases in capital per worker C. increases in labor force participation D. increases in average hours of vacation Consider the productivity curves in the graph. Which source of economic growth would not result in the rotation of the productivity curve from PC to PC1? A. increases in capital per worker B. advancements in technology C. increases in the growth of human capital

D. increases in average hours of vacation A. increases in capital per worker

Answer the questions based on what you have read about labor productivity and the graph reflecting the relationship between labor productivity and living standards. Labor productivity can best be defined as A. the ratio of the number of workers available to the amount of capital available. B. the ratio of workers in the economy to the population. C. the ratio of the change in the output of goods and services to the change in the labor hours used. D. the ratio of output of goods and services to the labor hours devoted to that output. Based on the graph, how is the relationship between labor productivity and real GDP per capita best described? A. positive B . negative C. infinite D. unrelated

D. the ratio of output of goods and services to the labor hours devoted to that output. A. Positive

Which of the items, ceteris paribus, would cause an understatement of a nation's living standard by real gross domestic product per capita? A. an increase in amount of traffic congestion B. an increase in investment spending C. a decrease in the quality of air or water D. a decrease in amount of childcare by mothers E. an increase in amount of leisure time

E. an increase in amount of leisure time

Although the Consumer Price Index (CPI) may be the best‑known measure of inflation, there are several alternatives. One of them is the Personal Consumption Expenditures (PCE) price index excluding food and energy. Why does it exclude food and energy? A. food and energy are nondurable items B. it does not have the same biases as the consumer price index C. food and energy prices are not important D. it is used to calculate the core inflation rate E. food and energy prices fluctuate more than other prices

E. food and energy prices fluctuate more than other prices

On Orca Island, people consume fish sandwiches and snow cones. Use the table to calculate the inflation rate from 2013 to 2014 using the Consumer Price Index (CPI). Use 2013 as the base year. Round your answer to two decimal places. Price In 2013 Fish Sandwiches $4.00 Snow Cones $1.00 Quantity in 2013 Fish Sandwiches 500 Snow Cones 1200 Price in 2014 Fish Sandwiches $5.00 Snow Cones $1.50 Quantity in 2014 Fish Sandwiches 750 Snow Cones 1250

Inflation Rate: 34.38%

The market value of which of the examples would be considered double counting in the calculation of GDP? Please place into the appropriate category. Categories 1 (Not Included in GDP because of double counting) Categories 2 (Included in GDP) Answer Bank - A ticket for the X games bought from a person on a street corner -the commission paid to the seller of a previously owned collector's skateboard -A new skateboard bought for a for a niece -Wheels used to produced a skateboard that will be sold new -

Not included in GDP because of double counting 1. Wheels used to produced a skateboard that will be sold new 2. A ticket for the X games bought from a person on a street corner Included in GDP 1. A new skateboard bought for a for a niece 2. the commission paid to the seller of a previously owned collector's skateboard

Efficient taxes are important for economic growth, but taxes can also impede growth. Determine which of the taxes are likely to impede growth and which are not likely to impede growth. Categories 1 (Not likely to impede growth) Categories 2 (Likely to impede growth) - A tax on imports -a consumption tax on alcohol and cigarettes -a consumption tax on luxury goods -a tax in investments

Not likely to impede growth -a consumption tax on alcohol and cigarettes -a consumption tax on luxury goods Likely to impede growth - a tax on imports - a tax on investments

The United States Bureau of Labor Statistics (BLS) categorizes individuals in the United States into three broad groups based on their employment status. Categorize each individual as employed, unemployed, or not in the labor force according to BLS standards. a. Brian is a 31‑year‑old who would like a job, is available to work, and most recently sought work six weeks ago. A. employed B. unemployed C. not in the labor force b. Sarah is a 76‑year‑old retiree who has no intention of returning to work. A. employed B. unemployed C. not in the labor force c. Bruce is a 59‑year‑old who has been without a job for two years, is available for work, and most recently sought work last week. A. employed B. unemployed C. not in the labor force d. James is a 35‑year‑old who most recently sought work two years ago. A. employed B. unemployed C. not in the labor force e. Chung is a 23‑year‑old single parent working only 10 hours a week, but seeking more hours. A. employed B. unemployed C. not in the labor force

Part A. C. not in the labor force Part B. C. not in the labor force Part C. B. Unemployed Part D. C. not in the labor force Part E. A. employed

Select the answer that best describes an underemployed worker. A. Benny, who works part time as a contract author but would prefer to work full time B. Heather, who was laid off six months ago and gave up trying to find a new job two months ago C. Cathy, who works full time as a kindergarten teacher D. Bill, who is retired but works part time as a mechanic to stay active E. Jessica, a full‑time college student When the official unemployment rate is calculated, underemployed workers are A. counted as unemployed. B. counted as employed C. not included in the labor force.

Part A: A. Benny, who works part time as a contract author but would prefer to work full time Part B: B. counted as employed

Efficiency wages are A. a way to reward raw talent and abilities B. a way to compensate workers for experience and training C. a way to compensate workers in unattractive or unpleasant jobs D. an incentive scheme designed to motivate and retain workers. The efficiency wage model illuminates why A. compensating differentials affects wage rates. B. some workers are offered wages above the market‑clearing level. C. human capital impacts wage rates. D. people with raw talent get higher wages.

Part A: D. an incentive scheme designed to motivate and retain workers. Part B: B. some workers are offered wages above the market‑clearing level.

For a firm making decisions about investment or research and development, what is the most important interest rate? A. nominal interest rate B. future interest rate C. authentic interest rate D. real interest rate Which statement is accurate? A. The nominal interest rate plus the rate of inflation is the real interest rate. B. The real interest rate minus the nominal interest rate is the nominal interest rate. C. The nominal interest rate minus the rate of inflation is the real interest rate. D. The real interest rate plus the future interest rate is the nominal interest rate.

Part A: D. real interest rate Part B: C. The nominal interest rate minus the rate of inflation is the real interest rate

Suppose the accompanying graph represents the supply and demand curve for labor in the country of Bangladesh. Bangladesh is thought to have "sweatshops" in which workers endure long hours and are paid relatively little. Suppose that the workers form a union that negotiates higher wages and better working conditions. a. Move the points labeled LD, which represents quantity of labor demanded, and LS, which represents the quantity of labor supplied, to show the effect of the union's actions. The two points are currently at the equilibrium point. b. What happens to unemployment as a result of the union's demands? A. Unemployment is not affected by B. the union's demands. C. Unemployment decreases. D. Unemployment increases. c. The union's demands have an effect similar to A. discrimination. B. a price ceiling. C. a minimum wage D. a tax decrease.

Part B C. Unemployment increases Part C. C. a tax decrease

Please place the items as an example of either a physical capital change or a technological change. Each item should be placed in one of the two categories. Categories 1 (Physical Change) Categories 2 (Technological Change) Answer Bank - A company gets a new fleet of trucks -A company build a new factory -A company replaces its current machines with better ones -A factory manager implements a new system which keeps workers from needing machines at the same times -All of company's factory worker undergo new training program. - A company buys three additional machines to supplement it original supply.

Physical Capital Change - A company gets a new fleet of trucks -A company build a new factory - A company buys three additional machines to supplement it original supply. Technological Change -A company replaces its current machines with better ones -A factory manager implements a new system which keeps workers from needing machines at the same times -All of company's factory worker undergo new training program.

Please classify each policy according to whether it tends to foster or inhibit economic growth. Categories 1 ( Policies that tend to foster economic growth) Categories 2 (Policies that tend to inhibit economic growth) -establishing a stable national government that promotes the rule of law and sets clear expectations for business behavior -clearly defining and enforcing property rights that extend to all members of society -creating a public infrastructure, including communication, education, medical services, sanitation, and transportation facilities -encouraging multinational firms to establish a business presence in the country -establishing trade barriers to protect domestic industry

Policies that tend to foster economic growth -establishing a stable national government that promotes the rule of law and sets clear expectations for business behavior -clearly defining and enforcing property rights that extend to all members of society -creating a public infrastructure, including communication, education, medical services, sanitation, and transportation facilities -encouraging multinational firms to establish a business presence in the country Policies that tend to inhibit economic growth -establishing trade barriers to protect domestic industry

Sort the pros and the cons of Employment Insurance (EI). Answer Bank -Creates an Incentive to delay looking for a job -Smooths income changes -increases job search efficiency and wage outcome -increases frictional unemployment -reduces the burden of unemployment

Pro: - smooths income changes - reduces the burden of unemployment - increases job search efficiency and wage outcome Cons: -increases frictional unemployment -creates an incentives to delay looking for a job

Which statements are reasons that economists use to explain the decrease in the natural rate of unemployment between the 1980s and the early 2000s in the United States? *Reasons *Not a Reason Answer Bank: - The growth of the temporary worker industry - The internet improved communication between employers and job seekers. - legal restrictions and regulations for employment have become more lenient. - No recessions occurred between the 1980s and the early 2000s, so people remained in their jobs - More people in the jobs market means fewer people are changing jobs. - The aging boomer generations is at an age when they are more likely to keep existing jobs.

Reasons: - The growth of the temporary worker industry - The internet improved communication between employers and job seekers. - The aging boomer generations is at an age when they are more likely to keep existing jobs. Not a Reason: - legal restrictions and regulations for employment have become more lenient. - No recessions occurred between the 1980s and the early 2000s, so people remained in their jobs - More people in the jobs market means fewer people are changing jobs.

Classify the statements about growth as true or false. If a statement is an opinion, leave it unplaced. - Growth in productivity is closely correlated with wage growth. -Human capital is equivalent to the number of years of education. -Convergence will not occur because of technology growth. -The industrial revolution brought an era of increased growth rates in the United States. -technology and human capital work against each other. -rich countries all grow faster than poor countries -poor countries all grow faster than rich countries. -Governments can control growth rates with the appropriate policies. -South Koreas growth can be traded to mainly human capital deepening.

True -Growth in productivity is closely correlated with wage growth -The industrial revolution brought an era of increased growth rates in the United States. False -Human capital is equivalent to the number of years of education. -technology and human capital work against each other -rich countries all grow faster than poor countries -poor countries all grow faster than rich countries. -Governments can control growth rates with the appropriate policies. -South Koreas growth can be traded to mainly human capital deepening.

Classify each statement about the U.S. unemployment rate as true or false. Answer Bank: - Unemployment generally remains stable and static over time - It is very likely that an unemployment rate of 0% will never be observed - Changes in technology and new workers joining the workforce have contributed to an overall upward trend in the unemployment rate. - The behavior of the unemployment rate is related to business cycle. -The end of the 20th century saw some of the highest rates of unemployment in US history.

True: - It is very likely that an unemployment rate of 0% will never be observed - The behavior of the unemployment rate is related to business cycle. False: - Unemployment generally remains stable and static over time - Changes in technology and new workers joining the workforce have contributed to an overall upward trend in the unemployment rate. -The end of the 20th century saw some of the highest rates of unemployment in US history.

Determine whether each activity will increase a worker's human capital. You are currently in a sorting module. Will increase human capita ( category 1) Will not increase human capital (2) -buying a share of stock -saving money for down payment on a new car -completing an on‑the‑job -training program -earning a college degree -participating in an apprenticeship -building a new factory -learning a new programming language

Will increase human capital -completing an on‑the‑job -training program -earning a college degree -participating in an apprenticeship -learning a new programming language Will not increase human capital -building a new factory -buying a share of stock -saving money for down payment on a new car