Macro Exam 2
Imagine that Jack and Jill buy $500 worth of milk and $200 worth of crayons and coloring books each year for use in their day-care business. Jack and Jill also hire a day-care attendant at a salary of $14,000 per year. If Jack and Jill sell $100,000 worth of day care to parents each year, what is the contribution to GDP by Jack and Jill's Day Care?
$100,000
Tim buys a house from Betty in 2011 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real-estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2011 for this transaction?
$15,000
(Figure: A Tariff on Imports) Refer to the figure. Suppose the government intervenes with a $2 tariff; the total value of deadweight loss as a result of the tariff is:
$150 million
(Figure: Foreign Trade Market) Refer to the figure. What is the dollar value of the deadweight loss created by the loss of foreign trade?
$4,000
(Figure: Foreign Trade with a Tariff) Refer to the figure. A $1 tariff generates increased domestic production by:
$40 million units
(Figure: Foreign Trade Market) Refer to the figure. What is the dollar value of wasted resources as a result of prohibiting trade in this market?
$6,000
(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas. What is the GDP in this country?
$7,200
(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. What is the GDP in this country?
$7,700
In 2010, real GDP was $13.2 trillion (using 2005 prices) and nominal GDP was $14.6 trillion. Based on the GDP deflator, prices in 2010 were about _____ than prices in 2005.
10.6% higher
If the average annual growth rate of a country increases from 2% to 3%, how much faster will its GDP double?
11 2/3 years faster
Suppose a country's annual growth rate of real GDP per capita is approximately 2%. By which year would the country double its real GDP per capita from $10,000 in 1950 to $20,000?
1985
(Table: Unemployment Statistics for Country X) Using the data in the table, what is the natural unemployment rate for this country in the year 2005?
2.9%
(Figure: Labor Market) Refer to the figure. If this market is initially in equilibrium when a $10 minimum wage is imposed, the quantity of labor employed will fall by:
20
(Table: Anticipating Inflation) Using the inflation data in the table above, assume that all loan contracts have fixed nominal interest rates of 10% and mature after one year. Which year did lenders gain relative to borrowers?
2003
Real GDP for the year 2000 (measured in 2005 dollars) is equal to:
2005 prices × 2000 quantities
(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of nominal GDP from 2005 to 2006 is:
27%
A bank lends money for a year at an interest rate of 9% and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year?
4%
(Figure: Labor Market) Refer to the figure. What is the unemployment rate in this market as a result of the implementation of a $10 minimum wage?
50%
If real GDP per capita in the United States is currently $50,000 and grows at 2.5% per year, it will take approximately how many years to reach $200,000?
56
A country has a population of 160 million. Thirty million of its people are under the age of 16 and 10% of the population is either in the military or institutionalized. Seventy million people have jobs, and five million are looking for work. What is the labor force participation rate in this country?
66%
Suppose a country's real GDP per capita was $9,000 in 1990, and it grew to $18,000 by 2000. What is the annual growth rate of the country's real GDP per capita during this period?
7%
(Figure: Labor Supply and Demand) Refer to the figure. How much will the quantity of labor employed decline as a result of the labor union's action to increase its wage demands to $11 an hour?
700
(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of real GDP from 2007 to 2008 (in 2005 dollars) is:
8.3%.
If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be:
8.33%
Roughly what percent of the world's population live in countries with per capita GDP lower than the average world per capita GDP?
80%
If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's unemployment rate is:
9.1%
Which statement is TRUE about economic growth?
A country can grow and become wealthy, never grow, or grow and then begin to stagnate.
In a country where both the labor force participation rate and the unemployment rate are very low, which of the following answers explains why this may be the case?
A large percentage of the population is aging and thus has retired
Which of the following is TRUE about the economic policy of "protectionism"?
All of the statements are correct
Which of the following statements describes reasons why free trade is beneficial for the United States?
All of the statements are correct
How might changes in the money supply be non-neutral in the short run?
As the amount of money circulating in the economy changes before prices respond, the purchases of consumers change accordingly, which leads producers to change production levels
Which of these transactions occurring in 2011 would contribute to GDP for 2011?
Boeing sells a 787 aircraft produced in 2011 to a Korean airline
Structural unemployment is more persistent in France than in the United States because:
French workers have less incentive to quickly seek a new position since their unemployment benefits are much higher
Which of the following statements is TRUE about GDP?
GDP does not account for the distribution of income in a country
Which of the following statements is TRUE about GDP?
GDP does not account for the distribution of income in a country.
Which of the following is TRUE in the calculation of GDP?
GDP does not include goods and services produced privately inside the home
In nations that have large underground, or illegal, sectors:
GDP will underestimate total production in the economy
Which of the following is a case of cyclical unemployment?
Garrett lost his job after the company closed during last year's recession.
Which of the following is the best example of frictional unemployment?
Heather recently graduated with her doctorate in economics. She is searching for a job that matches her skills
Which of the following is an ultimate cause of economic growth among countries around the world?
History, culture, and geography are all ultimate causes of growth.
If quotas on sugar were eliminated in the United States, domestic production of sugar would fall. Why is this a benefit in economic terms for the United States?I. Resources are freed up that could be used more efficiently elsewhere.II. It is beneficial because it allows foreign producers of sugar to earn income and thus those countries are better off.III. U.S. consumers are able to enjoy increased consumer surplus because of the lower prices of imported sugar.
I and III only
The benefits of trade include:I. greater productivity due to specialization.II. higher output due to specialization according to comparative advantage.III. increased welfare when preferences differ.
I, II, and III
Which of the following is true of the natural unemployment rate?
It is higher if structural or frictional unemployment is higher
Which of the following is a problem with deflation?
It raises the real cost of debt repayment
Which statement best describes the economic growth patterns in the world since World War II?
Japan and South Korea experienced rapid growth while Argentina and Nigeria experienced slow growth
The Japanese people currently pay about 4 times the world price for rice. If Japan removed its trade barriers so that Japanese consumers could buy rice at the world price, who would make a greater effort lobbying for or against this reduction to trade barriers: Japanese consumers or Japanese rice famers?
Japanese farmers would lobby harder since their losses are concentrated in a smaller group than the gains to consumers
Which of the following activities is counted as part of U.S. GDP?
Jeff stays in a hotel in Colorado while on a skiing trip.
Which of the following is considered unemployed?
John, on temporary layoff from his work, awaits recall
Because of pressure from Western countries, garment producers in Bangladesh quit employing 30,000 to 50,000 child workers. What happened to these children?
Many children went to work in jobs with worse conditions and lower pay, many in prostitution
Which statement is TRUE?
Rising real GDP per capita has been an important force in reducing child labor
Why could very high rates of inflation cause velocity to increase?
The more money loses its value, the faster people try to spend it
Which of the following best describes the effects of a major labor union that maintains a union wage above the market wage?
The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate increases
Which of the following is a case of frictional unemployment?
Timothy is looking for a job where he can apply his expertise in computer programming.
(Table: Small-Town GDP) Which of the four towns in this table has the highest standard of living?
Town B
Which of the following would be included in GDP for the United States?
Toyota, a Japanese car company, producing cars in the United States
Which of the following is an example of money illusion assuming that inflation is 5%?
You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend
A minimum wage is:
a labor market price floor
Autarky refers to:
a situation in which there is no trade
Which scenario has the greatest potential for free riding?
a system in which work effort and pay are not connected
Growth in nominal GDP over time can be caused by:
an increase in both prices and production over time
A set of tires installed on a vehicle in an automobile factory is counted as:
an intermediate good and its market price is not part of GDP
If the money supply, the velocity of money, and the price level are fixed, then increases in real GDP:
are impossible because real GDP must also be fixed
Which of the following would be most effective in reducing "free riding" in a communal farming system?
assigning property rights
Inflation refers to an increase in the:
average level of prices
Although domestic consumers gain more from free trade than domestic producers lose, the matter may not be that simple. Why might domestic producers also gain from free trade policies over those that impose tariffs on all goods?
because domestic producers also consume at least some imported goods that cost less
Around the world, about one _____ people have incomes of less than $2 per day.
billion
(Table: Unemployment Statistics for Country X) Using the data in the table, Country X is likely to be in a recession in:
both 1995 and 2005
To compare the $1-an-hour your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to:
calculate real wages in both 1950 and today
Eliminating tariffs on imported sugar would:
cause resources to be reallocated from sugar production to higher-valued uses
In the past 100 years, there has been a decline in the use of unpaid child labor on family farms. Therefore:
changes in GDP overstate the true increase in production over the past 100 years
The most promising idea for creating a growth miracle in a country is:
changing the institutions in the country
Dumping occurs when a firm:
charges a price in a foreign market that is lower than its production cost
Which is NOT likely an ultimate cause of economic growth around the world?
communal resources
Because of money illusion, inflation usually confuses:
consumers, workers, and firms
GDP includes the:
current market value of government purchases of goods and services.
Which type of unemployment is likely to be higher when real GDP growth is lower?
cyclical unemployment
According to the supply and demand framework in the text, an increase in import trade tends to ______ domestic production of a good.
decrease
An increase in import trade tends to ______ domestic prices
decrease
Higher implicit tax rates tend to cause labor force participation rates to:
decrease
Decreases in the level of political stability in a country tend to:
decrease per capita GDP
If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005
decreased
High and volatile inflation:
destroys the ability of market prices to send signals about the value of resources and opportunities
Suppose the average level of prices increased from 100 to 110 between 2007 and 2008, and from 110 to 115 between 2008 and 2009. Between 2008 and 2009, there was:
disinflation
When disinflation arises unexpectedly, the real interest rate will _____ the equilibrium rate, which will benefit _____.
exceed; lenders and harm borrowers
Gross domestic product is the market value of all:
final goods and services produced within a country in a year
To avoid double accounting, the value of:
final goods only are included in GDP
Several years ago, the rising popularity of Barnes & Noble and Borders shifted workers from independent bookshops to larger chains. What type of unemployment was associated with this reallocation of the work force?
frictional unemployment
If 2009 prices are used in the calculation of real GDP and inflation occurs between 2009 and 2010, then nominal GDP will be ____ real GDP in 2010.
greater than
Countries that have high per capita GDP tend to have:
high levels of all three factors of production
When we examine data from different countries, higher money growth has consistently been associated with:
higher inflation
The implicit tax on working is less than 1% in the United States and over 2% in Belgium. Given this, we would expect:
higher labor force participation in the United States
If the world price of cotton is less than the price that would occur domestically without trade, then a country will:
import cotton
For a given nominal interest rate, an increase in deflation will cause the real rate of interest to:
increase
If a national government improves its unemployment benefits, its unemployment rate will most likely:
increase
Suppose you spent $10,000 in 2010 remodeling your house, which you originally built for $200,000 in 2000. As a result, GDP in 2010 would:
increase by $10,000
According to the quantity theory of money, an increase in the money supply will cause the price level to:
increase by about the same percentage as the money supply
Which would be most effective in ensuring sustained long-term economic growth?
increasing technological knowledge
Debt monetization means that a government pays off its debt by:
increasing the money supply
The quantity theory of money is a theory of:
inflation
High-income economies generally have _____ that incentivize individuals' self-interest by using _____.
institutions; profit-seeking motives
When the world price is below the domestic price, the elimination of a tariff decreases domestic production and provides a benefit because:
it frees up resources that can be used to produce other goods and services
Which of the following is (are) NOT an institution of economic growth?
labor unions
Current forecasts say that mild inflation is expected next year. If, however, deflation occurs instead:
lenders on existing fixed rate loans will gain while borrowers will lose
If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be:
less than the equilibrium rate
If the economy experiences unexpected inflation, then the real interest rate will be _____ than its equilibrium rate, and wealth will be distributed from _____.
less; lenders to borrowers
Which is NOT an example of an institution that creates incentives aligning self-interest with the interest of society?
low inflation
Trade restrictions:
may save jobs in one industry but at a cost of less job growth in other industries
Trade restrictions based on national security concerns:
might be beneficial in certain cases, like vaccinations
Which is NOT an example of physical capital?
money
According to the quantity theory, what causes inflation in the long run?
money supply growth
GDP is calculated by:
multiplying the quantity of all goods and services by their prices and adding together the results
The quantity theory of money implies that the money supply times the velocity of money equals:
nominal GDP
The value of volunteer services is:
not included in GDP, but should be because a service is produced
Using the national spending approach to measuring GDP, the social security checks the government sends retirees each month get included in GDP as part of:
nothing; they are not included as part of GDP
Governments can use tariffs to help domestic firms act like a cartel when selling to international buyers:
only if international buyers have few substitutes for the domestic good
The value of a country's GDP exceeds that of the country's GNP if the value of the:
output produced by foreign workers in the country exceeds the value of output produced by the country's permanent residents in other countries
Which is considered an immediate cause of economic growth?
physical capital
For a tax system in which higher income earners pay a larger share of their incomes in taxes, a higher inflation rate:
raises the tax burden of taxpayers
When the expected rate of inflation is higher than the actual rate of inflation, wealth is:
redistributed from borrowers to lenders
Import bans, import quotas, voluntary export restraints, and tariffs on goods all:
reduce imports and raise prices for consumers
For most of recorded human history, real GDP per capita has:
remained about the same
If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then in relative terms the real of price milk between 2000 and 2010:
remained the same
When workers lose their jobs and become officially unemployed, the number of people in the labor force:
remains constant
Property rights encourage:
saving and investment in both physical and human capital.
Money illusion occurs when people:
see changes in nominal prices and mistake them for changes in real prices
A country that has enforceable property rights, a noncorrupt political system, abundant factors of production, and a change in leadership and form of government every few years should suspect that economic growth will be _____ because _____.
slow; of uncertainty due to an unstable political system
Which is NOT an important institution for growth?
strong regulation of religious belief
The shift toward more of a service economy and less of a manufacturing economy in the United States has caused an increase in:
structural unemployment
Which are immediate causes of the wealth of nations?
technical knowledge and human capital
A developing country could buy (or be given) _____ and _____ more easily than _____.
technological knowledge; physical capital; human capital
The key reason for China's growth miracle beginning in the late 1970s was:
the assignment of private property rights
Orrin mines iron ore, which he sells to Thorin, who turns iron ore into steel. The steel is sold to Gorin, who turns the steel into battle axes. The battle axes are sold by a merchant in the city to adventurers. Which of the following would be considered a final good?
the battle axes sold to the adventurers
Strategic trade protectionism makes:
the domestic country better off at the expense of foreign countries
Which of the following elements reduces structural unemployment?
the enhancement of worker retraining programs
The case of hyperinflation in Zimbabwe in the late 2000s was an example of the effects of:
the government monetizing its debt
The text states, "inflation is a type of tax." This tax refers to _____ when inflation occurs.
the lower purchasing power of money
The quantity theory of money predicts that the main cause of inflation is increases in:
the money supply
The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with:
the quantity theory of money
If the United States bans the importation of Japanese automobiles:
there will likely be more U.S. auto workers but fewer Americans working in other industries
When an economic system changes from using a collective property rights system to something closer to private property rights, the immediate effect is:
to increase investment, work effort, and productivity
Why do we use the "real" prices of goods to measure how expensive things have become?
to see whether there have been any changes in our purchasing power
The presence of discouraged workers causes the measured unemployment rate to be:
understated
Which of the following is NOT considered a government purchase?
unemployment checks
History has shown that when collective property rights are converted to private property rights:
work effort, investment, and productivity all increase.
Which of the following correctly represents deflation?
π < 0
