H Macro
The consumer price index is based on a market basket of goods and services and the consumption patterns of:
an average urban household
How can government policies shift the aggregate demand curve to the right?
by increasing government purchases
How does the dynamic model of aggregate supply and aggregate demand explain inflation?
by showing that if total spending in the economy grows faster than total production, prices will rise
To calculate personal income from national income, what must the BEA do?
add government transfer payments
True or False Most economists agree that the above-market wage paid in unionized industries significantly increases the unemployment rate in the United States.
False
When the economy was expanding in early 2007, fewer than _______ percent of the unemployed had been jobless for more than 6 months.
20
True/False The Austrian school is best known for arguing the superiority of government economic planning over the market system.
False
True/False To avoid the cost of the purchasing power of paper money decreasing with inflation, workers and firms will try to hold as much paper money as possible
False
If the CPI was 207 in 2009 and 225 in 2013, what wage would someone who earned a $50,000 income in 2009 have to earn in 2013 in order to keep her purchasing power constant?
$54348
What is the correct formula for calculating the unemployment rate?
(number of unemployed/ labor force)*100
n artist buys scrap metal from a local steel mill as a raw material for her sculptures. Last year, she purchased $5000 worth of scrap metal. With the steel she produced 10 authentic sculptures that she sold for $800 each to a local art dealer. The art dealer then sold all of the sculptures to art collectors for an average of $1000 each. The total value added of the art dealer is $
2000
An artist buys scrap metal from a local steel mill as a raw material for her sculptures. Last year, she purchased $6 comma 000 worth of scrap metal. With the steel she produced 10 authentic sculptures that she sold for $900 each to a local art dealer. The art dealer then sold all of the sculptures to art collectors for an average of $1 comma 100 each. The total value added of the artist is $
3000
Almora, a developing open economy, is experiencing an economic boom since it discovered oil reserves off its coast two years ago. Bill Hudson, an economist with the Finance Ministry of Almora, said in an interview that the oil boom has improved the average standard of living in the economy. Robin Peters is an industry analyst who does not agree with Hudson's view. In one of his recent articles in the country's leading business daily, Robin claimed that the high rate of inflation following the boom has actually weakened the expansionary impact on the economy. Which of the following, if true, will support Bill's argument? A. The number of Almorans who had settled abroad but are coming back to their homeland has been increasing in the last two years. Your answer is correct.B. There has hardly been any change in the average income level of low-income groups in the past five years. C. The government increased its budget allocation toward unemployment benefits this year. D. The diversity of population is very low in Almora. E. The manufacturing sector in Almora accounts for only 8 percent of its GDP.
A. The number of Almorans who had settled abroad but are coming back to their homeland has been increasing in the last two years.
Which of the following factors does not cause the aggregate demand curve to shift? A. a change in the price level B.a change in foreign variables C.a change in government monetary or fiscal policies D.a change in the expectations of households and firms
A. a change in the price level
Which of the following changes does not cause an increase in the quantity of goods and services that can be produced by one worker, or in one hour of work? A. an increase in the number of workers B. an increase in the quantity of capital per hour worked C. an increase in the literacy rate D. technological change
A. an increase in the number of workers
Why in microeconomics can we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value? A. If, in macroeconomics, we measured production using quantities, we would add tons of wheat grown by U.S. farmers to the number of iPods produced by Apple, to gallons of milk, and so on. B. When we measure total production, we can't just add together the quantities of every good and service because the result would be meaningless. C. Measuring production using market value in dollar terms allows us to add together many different goods and services. D. Both A and C. E. All of the above.
E.
Which of the following is not a reason that the economy is considered to have been more stable in the 1950-2007 period than in other periods? A. the increasing importance of services and the declining importance of goods B. continually falling oil prices C. the establishment of unemployment insurance programs D. the use of active government policies to stabilize the economy
B. continually falling oil prices
What is the best use of the rule of 70 among those listed below? A. to calculate the difference between the growth rate in real GDP and the growth rate in real GDP per capita B. to judge how rapidly real GDP per capita is growing over long time periods C. to find the average annual growth rate of real GDP D. to forecast the duration of recessions
B. to judge how rapidly real GDP per capita is growing over long time periods
During the current year, the government in the country of Brungaria has adopted a fiscal stimulus package to boost economic growth. The stimulus package is a major factor behind the increase in government purchases this year. As a result of these policies, Brungaria will experience a substantial increase in overall employment, gross investment, and consumption expenditure. In response, the Economic Advisory Committee of the government announces at a press conference that these results will ensure that Brungaria's GDP will be higher this year than it was in the previous year. Which of the following, if true, would undermine the claim of the Economic Advisory Committee? Brungaria's exports have fallen significantly in the current year. The value of goods and services imported by the country this year will be lower than the value of imports in the previous year. In the past year, immigration from neighboring countries has increased significantly. The government lacks the ability to borrow adequate funds to finance a stimulus package next year. In the current year, total expenditures on consumption are greater than expenditures on investment.
Brungaria's exports have fallen significantly in the current year
Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following, if true, would support the marketing head's claim? A. Input prices declined substantially due to the recession. B. In the previous recession, a leading player in the hospitality sector had expanded its facilities but was unable to recover its costs later. C. Import barriers were reduced recently to encourage competition. D. The fact that the economy is in recession was announced a quarter after GDP started to decline. E. Unemployment in the economy was lower than expected during the recession.
C. Import barriers were reduced recently to encourage competition.
Which of the following changes will ensure that an economy experiences sustained economic growth? A.increasing the amount of labor B. increasing the amount of raw materials C. technological change D. increasing the amount of capital
C. technological change
Paul Schumer and Jim Miller, two analysts at a research institute, discuss the rising costs of higher education in their country. Paul feels that escalating tuition fees in colleges and universities are indicative of a bubble in the higher education market. According to Jim, however, the rising costs are the result of better quality education being provided by the institutions in recent years. Which of the following, if true, will weaken Paul's argument? A. A recent survey reveals that a large number of domestic workers have emigrated due to a lack of job opportunities in the country. B. The government agency that provides accreditation to colleges has been accused of corruption. C. Some universities are relying on inflated placement figures to attract students. D. Fewer students are opting to enroll in higher education courses. E. The number of foreign students enrolling in domestic universities has increased steadily in the last three years.
E. The number of foreign students enrolling in domestic universities has increased steadily in the last three years.
Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following questions is most relevant to answer in order to determine the accuracy of the CEO's claim? A. Does the current recession affect every firm in country A equally? B. What proportion of total employment does the tire industry account for? C. What is the tire industry's contribution to the country's GDP? D. What are consumer expectations of future growth? E. How quickly did the economy recover the last time there was a recession?
D. What are consumer expectations of future growth?
Which of the following are financial securities that represent promises to repay a fixed amount of funds? A. stocks B. both stocks and bonds C. neither stocks nor bonds D. bonds
D. bonds
Which of the following is not a service that the financial system provides for savers and borrowers? A. risk sharing among savers B. matching savers with borrowers C. increased liquidity for savers D. guaranteeing savers high rates of return
D. guaranteeing savers high rates of return
The computation of the average annual growth rate of real GDP A. involves computing the percentage change in real GDP between the first year and the last year for the period being examined. B. involves simply averaging the growth rate for each year, but only if data for many years are available. C. is the same for shorter periods of time as for longer periods of time. D. is more complex when examining data for a long period of time than when examining data for only a few years.
D. is more complex when examining data for a long period of time than when examining data for only a few years.
During the last half of the twentieth century, the U.S. economy experienced A. much more severe swings in real GDP than in the first half of the twentieth century. B. an inflation rate that increased during both recessions and expansions. C. long recessions, interrupted by relatively short expansions. D. long expansions, interrupted by relatively short recessions.
D. long expansions, interrupted by relatively short recessions.
Which of the following factors determines the supply of loanable funds? A. changes in the interest rate, which cause firms to undertake more or fewer investment projects B. the number of financial intermediaries available C. the quantity of stocks and bonds issued by firms D. the willingness of households and governments to save
D. the willingness of households and governments to save
What happens if we measure GDP by adding up the value of every good and service produced in the economy? This is the correct measure of nominal GDP but not real GDP. This is the correct measure of real GDP but not nominal GDP. GDP is underestimated because of double counting. GDP is overestimated because of double counting.
GDP is overestimated because of double counting
Which of the following is not a shortcoming of GDP as a measure of well-being? GDP only counts final goods and services and not intermediate goods. GDP is not adjusted for the effects of pollution caused by the production of goods and services. GDP is not adjusted for crime and other social problems. GDP does not include the value of leisure.
GDP only counts final goods and services and not intermediate goods
When a significant fraction of domestic production takes place in foreign-owned facilities, a country's difference between GDP and GNP is as follows:
GDP will be much larger than GNP
If Americans still worked 60-hour weeks, as they did in 1890, GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher. GDP would be lower than it is, but the well-being of the typical person would be higher. both GDP and the well-being of the typical person would be much higher than they are. both GDP and the well-being of the typical person would be lower than they are.
GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher
What is the GDP Deflator equation
GNP/GDP*100
How does the size of a country's GDP affect the quality of life of the country's people?
Generally, the more goods and services people have, the better off they are.
As the economy nears the end of an expansion, what typically occurs?
Interest rates are usually rising. Wages are usually rising faster than prices. The profits of firms will be falling.
It has been argued by economists and policymakers that measured GDP undervalues the economic activity conducted by women. Drawing on the material from this chapter, provide two reasons why measured GDP might underrepresent the economic contributions of women.
Measured GDP undervalues the contributions of women to economic activity by omitting the value of household production and, to a lesser extent, underground economic activity. Women, in almost all countries around the world, are disproportionately engaged in household production, relative to men. These activities are production that, like productive activity conducted outside of the household, generate economic value. It is, however, not included in standard measures of GDP. Additionally, in many lower and middle income countries, women are disproportionately engaged in underground economic activity, relative to men. The omission of the informal sector from standard GDP calculations also disproportionately disregards the economic contributions of women. Since measured GDP does not include household production or underground economic activity, it underrepresents the economic contributions of women.
Milton Friedman argued that the Federal Reserve should adopt a ________ to reduce fluctuations in real GDP, employment, and inflation.
Monetary Growth Rule
Consider the macroeconomic data provided in the table below. Explain why nominal GDP would grow when real GDP is not growing. Nominal GDP $10 trillion (2017) $11 trillion (2018) Real GDP $10 trillion (2017) $10 trillion (2018)
Nominal GDP may grow, even when real GDP does not grow, if there is inflation. Nominal GDP grows whenever there is an increase in production, and when there is an increase in the level of prices in the economy. Since Nominal GDP is calculated using current-year prices, nominal GDP increases when there is an increase in prices, even if there is no actual increase in production. Real GDP, however, grows only when there is an increase in production. Since real GDP is calculated using base-year prices, it is not influenced year-to-year by changes in the level of prices.
True or False If inflation is unexpectedly high, borrowers will benefit and lenders will be harmed.
True
True or false The producer price index (PPI) tracks the prices firms receive for goods and services at all stages of production.
True
What are the four categories of income?
Wages Interest Rent Profit
What are views new classical macroeconomists hold?
Workers and firms have rational expectations. Wage and price stickiness is not important for explaining fluctuations in real GDP. The economy will normally be at potential real GDP.
If the economy adjusts through the automatic mechanism, then a decline in aggregate demand causes
a recession in the short run and a decline in the price level in the long run
What usually causes Stagflation
a supply shock as a result of an unexpected increase in the price of a natural resource
Suppose that you are available to go to work but have not looked for a job for at least the last four weeks because you believe that there aren't any jobs available. You would be counted as
a discouraged worker
A higher per capita GDP translates to:
a higher standard of living
An average of the prices of the goods and services purchased by a typical family is the:
consumer price index
Inflation at the consumer level is measured by the....
consumer price index
The country of Alaine produces 1,000 tons of corn during a year. It is valued at $500 per ton. A lobbyist for the corn industry in Alaine argues that the total value of corn production should be included in the country's GDP for the same year. The lobbyist's claim is based on the assumption that
corn is not used in the production of other goods
Workers who lose their jobs because of a recession are experiencing...
cyclical unemployment
Which of the following are likely to increase the measured level of GDP and which are likely to reduce it? If higher tax rates cause more people to hide the income they earn, the measured GDP...
decrease
Which of the following are likely to increase the measured level of GDP and which are likely to reduce it? When the number of people working outside the home decreases, the measured level of GDP...
decrease
Recessions cause the inflation rate to _________, and the unemployment rate to _________.
decrease increase
Holding all else constant, a federal government budget deficit will...
decrease the supply of loanable funds and increase the equilibrium real interest rate.
During recessions, the inflation rate...
decreases
What do we subtract from the GDP to obtain national income?
depreciation
In the long run, changes in the price level ________________ the level of real GDP.
do not affect
Purchases of which types of goods are business cycles most likely to affect?
durable goods
When a firm pays a wage that is higher than the market wage in order to increase worker productivity, the wage is called
efficiency wages
True/False If income rises more slowly than the rate of inflation, purchasing power will rise.
false
When the economy is at full employment, which types of unemployment remain?
frictional structural
The short-term unemployment that arises from the process of matching workers with jobs is called...
frictional unemployment
In April 2017, which of the following demographic groups had a higher rate of unemployment than the unemployment rate for the total population?
high school dropouts
In the circular-flow diagram, who supplies factors of production in exchange for income?
households
Of the eight categories in the CPI market basket, which three categories make up more than 75 percent of the basket?
housing transportation food
If the economy is initially at full-employment equilibrium, then an increase in aggregate demand causes _____________ in real GDP in the short run and ___________ in the price level in the long run.
increase increase
Which of the following are likely to increase the measured level of GDP and which are likely to reduce it? When there is a sharp increase in the crime rate, the measured level of GDP...
increase or decrease
Increases in the minimum wage will
increase teenage unemployment.
A sustained increase in the general level of prices is known as:
inflation
An important conclusion to draw from the circular-flow diagram is that
we can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income
The unemployment rate in the United States is usually ________ than the unemployment rates in most other high-income countries, partly because the United States has _________ requirements for the unemployed to receive government payments.
lower more stringent
An article in the Wall Street Journal discussed the views of Canadian Minister of Finance Joe Oliver on the effect of falling oil prices on the Canadian economy. According to the article, Oliver argued that "lower oil prices would have a broadly neutral impact on real ... gross domestic product, but have a negative effect on nominal GDP." Source: Reuters, "Canada Pushes Back Budget to April Due to Market Instability," New York Times, January 15, 2015. Oliver must be expecting the effect of lower oil prices to:
lower the inflation rate, which would offset the reduction in nominal GDP
In an economy with rising prices, compared to the base year, nominal GDP is larger than real GDP in years after the base year. nominal GDP is equal to real GDP in years after the base year. nominal GDP is larger than real GDP in years before the base year. nominal GDP is equal to real GDP in years before the base year.
nominal GDP is larger than real GDP in years after the base year
In an economy with rising prices, compared to the base year
nominal GDP is larger than real GDP in years after the base year.
The BLS collects price statistics from traditional full-price retail stores, which do not reflect the prices some consumers pay by shopping at discount stores or on the Internet. This is a description of which bias?
outlet bias
According to Karl Marx, the owners of businesses monopolized the means of production and exploited workers by
paying them wages lower than the value of workers' contributions to production.
Disposable personal income is equal to:
personal income minus personal tax payments.
What is the best measure of the standard of living of the typical person in a country?
real GDP per person
unemployment rate typically...
rises during a recession and after the recession has ended
Two important trends in the labor force participation rates of adults aged 20 and over in the United States since 1948 are the _________ labor force participation rate of adult women and the __________ labor force participation rate of adult men.
rising falling
Potential GDP is what in relation to Real GDP
sometimes greater, sometimes less, and sometimes equal to actual real GDP
In calculating GDP, which levels of government spending are included in government purchases? spending by governments only on national security, social welfare, and other national programs spending by the federal government and some state governments, but not local governments spending by federal, state, and local governments spending by the federal government only
spending by federal, state, and local governments
Changes in the CPI overstate the true inflation rate due to four "biases." If apple prices rise rapidly during the month while orange prices fall, consumers will reduce their apple purchases and increase their orange purchases. Which of the four biases is concerned with this consumer behavior?
substitution bias
What factors will cause the long-run aggregate supply curve to shift to the right?
the accumulation of more machinery and equipment technological change an increase in the number of workers in the economy
From a trough to a peak, the economy goes through...
the expansionary phase of the business cycle.
In determining whether to borrow funds, firms compare the rate of return they expect to make on an investment with...
the interest rate they must pay to borrow the necessary funds.
Gross domestic product is best defined as the amount of all incomes earned by all citizens of a country, including those living overseas. the total quantity of goods and services produced in a country during a period of time. the market value of all final goods and services produced in a country during a period of time, typically one year. the total value of all goods that can be found in a country.
the market value of all final goods and services produced in a country during a period of time, typically one year.
The real interest rate equals...
the nominal interest rate minus the inflation rate.
Which of the following is included in the economist's definition of investment? the purchase of a rare coin or a deposit in a savings account the purchase of new machines, factories, or houses the purchase of a share of stock All of the above.
the purchase of new machines, factories, or houses
Computation of the CPI assumes that households buy the same market basket of products each month. For this reason, which one of the following factors is not relevant in calculating the CPI? A. the quantities of the products households purchase in the base year B. the prices of the products households purchase in the base year C. the prices of the products households purchase in the current year D. the quantities of the products households purchase in the current year
the quantities of the products households purchase in the current year
The extent of job creation and job destruction is
what we would expect in a vibrant market system
Typically, when will the National Bureau of Economic Research (NBER) announce that the economy is in a recession?
year or more after the recession has begun
How would it affect the unemployment rate if the Bureau of Labor Statistics counted as unemployed both (1) discouraged workers and (2) people who work part-time but would prefer to work full-time?
the unemployment rate would increase
if price level increases, then...
there will be a movement up along a stationary aggregate demand curve.
The "normal" underlying level of unemployment in the economy is...
the full-employment rate of unemployment. the sum of structural unemployment and frictional unemployment. the natural rate of unemployment.
seasonal unemployment
unemployment linked to seasonal work
frictional unemployment
unemployment that occurs when people take time to find a job
structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called...
value added