macro midterm #2 study guide

If the CPI was 68 in 1965 and is 285 today, then $100 today purchases the same amount of goods and services as $68.00 purchased in 1965. $23.86 purchased in 1965. $419.12 purchased in 1965. $32.47 purchased in 1965.

$23.86 purchased in 1965.

David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is

$63,195.34

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power? $189,000 $42,000 $68,880 $65,625

$65,625 Equation = 42,000 x (125/80)

inflation rate between two consecutive years =

((GDP Deflator in year 2 - GDP deflator in year 1)/ (GDP deflator in year 1)) x 100

Consumer Price index/cpi =

((price of basket of goods and services in current year)/ (Price of basket in base year)) x 100

gdp deflator =

(Nominal GDP/Real GDP) x 100

The labor force participation rate is calculated by

(labor force/working age population) x 100

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be The base year cannot be determined from the given information. 2013. 2012. 2014.

2013

During the past century the average growth rate of U.S. real GDP per person implies that it doubled, on average, about every 35 years. 70 years. 25 years. 100 years.

35

The price index was 120 in 2012 and 126 in 2013. What was the inflation rate? 105 percent 6.0 percent 5.0 percent 7.2 percent

5.0 percent

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced 7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years. 5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years. 7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years. 5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years.

5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.

If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was 106 percent. 1.06 percent. 6 percent. 10.6 percent.

6 percent

If real GDP per capita measured in 2000 dollars was $6,000 in 1950 and $48,000 in 2010, we would say that in the year 2010, the average American could buy ________ times as many goods and services as the average American in 1950. 1/8. 8. 4. 12.

8

If nominal GDP is $8 trillion and real GDP is $10 trillion, then the GDP deflator is 80, and this indicates that the price level has decreased by 20 percent since the base year. 80, and this indicates that the price level has increased by 80 percent since the base year. 125, and this indicates that the price level has increased by 25 percent since the base year. 125, and this indicates that the price level has increased by 125 percent since the base year.

80, and this indicates that the price level has decreased by 20 percent since the base year.

Suppose that the economy enters a recession and that, as a result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck mechanic? Structurally unemployed. Seasonally unemployed. Cyclically unemployed. Frictionally unemployed

Cyclically unemployed.

The developing countries have been catching up to the lower-income industrial countries in terms of economic growth. true or false

False

You and your friend are discussing theoretical macroeconomic aggreates when he says "In economy X, in 2013, net private domestic investment was minus $6 billion. This necessarily means that, in that particular year, the economy produced no capital goods at all." Your friend is correct. True or False?

False

Net National Product is defined as National Income less sales taxes. GDP less depreciation. GNP less depreciation. National income less depreciation.

GNP less depreciation.

Which one of the following is NOT a measure of the price level? -GDP Deflator: broadest measure of the average price level as it includes prices of every final good and service. -Government price index: an average of the prices paid by the government for goods and services used only by different government agencies. -Producer price index: an average of prices received by firms for goods and services at all stages of production. -Consumer price index: an average of the prices of goods and services a typical family of four would purchase.

Government price index: an average of the prices paid by the government for goods and services used only by different government agencies.

Between December 2001 and January 2002, the total number of people employed and the unemployment rate fell. How is this possible? It is possible if labor force participation rates also fall. The unemployment rate will always fall as employment falls. It is possible provided those that lost their jobs immediately begin seeking new jobs. This is not possible.

It is possible if labor force participation rates also fall.

Which of the following is correct? -The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. -The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. -The GDP deflator is more commonly used as a gauge of inflation than the CPI is. -The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

If real GDP in the United States is growing at an annual rate of 3.2% per capita and Bolivia's real GDP per capita is growing at a rate of 1.3%, which of the following would we expect in the long run? Assume real GDP per capita in the United States begins at a level above that of real GDP per capita in Bolivia. -The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will increase over time. -Real GDP per capita in the United States will always be 1.9% higher than real GDP per capital in Bolivia. -The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will always be $1.9 trillion. -The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will shrink over time.

The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will increase over time.

Currently, the Bureau of Labor Statistics does not include homemakers in its employment and labor force totals. What would happen to the unemployment rate and the labor force participation rate if homemakers were included in these numbers? -The unemployment rate would decrease and the labor force participation rate would decrease. -The unemployment rate would increase and the labor force participation rate would decrease. -The unemployment rate would increase and the labor force participation rate would increase. -The unemployment rate would decrease and the labor force participation rate would increase.

The unemployment rate would decrease and the labor force participation rate would increase.

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct? -The base year is always the year in which the cost of the basket was highest among the years for which computations are being made. -The value of the consumer price index is always 100 in the base year. -It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year. -The base year is always the first year among the years for which computations are being made.

The value of the consumer price index is always 100 in the base year.

In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40 in 2007. A hamburger cost $5 in 2006 and $6 in 2007. Which of the following statements is correct? -When 2006 is chosen as the base year, the inflation rate is 150 percent in 2007. -When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007. -When 2006 is chosen as the base year, the consumer price index is 90 in 2007. -When 2007 is chosen as the base year, the consumer price index is 100 in 2006.

When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007.

GDP Equation =

Y=C+I+G+NX

Transfer payments -the term that is used to indicate that your paycheck has been automatically deposited to your bank account. -a payment that is automatically transferred from your bank account to pay your utility bill. -a payment for moving expenses a worker receives when he or she is transferred by an employer to a new location. -a form of government spending that is not made in exchange for a currently produced good or service.

a form of government spending that is not made in exchange for a currently produced good or service.

An example of business fixed investment is $200 million of unsold cars at a car dealership. a purchase of a home by a household. a purchase of a computer by an accounting firm. a purchase of a bond by General Electric.

a purchase of a computer by an accounting firm

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket's cost was $80.00; in 2013, the basket's cost was $84; and in 2014, the basket's cost was $87.60. The value of the CPI was 100 in 2012. 105 in 2013. 109.5 in 2014. All of the above are correct.

all

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct? -The price level was higher in the second year than in the first year, and it was higher in the third year than in the second year. -The inflation rate was positive between the first and second years, and it was positive between the second and third years. -The inflation rate was lower between the second and third years than it was between the first and second years. -All of the above are correct.

all

Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy? It does not account for inaccurate responses to the Current Population Survey. Discouraged workers are not considered unemployed. It fails to account for illegal activities. Underemployed people are considered employed. All of the above.

all

The nominal GDP of the U.S. in 2010 was approximately $14.6 trillion. This means that total spending in 2010 was around $14.6 trillion. total income in 2010 was around $14.6 trillion. all of the answers are true. the value of output in 2010 was around $14.6 trillion.

all answers

Suppose that, in 2012, all prices in the economy double and that all wages and salaries have also doubled. In 2012, you -are no better off or worse off than you were in 2011 as the purchasing power of your salary has remained the same. -are better off than you were in 2011 as your salary is higher than it was in 2011 and you can now buy more goods and services. -cannot determine whether you are better off or worse off than you were in 2011, because the purchasing power of your salary cannot be determined. -are worse off than you were in 2011 as you can no longer afford to buy as many goods and services.

are no better off or worse off than you were in 2011 as the purchasing power of your salary has remained the same.

The GDP deflator is a measure of total production of the economy unadjusted for inflation. average level of prices of intermediate goods and services in the economy. average level of prices of final goods and services in the economy. total production of the economy adjusted for inflation.

average level of prices of final goods and services in the economy.

The inflation rate is calculated -by determining the change in the price index from the preceding period. -by determining the percentage change in the price index from the preceding period. -by determining the percentage change in the price index from the base year. -by determining the change in the price index from the base year.

by determining the percentage change in the price index from the preceding period.

When the consumer price index falls, the typical family -can save less because they do not need to offset the effects of rising prices. -can spend fewer dollars to maintain the same standard of living. -has to spend more dollars to maintain the same standard of living. -finds that its standard of living is not affected.

can spend fewer dollars to maintain the same standard of living.

The consumer price index is used to -turn dollar figures into meaningful measures of purchasing power. -convert nominal GDP into real GDP. -measure the quantity of goods and services that the economy produces. -characterize the types of goods and services that consumers purchase.

characterize the types of goods and services that consumers purchase.

When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle, -consumption increases by $500, U.S. net exports remain the same, and U.S. GDP increases by $500. U.S. -U.S. consumption falls by $500, U.S. net exports decline by $500, and U.S. GDP declines by $1000. -consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same. -U.S. consumption does not change, U.S. net exports decline by $500, and U.S. GDP declines by $500. U.S.

consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same.

To calculate GDP by the expenditure model, one must add consumption spending, investment spending, government spending, and net exports. labor, natural resources, entrepreneurship, and capital. wages, rents, interest, and profit. consumption spending, investment spending, government spending, and exports.

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

If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would equal 20%. increase. decrease. remain the same.

decrease

During a recession, people drop out of the labor force because they are unable to find a job. All else the same, this does not change the unemployment rate. increases the unemployment rate and the labor force participation rate. increases the unemployment rate. decreases the unemployment rate.

decreases the unemployment rate

The best measure of the income households actually have available to spend is national income. disposable personal income. personal income. net national income.

disposable personal income.

In the circular flow model, the value of total income for an economy _____ the value of total production. is less than. is greater than. may be greater than or less than. equals.

equals

A statistical discrepancy insures that GDP will approximately equal GNP. exists because data sources are not perfect, so measures of expenditures and income are not equal. explains the close association between GDP and quality of life measures such as literacy and life expectancy. explains the inadequacy of GDP in capturing the value of leisure and the value of a clean environment.

exists because data sources are not perfect, so measures of expenditures and income are not equal.

Suppose that an American company opens and operates a restaurant in Ireland. This is an example of foreign portfolio investment. American saving is used to finance American investment. foreign direct investment. American saving is used to finance American investment. foreign direct investment. American saving is used to finance Irish investment. foreign portfolio investment. American saving is used to finance Irish investment.

foreign direct investment. American saving is used to finance Irish investment.

In recent decades Americans have increased their purchase of stocks of foreign-based companies. The Americans who have bought these stocks were engaged in indirect domestic investment. foreign portfolio investment. foreign direct investment. foreign indirect investment.

foreign portfolio investment.

Jane quit her job in order to spend time looking for a better-paying job. This is an example of cyclical unemployment. frictional unemployment. seasonal unemployment. structural unemployment.

frictional unemployment.

Which of the following would contribute to a sustained high rate of economic growth in the long run in an economy? -growth in capital per hour accompanied by technological change. -increases in labor force participation rates as workers who are out of the labor force pursue rising wages. -a shift of workers in the economy from the agricultural sector to the nonagricultural sector. -an influx of immigrant labor into an economy without any accompanying technological change.

growth in capital per hour accompanied by technological change.

In the CPI, goods and services are weighted according to how much consumers buy of each good or service. the number of firms that produce and sell each good or service. the extent to which each good or service is regarded by the government as a necessity. how long a market has existed for each good or service.

how much consumers buy of each good or service.

All of the following policies are ways for a country to promote long-run economic growth except enacting stronger laws to protect property rights. undergoing political reform to decrease corruption. imposing stricter regulations to limit foreign direct investment. increasing vaccinations against infectious diseases.

imposing stricter regulations to limit foreign direct investment.

Goods that go into inventory and are not sold during the current period are -counted as intermediate goods and so are not included in current period GDP. -counted in current GDP only if the firm that produced them sells them to another firm. -included in current period GDP as consumption. -included in current period GDP as inventory investment.

included in current period GDP as inventory investment

If the length of time workers are eligible to receive unemployment insurance payment doubles, the unemployment rate will likely be unchanged. there isn't enough information to answer the question. decrease. increase.

increase

Legalizing all forms of illegal activities increases GDP and increases the size of the underground economy. reduces GDP and increases the size of the underground economy. increases GDP and reduces the size of the underground economy. reduces GDP and reduces the size of the underground economy.

increases GDP and reduces the size of the underground economy.

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant? substitution bias unmeasured quality change introduction of new goods income bias

introduction of new goods

Which of the following increases labor productivity? -inventions of new machinery, equipment, or software. -decreases in the availability of computers and factory buildings. -a decline in the health of the population. -an increase in the aggregate hours of work.

inventions of new machinery, equipment, or software.

The average income in a rich country -is more than ten times that in poor country. However, people in rich countries have about the same life expectancy as those in poor countries. -is more than ten times that in a poor country. Further, people in rich countries have longer life expectancy. -is about 5 times that in a poor country. Further, people in rich countries have longer life expectancy. -is about 5 times that in a poor country. However, people in rich countries have about the same life expectancy as those in poor countries.

is more than ten times that in a poor country. Further, people in rich countries have longer life expectancy.

The catch-up effect refers to the idea that it is easier for a country to grow fast and so catch-up if it starts out relatively poor. saving will always catch-up with investment spending. population eventually catches-up with increased output. if investment spending is low, increased saving will help investment to "catch-up."

it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

The purchase, by a foreign government, of an airplane produced in the US is included in US government purchases. consumption expenditures. net exports. investment expenditures.

net exports.

The GDP deflator for years subsequent to the base year measures the change in nominal GDP from the base year that cannot be attributable to a change in real GDP. real GDP from the base year that cannot be attributable to a change in nominal GDP. nominal GDP from the base year that cannot be attributable to a change in prices. real GDP from the base year that cannot be attributable to a change in prices.

nominal GDP from the base year that cannot be attributable to a change in real GDP.

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that -the best baseball players today are about 400 times better off than Babe Ruth was in 1931. -because prices have also risen, the standard of living of baseball stars hasn't changed since 1931. -one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes. -one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

Real GDP will increase if either the price level rises or the quantity of final goods and services produced rises. only if the quantity of final goods and services produced rises. only if the price level rises. only if the price level falls.

only if the quantity of final goods and services produced rises.

The Bureau of Labor Statistics would categorize a retiree who is not working as ______. A student who just graduated from college but has not found a job would most likely be _____. unemployed; seasonally unemployed. employed; structurally unemployed. a discouraged worker; cyclically unemployed. out of the labor force; frictionally unemployed.

out of the labor force; frictionally unemployed.

When economists talk about growth in the economy, they measure that growth as the percentage change in nominal GDP from one period to another. percentage change in real GDP from one period to another. absolute change in nominal GDP from one period to another. absolute change in real GDP from one period to another.

percentage change in real GDP from one period to another.

Long-run economic growth requires all of the following EXCEPT political instability. government provision of secure property rights. increases in capital per hour worked. technological change.

political instability.

If prices are rising on average, then real GDP will always be equal to nominal GDP. real GDP will be greater than nominal GDP in the years after the base year. real GDP will be greater than nominal GDP in the years before the base year. real GDP will be less than nominal GDP in the years before the base year.

real GDP will be greater than nominal GDP in the years before the base year.

One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. The growth that arises from capital accumulation is not a free lunch. It requires that society -conserve resources for future generations. sacrifice consumption goods and services now in order -to enjoy more consumption in the future. -recycle resources so that future generations can produce goods and services with the accumulated capital. -None of the above is correct.

sacrifice consumption goods and services now in order to enjoy more consumption in the future.

In calculating GDP, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means that the BEA -simply counts the total number of goods produced in the marketplace and then adds them up. -simply counts the total number of goods and services produced in the marketplace and then adds them up. -values goods at their market prices, multiplies them by the quantity produced, and then adds them up. -values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

simply counts the total number of goods and services produced in the marketplace and then adds them up.

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant level of real GDP. ratio of net exports to GDP. ratio of consumption to GDP. standard of living.

standard of living

Joe was laid off last year when a new robot was installed at the plant and he did not have the skills necessary to help operate it. This is an example of seasonal unemployment. frictional unemployment. cyclical unemployment. structural unemployment.

structural unemployment.

Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant? substitution bias introduction of new goods income effect unmeasured quality change

substitution bias

A COLA automatically raises the wage when GDP increases. taxes increase. the consumer price index increases. the producer price index increases.

the consumer price index increases.

If the CPI was 110 this year and 100 last year, then -the cost of the CPI basket of goods and services increased by 10 percent this year. -the price level increased by 110 percent this year. -the inflation rate for this year was 10 percent higher than the inflation rate for last year. -All of the above are correct.

the cost of the CPI basket of goods and services increased by 10 percent this year.

Which of the following is a good gauge of economic progress? -the level of real GDP per person, but not the growth rate of real GDP per person -the level of real GDP per person and the growth rate of real GDP per person -the growth rate of real GDP per person, but not the level of real GDP per person -neither the level nor the growth rate of real GDP per person

the growth rate of real GDP per person, but not the level of real GDP per person

Which of the following can be measured by the level of real GDP per person? neither the standard of living nor productivity productivity but not the standard of living productivity and the standard of living the standard of living but not productivity

the standard of living but not productivity

Economists consider full employment to occur when -everyone who wants a job has a job. -the unemployment rate consists of only frictional and structural unemployment. -frictional unemployment equals zero. -the sum of frictional unemployment and structural unemployment is zero.

the unemployment rate consists of only frictional and structural unemployment.

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices. true or false

true

Knowledge capital is nonrival in the sense that no single company can be excluded from the benefits of new technologies. firms can benefit from the research and development of rival firms without paying for that benefit. two people can use the same knowledge to develop and produce a product. firms do not compete to be the first to develop new technologies.

two people can use the same knowledge to develop and produce a product.

Real GDP is GDP in a given year _____ and nominal GDP is GDP in a given year ______. -valued in the prices of that year; valued in the prices of the base year. -adjusted for unanticipated inflation; valued in the prices of that year. -adjusted for anticipated inflation; valued in the prices of the previous year. -valued in the prices of the base year; valued in the prices of that year.

valued in the prices of the base year; valued in the prices of that year.