Econ Test 3

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Payroll Tax

A mandatory tax that both workers and employers in the United States pay to fund Social Security and Medicare

In the United​ States, all of the following are deductions generally allowed by the IRS on individual income taxes except: A) mortgage interest B) rent payments C) contributions to retirement plans D) charitable contributions

B) rent payments

Nominal GDP

GDP for a given year valued in that year's prices

Nominal GDP in a given year is...

GDP valued in prices of that year

Real GDP in a given year is...

GDP valued in the prices of the base year

Does the measured unemployment rate capture the true jobs picture in a place with a large underground economy?

No, many people who are actually working may report themselves as​ unemployed, which overstates unemployment.

Representative Commodity Money

Paper currency that could be redeemed for a specific quantity of an underlying commodity

The U.S. Social Security system is a​ ____________ system.

pay-as-you-go

Dollar bills in the modern economy serve as money because...

people have confidence that others will accept them as money.

Based on the current state of revenue of the Social Security and Medicare​ programs, the government has two options for​ funding, which are...

raising payroll taxes or cutting benefits

Economic growth is generally measured as the percentage increase in a country's...

real GDP

​If, as your taxable income​ increases, you pay a smaller percentage of your taxable income in​ taxes, then the tax is...

regressive

If someone who was working full time is now only working part​ time, this change in status will cause the unemployment rate to...

remain unchanged

Money's three primary functions:

serves as a medium of exchange, store of value, and standard of value.

Discouraged Worker

someone who has given up actively looking for a job after an extended period of unemployment

For the U.S. federal​ government, discretionary expenditures refer to...

spending that must be authorized by congress each year

Diversification

spreading wealth across multiple investments

When money is used to express the value of goods and​ services, it is functioning as a...

standard of value

One difference between stocks and bonds is that...

stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond.

Javier lost his job as a chemical engineer when the company he worked for shut​ down, so he took a full time job as a convenience store clerk to help pay the bills. Javier is now considered...

underemployed

According to the Bureau of Labor​ Statistics, a person who does not have a job but is currently available for work and has been actively looking for a job in the past four weeks is considered...

unemployed

Business cycles ____________, and recessions ______________.

vary in length; differ in severity

The central bank of the United States is called...

The Federal Reserve System

Commodity Money

a good used as money that also has value independent of its use as money

The labor force participation rate is calculated​ as:

(labor force) / (adult population)

The unemployment rate is calculated as:

(number of unemployed) / (number of employed + number of unemployed)

A general formula for the spending multiplier is:

1 / (1 - MPC)

If an automobile is produced by Chevrolet in 2008 but not sold until 2010, the automobile is included in which year's GDP?

2008

There are 5 million people in an economy. If 3 million are employed and 1 million are​ unemployed, the unemployment rate is​ _____________.

25%

There are 5 million people in an economy. If 3 million are employed and 1 million are​ unemployed, the size of the labor force is​ ____________ people.

4 million

All of the following are vital ingredients for experiencing economic growth except... A) High Inflation B) Competition C) Physical Capital D) Honesty

A) High Inflation

Demand Shocks

Events that arise spontaneously and​ unpredictably, often as a result of changes in consumer and business confidence regarding the​ economy

U.S. paper currency is considered representative commodity money because it can be redeemed for gold by the U.S. government. (T/F)

False

Bonds

Financial securities that represent promises to repay a specified amount of money at a particular point in the future

In order to be considered​ unemployed, an individual must not have had a​ job, must have been available for​ work, and must have taken active steps to find a job in the past​ _____________.

Four weeks

The M2 measure of the money supply equals

M1 plus savings account balances plus small certificates of deposit plus money market mutual fund balances

A depression is a particularly severe and protracted recession. (T/F)

True

An unexpected large increase in the price of crude oil is an example of a supply shock. (T/F)

True

GDP does not account for things we do not value or like, and these things are called *economic bads* (T/F)

True

Political stability is an important ingredient in creating and sustaining economic growth. (T/F)

True

The marginal propensity to consume is the proportion of each new​ dollar's worth of income that is spent. (T/F)

True

Cyclical unemployment is the result of...

a slowdown in the economy

Structural unemployment exists because something is holding wages...

artificially high

Because unemployment payments and welfare​ payments, which reduce a​ recession's severity, naturally increase during a​ downturn, they are referred to as...

automatic stabilizers

The increase in government spending on unemployment insurance payments to workers who lost their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion are examples of...

automatic stabilizers

The largest proportion of M1 is made up of...

checkable deposits

M1 money supply supply consists of _______.

checking account balances, currency, and traveler's checks

A financial institution that accepts deposits and makes loans is generally referred to as​ a(n)...

commercial bank

Gold is an example of...

commodity money

The largest component of spending in GDP is...

consumption spending

Okun's law states that for every 1 percentage point increase in the cyclical unemployment​ rate, real GDP growth...

decreases by about 2 percentage points

Income taxes increase, which __________ consumers' disposable incomes, so ___________ falls.

decreases; consumption

Government faces a budget deficit, so it ___________ spending and ______________________ falls.

decreases; government spending

Payroll taxes are paid on...

earned income

According to the Bureau of Labor Statistics, a person who is self-employed is considered...

employed

The labor force equals the number of people

employed plus unemployed

Fixed Investment

expenditures on physical plants and equipment, which are then used to produce other goods

The amount by which the federal​ government's annual revenues exceed its annual expenditures is the...

federal government budget surplus

A $100 bill is...

fiat money

The natural rate of unemployment is comprised of...

frictional and structural unemployment

Any profit earned by a corporation...

gets taxed twice

Interest rates increase, which _____________ the cost of borrowing, so _______________ falls.

increases; investment

The largest source of federal government revenue in the United States is...

individual income taxes

Mortgage Loans

loans issued by banks for the purpose of purchasing real estate or buildings

When a bank takes money that you put in your checking account and gives it to someone​ else, at a​ cost, for a period of​ time, it is said to be...

making a loan

Fiat Money

money that is backed by nothing but the faith and confidence that it will serve as a medium of exchange

Structural unemployment is the result of...

more people looking for work in some labor markets than there are jobs available

Physical capital makes workers ____________, so a declining capital stock _______________.

more productive; hinders economic growth

Employment protection laws make it​ ________ for firms to hire​ people, which can result in​ a(n) ________ in the number of people who are structurally unemployed.

more risky; increase

The purchase by a consumer in Brazil of a video game produced in the US is included in...

net exports

Discouraged workers are​ ________ in the unemployment​ rate, and this tends to​ ________ the unemployment rate.

not counted; understate

According to the Bureau of Labor​ Statistics, a person who does not have a job and has not been actively looking for a job in the past four weeks is considered...

not in the labor force

Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico in 2005. This drove up the prices of natural​ gas, gasoline, and heating oil. This is an example of a...

supply shock

Federal Government Budget Deficit

the amount by which the federal government's annual expenditures exceed its annual receipts

In an economy, newly-issued money originates from...

the central bank

Liquidity refers to...

the ease with which an asset can be converted into cash

Human Capital

the knowledge and skills people accumulate through experience, education, and training

Gross Domestic Product

the market value of all final goods and services produced in a country in a given year

Financial Markets

the physical or electronic places where financial instruments are traded

Frictional unemployment is the result of...

the search process of matching workers with jobs

Microeconomics is

the study of decisions made by individuals and businesses

Macroeconomics is

the study of the economy as a whole

The total federal debt is equal to...

the sum of all past deficits minus the sum of all past surpluses.

GDP is calculated by summing up

the total market value of final goods and services produced in the economy during a particular year


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