Macro pt 2
Real interest rate equation
Money rate - inflation
Recession
A decline in real GDP in 2 or more quarters
Depression
A prolonged recession
Suppose the CPI was 95 in 1955, and suppose currently the CPI is 475. According to the CPI, $100 today purchases the same amount of goods and services as A) $20.00 purchased in 1955 B) $33.33 purchased in 1955 C) $47.50 purchased in 1955 D) None of the above
A) $20.00 purchased in 1955
Suppose that the consumer price index at year end 2008 was 140 and by year end 2009 had risen to 150. What was the inflation rate during 2009? A) 7.1% B) 10% C) 14.2% D) 50%
A) 7.1%
If the cost of living indices were 100 in Dallas, 150 in Boston, and 220 in San Fran, which of the following annual pay rates for jobs would provide you with thew most purchasing power over goods and services A) A 80,000 job in Boston B) A 110,000 Jon in San Fran C) A 50,000 job in Dallas D) A 100,000 job in San Fran
A) A 80,000 job in Boston
Long run equilibrium in the goods and services market requires that A) Aggregate supply equals aggregate demand and the decision makers correctly anticipate the level of prices B) The unemployment rate is 0 C) Prices are neither increasing nor decreasing D) Aggregate supply be larger than aggregate demand
A) Aggregate supply equals aggregate demand and the decision makers
Fictional unemployment is caused by A) By constant changes in the labor market B) "mismatch" between the workers skills and the available jobs C) Fewer goods are being produced, fewer workers are needed to produce them
A) By constant changes in the labor market
The type of unemployment cause by the business cycle is A) Cyclical B) Natural C) Frictional D) Structural
A) Cyclical
Which of the following is a result of the North America Free Trade Agreement? A) Domestic producers in the US, Canada, and Mexico have free access to larger markets B) The low wages of Mexican workers have made it virtually impossible for American and Canadian producers to export goods to Mexico C) A smaller variety of goods are available to consumers in all three countries D) Unemployment has increased in all three countries
A) Domestic producers in the US, Canada, and Mexico have free access to larger markets
Which of the following is true? A) Fiscal policy is the use of tax and spending policies by Congress and the President B) Fiscal policy involves the control of the money supply by the Federal Reserve Bank C) Monetary policy involves the control of the money supply by Congress and the President D) Monetary policy is the use of tax and spending policies by the Federal Reserve Bank
A) Fiscal policy is the use of tax and spending policies by Congress and the President
An American owned McDonald's opens in Russia. How would the net revenue earned by this restaurant affect the GDP and GNP of theUS? A) GNP would rise, GDP unchanged B) GNP would fall, GDP unchanged C) GNP would rise, GDP would rise D) GNP would rise, GDP would fall
A) GNP would rise, GDP unchanged
The 4 key markets that coordinate the circular flow of income are A) Goods and services, resources, loanable funds, and foreign exchange B) Consumption, investment, stock, and government C) Government, household goods, bond, and business D) Financial, corporate, stock, and loanable funds
A) Goods and services, resources, loanable funds, and foreign exchange
Imposing restrictive quota on the import of dishwashers will likely A) Increase the price of the dishwashers but decrease quantity consumed B) Increase both the price of the dishwashers and the quantity consumed C) Leave the price of the dishwashers unchanged but decrease the quantity consumed D) Leave the price of the dishwashers unchanged and also leave the quantity consumed unchanged
A) Increase the price of the dishwashers but decrease quantity consumed
Other things constant, if the cost of labor goes down, the profits of firms will A) Increase, and short run aggregate supply will shift to the right B) Fall, and short run aggregate supply will shift to the left C) Increase, and long run aggregate supply will shift to the right D) Fall, and long run aggregate supply will shift to the left
A) Increase, and short run aggregate supply will shift to the right
The labor force participation rate of women in the US has been A) Increasing for several decades B) Decreasing for the past several decades after increasing dramatically in the early 1900's C) Approximately constant during the last three decades D) Decreasing since the early 1900's
A) Increasing for several decades
The resource market is important fro. a macroeconomics perspective because A) It coordinates the allocation of productive resources and determines the costs of production B) It determines the interest rates faced by borrowers and lenders C) Inflation rates are set in the resource market by the government D) Resource prices determine the position of the long run aggregate supply curve
A) It coordinates the allocation of productive resources and determines the costs of production
If 10 years ago, the price of a movie ticket was $5 and the average hourly wage was $10, and today the price of a movie ticket is $8 and the average hourly wage is $20, then A) Movies are now relatively cheaper in terms of work hours B) Movies are now relatively more expensive in terms of work hours C) The relative price of movies has remained constant D) Workers now need to work longer hours to earn one movie ticket
A) Movies are now relatively cheaper in terms of work hours
Which of the following is the most accurate statement about real and nominal interest rates? A) Real interest rates can be either positive or negative, but nominal interest rates must be positive B) Real interest rates and nominal interest rates must be positive C) Real interest rates must be positive, but nominal interest rates can be either positive or negative D) Real interest rates and nominal interest rates can be either positive or negative
A) Real interest rates can be either positive or negative, but nominal interest rates must be positive
The primary value of real GDP is its ability to measure year to year changes in A) Real output B) Income inequality C) Real social welfare D) The general level of prices
A) Real output
The change in the quantity of goods and services demanded in the US is based on the logic that as the price level rise A) Real wealth falls, interest rates rise, and net exports fall B) Real wealth falls, interest rates rise, and net exports rise C) Real wealth rises, interest rates fall, and net exports fall D) Real wealth rises, interest rates fall, and net exports rise
A) Real wealth falls, interest rates rise, and net exports fall
In context of aggregate supply, the short run is defined as the period during which A) Some prices are set by contracts and cannot be adjusted B) Prices can change, but neither aggregate supply nor aggregate demand can shift C) Individuals have sufficient time to modify their behavior in response to price changes D) Quantity changes cannot occur in response to changes in relative prices
A) Some prices are set by contracts and cannot be adjusted
Full employment is the situation in which the economy operates at an unemployment rate equal to the sum off A) Structural and frictional unemployment B) cyclical and frictional unemployment C) Structural and cyclical unemployment D) Structural, frictional, and cyclical unemployment
A) Structural and frictional unemployment
If the dollar price of the English pound goes from $1.75 50 $1.50 then A) The dollar has appreciated against the pound B) The dollar has depreciated fro the pound C) The pound has appreciated against the dollar D) The pound has depreciated against the dollar
A) The dollar has appreciated against the pound AND D) The pound has depreciated against the dollar
Suppose an economy is operating at its maximum sustainable output rate. Neither recession nor economic boom are present. Which of the following would be true? A) The economy would be considered at full employment B) Actual GDP would exceed potential GDP C) Actual unemployment will be less than the natural rate of unemployment D) 100% of the labor force is unemployed
A) The economy would be considered at full employment
Compared to the no trade situation if the US imports video games A) The price of video games will decline in the domestic market B) Domestic video game producers will be able to charge higher prices C) Domestic video game producers will expand both output and employment D) Us consumers will be harmed
A) The price of video games will decline in the domestic market
Which of the following is GDP designed to measure? A) The total market value of goods and services produced domestically during the year B) Changes in the cost of purchasing the typical consumer market basket of goods from one year to another C) The total size of the domestic underground economy D) The standard of living of the average citizen
A) The total market value of goods and services produced domestically during the year
Suppose you received a 3% increase in your nominal wage. Over the year, inflation ran about 6%. Which of the following is true? A) Your real age fell. B) Your nominal wage fell. C) Both your nominal and real wages decreased. D) Although your nominal wage fell, your real wage increased
A) Your real wage fell
A US trade policy that restricts the sale of fearing goods in the US market will A) reduce the demand for US export goods since foreigners will be less able to buy our goods if they cannot sell to us B) Benefit producers in industries that export goods C) Increase the nations income since it protects domestic jobs D) Enhance economic efficiency by allocating more resources to the areas of their greatest comparative advantage
A) reduce the demand for US export goods since foreigners will be less able to buy our goods if they cannot sell to us
comparative advantage
The ability to produce a good at a lower opportunity cost than others can.
Structural unemployment is caused by A) by constant changes in the labor market B) "mismatch" between the workers skills and the available jobs C) Fewer goods are being produced, fewer workers are needed to produce them
B) "mismatch" between the workers skills and available jobs
Consider the following info for the US economy (Figures in billions) {Personal Consumption - $7,761 Gross Private Investment - $1,666 Government consumption and gross investment - $2,075 Net exports - $-498 Indirect business taxes - $339 Depreciation - $1,380 Self-employment income - $834} Gross domestic product is equal to A) 7,761 B) 11,004 C) 13,557 D) 14,055
B) 11,004
If the dollar price of the English pound goes from $1.75 to $2.00 then A) Americans will find English goods cheaper B) Americans will find English goods more expensive C) The English will find American goods cheaper D) the English will find American goods more expensive
B) Americans will find English goods more expensive AND C) The English will find American goods cheaper
Trade restrictions that limit the sale of low-price foreign goofs in the US market A) Increase the real income of Americans B) Benefit domestic producers in the protected industries at the expense of consumers and domestic producers in export industries. C) Help channel more of our resources into producing goods for which we are low-cost producer. D) Reduce unemployment and increase the productivity of American workers.
B) Benefit domestic producers in the protected industries at the expense of consumers and domestic producers in export industries.
If a used car dealer purchases a used car for $3,000, makes repairs and refurbishes it, then sells it for $8,000 the A) Dealer contributes value added equal to the $5,000, but nothing is contributed to the GDP B) Dealer contributes value added equal to $5,000 and consequently $5,000 is added to GDP C) Dealer contributes nothing to production because only existing goods are involved D) Dealer contributes value added equal to $8,000, but only $5,000 is added to GDP
B) Dealer contributes value added equal to $5,000, and consequently $5,000 is added to GDP
Which of the following is a positive effect of the job search and the unemployment that often accompanies it? A) It keeps wages and income levels low B) It permits individuals to better match their skills and preferences with the requirements of a job C) It reduces the wage gap between high skill workers and those with few skills D) It creates political pressure for an increase in the minimum wage, which will reduce the rate of unemployment in the long run
B) It permits individuals to better match their skills and preferences with the requirements of a job
If the GDP deflator in 2006 was 130 compared to a value of 100 during the 1996 base year, this would indicate that A) The inflation rate during 2006 was 30% B) The general level of prices during 2006 was 30% higher than during 1996 C) The inflation rate during 2006 was 130% D) Real GDP was 130% higher in 2006 than 1996
B) The general level of prices during 2006 was 30% higher than during 1996
Which of the following would be expected if the tariff on foreign produced automobiles were increases? A) The domestic price of automobiles would fall. B) The supply of foreign automobiles to the domestic market would decline, causing auto prices to rise. C) The number of unemployed workers in the domestic automobiles industry would rise. D) The demand for foreign produced automobiles would increase, causing the price of automobiles to increase in other nations.
B) The supply of foreign automobiles to the domestic market would decline, causing auto prices to rise.
Which of the following would be included in this years GDP? A) The value of a used car, at its sale price B) The value of a new domestic automobile, at its sale price C) A sale of Microsoft from one individual to another D) The face value of a life insurance policy paid to a woman after the death of her husband
B) The value of a new domestic automobile, at its sale price
For an economy, aggregate demand equals A) consumption plus investment plus government purchases plus exports B) consumption plus investment plus government purchases plus (exports minus imports) C) consumption plus investment plus (taxes minus transfers) plus (exports minus imports) D) consumption plus investments plus government purchases plus (imports minus exports)
B) consumption plus investment plus government purchases plus (exports minus imports)
Other things constant, an increase in resource prices will A) Increase the demand for goods and services B) increase the cost of producing goods and services, which will lead to a higher price level C) reduce costs and improve profit margins, which will lead to an increase in aggeggiate supply in the goods and services market D) Cause the natural rate of unemployment to rise
B) increase the cost of producing goods and services, which will lead to a higher price level
Suppose the US reduced the tariff on digital cameras, allowing foreign produced cameras to more freely enter the US market. Which of the following would most likely occur? A) The price of cameras to US consumers would increase, and the demand for US export products would rise B) The price of cameras to US consumers would fall and the demand for US export products would fall C) The price of cameras to US consumers would increase, and the demand for US export products would fall D) The price of cameras to US consumers would fall, and the demand for US export products would rise
D) The price of cameras to US consumers would fall, and the demand for US export products would rise
A real estate sales person sells a house in 2011 that was built in 1994. How does this transaction get counted in the GDP statistics? A) The price of the house and the real estates sales person commission are both included in 2011 GDP B) Neither the price or commission are included in 2011 GDP C) The real estate persons commission but not the price of the house is included in 2011 GDP D) The price of the house would be included in both 1994 GDP and 2011 GDP
C) The real estate persons commission but not the price of the house is included in 2011 GDP
Suppose there was a country with an adult population of 1,000, of which 100 were unemployed and 700 were employed. Which of the following is true? A) The employment population ratio is 87.5% B) The labor force participation rate is 70% C) The unemployment rate is 12.5% D) There are 700 individuals in this country's labor force
C) The unemployment rate is 12.5%
The argument that import restrictions save jobs and promote prosperity fails to recognize that A) There are no secondary effects of import restrictions B) Import restrictions will lower prices in the protected industries C) Import restrictions cannot create jobs in any industries D) US imports provide people in other countries with the purchasing power required for the purchases of US exports.
D) US imports provide people in other countries with the purchasing power required for the purchase of US exports
If domestic producers have a comparative advantage in producing a good, A) Trade restrictions will be required before the producers can benefit from their comparative advantage. B) Trade restrictions will still be required before the domestic producers can compete with low-wage producers abroad. C) They will be able to compete effectively in a competitive world market. D) The government should subsidize production of the good so the domestic producers will be able to achieve a larger share of the world market.
C) They will be able to compete effectively in a competitive world market.
A business produced $10 mil of goods in 2005 but sold only $9 mil. Is the $1 mil increase in inventory counted as part of the 2005 GDP? A) No, because inventories are intermediate goods B) No, because if these inventories were sold in 2006, they would be counted twice C) Yes, because these inventories are part of the output of the economy in 2005 D) Yes, but they will be added to the 2005 GDP only if they are sold in 2006
C) Yes, because the inventories are part of the output of the economy in 2005
Which of the following would be officially classified as unemployed? A) A school administrator who has been working as a substitute teacher one day a week while looking for a full-time job in admin B) A mathematician who returned to grad school after failing to find a job the last four months C) A 60 yr old former steel worker who would like to work but has given up actively seeking employment D) A laid off construction worker waiting to return to a previous job
D) a laid of construction worker waiting to return to a previous job
Max lived in a home that was newly constricted in 2005. In 2005, he paid $200,000 for the brand new house. He sold the house in 2006 for $225,000. Which of the following statements is correct regarding the sale of the house? A) The 2006 sale increased GDP by $225,000 and had no effect on the 2005 GDP B) The 2006 sale increased 2006 GDP by $25,000 and had no effect on 2005 GDP C) The 2006 sale increased 2006 GDP by $225,000, furthermore, the 2006 sale caused 2005 GDP to be revised upward by $25,000 D) The 2006 sale affected neither 2005 GDP nor 2006 GDP
D) The 2006 sale affected neither 2005 GDP nor 2006 GDP
True or False? A person not working is considered unemployed
False
Indicate how this will affect the GDP Your aunt sends you $500 to help with college expenses
It won't change GDP
net exports formula
Total exports - total imports
True or False? With exports and imports: The benefits outweigh the costs; a net gain exists
True
True or False? With exports: US consumers pay a higher world price, Foreign consumers buy more products, US producers receive a higher world price, and US producers sell more products
True
True or False? With imports: US consumers pay a lower world price Foreign producers sell more products US producers receive a lower world price US producers sell fewer products
True
absolute advantage
a situation in which a nation, as the result of its previous experiences and/or natural endowments, can produce more of a good with the same amount of resources than another nation can.
Indicate how this will affect the GDP You pay $600/month to lease an apartment while attending school
adds $600 to GDP
Opportunity costs differ among nations primarily because: a) nations employ different currencies b) nations have different endowments of land, labor skills, capitol, and technology c) nations have different political institutions d) work-leisure preferences vary considerably from one nation to another
b) nations have different endowments of land, labor skills, capitol, and technology
The loanable funds market
brings net household saving & net inflow of foreign capital into balance with borrowing of businesses and governments.
The foreign exchange market
brings the purchases from foreigners into balance with the sales to them
The resource market
coordinates the actions of businesses demanding resources and households supplying them in exchange for income
The goods and services market
coordinates the demand for and supply of domestic production (GDP)
Indicate how this will affect the GDP You pay $8,000 to purchase a 4 yr old car
it won't change GDP
Money interest rate
money interest rate = nominal interest rate
Real interest rate formula
money rate - inflation
GDP deflator
(Nominal GDP/ Real GDP)X 100
GDP deflator formula
(Nominal GDP/Real GDP) X 100
Calculating inflation using the price index
(This year PI- Last year PI)/Last year PI X 100 = Inflation rate
labor force rate formula
(labor force/adult civilization) X 100
The labor force participation rate calculation
(labor force/working age population) x 100
unemployment rate formula
(unemployed/labor force) X 100
The unemployment rate calculation
(unemployed/labor force) x 100
Indicate how this will affect the GDP You have car trouble and have to pay a repair shop $1,500 to fix the transmission of your car
Adds $1,500 to GDP
Indicate how this will affect the GDP You earn $500 providing computer services for a faculty member
Adds $500 to GDP
Indicate how this will affect the GDP You sell your 100 shares of Apple stock (purchased for $30,000) for $40,000 minus a $500 brokerage fee
Adds $500 to GDP
The GDP deflator is designed to A) Adjust nominal GDP for changes in the unemployment rate B) Adjust nominal GDP so as to include the problem of externalities C) Adjust nominal GDP for changes in the price level D) Calculate changes in the price of food and other consumer goods
C) Adjust nominal GDP for changes in the price level
Which of the following is true? A) Anticipated inflation is an increase on the price level that comes as a surprise, at least to most individuals B) Unanticipated inflation is a change in the price level that is widely expected C) Decision makers are generally able to anticipate slow steady rates of inflation with a fairly high degree of accuracy D) Inflation will increase the prices of goods and services that households purchase but not the wage rates of workers
C) Decision makers are generally able to anticipate slow steady rates of inflation with a fairly high degree of accuracy
Cyclical unemployment is caused by A) by constant changes in the labor market B) "mismatch" between the workers skills and the available jobs C) Fewer goods are being produced, fewer workers are needed to produce them
C) Fewer goods are being produce, fewer workers are needed to produce them
Economists use the term "Business Cycle" to refer to A) The growth of small businesses into major corporations B) Changes in products that occur from improved technology C) Fluctuations in the level of real output and employment D) Periods of increases and decreases in the rate of inflation
C) Fluctuations in the level of real output and employment
When the equilibrium is present in the foreign exchange market, which of the following will tend to be in balance? A) The value of goods exported and the value of goods imported B) Real and nominal interest rates C) Imports plus capitol outflow and exports plus capital inflow D) Tax revenues and government expenditures
C) Imports plus capitol outflow and exports plus capital inflow
In the context of aggregate supply, the long run is defined as the period during which A) Some prices are set by contracts and cannot be adjusted B) Prices can change, but neither aggregate supply nor aggregate demand can shift C) Individuals have sufficient time to modify their behavior in response to price changes D) Quantity changes cannot occur in response to changes in relative prices
C) Individuals have sufficient time to modify their behavior in response to price changes
As the dollar depreciates which of the following is most likely to occur? A) More Americans will travel abroad B) American imports will rise C) More foreigners will visit the US D) American firms will increase their investments abroad
C) More foreigners will visit the US
If borrowers and lenders expect a higher rate of inflation, A) Nominal interest rates will tend to fall B) Real interest rates will tend to fall C) Nominal interest rates will tend to rise D) Real interest rates will tend to rise
C) Nominal interest rates will tend to rise
The political popularity of a tariff on imported goods that compete with products of a well established domestic industry is A) Surprising since one would expect the political power of consumers to override the interests of even a well established domestic industry B) Surprising since one would expect the economic harm resulting from tariffs to be well understood by voters C) Not surprising since such a tariff would generally benefit an easily recognized interest group at the expense of uniformed, uninterested consumers D) Not surprising since the tariff enables domestic producers and consumers to gain at the expense of foreigners
C) Not surprising since such a tariff would generally benefit an easily recognized interest group at the expense of uniformed, uninterested consumers
If the price level in the current period is higher than what buyers and sellers anticipated A) Profit margins will be unattractive and firms will expand output B) Profit margins will be unattractive and firms will reduce output C) Profit margins will be attractive and firms will expand output D) Profit margins will be attractive and firms will reduce output
C) Profit margins will be attractive and firms will expand output
Trade restrictions like tariff quotas will A) protect American jobs and increase employment B) Ensure that more dollars stay in the US C) Reduce the value of goods and services that we will be able to produce and consume D) Make all Americans better off
C) Reduce the value of goods and services that we will be able to produce and consume
If national income accountants fail to make an adequate adjustment for increases in the quality of goods and services over time, A) Real GDP will overstay the growth rate of equal output B) The GDP deflator will underestimate inflation C) The GDP deflator will overestimate inflation D) Real GDP will overstate the growth of real output, and the GDP deflator will underestimate inflation
C) The GDP deflator will overestimate inflation
If the real interest rate in the domestic loanable funds market increases A) Firms will have an added incentive to undertake investment projects B) Households will save less C) The net inflow of foreign capitol will tend to increase D) It will be cheaper to purchase goods and services now rather than in the future
C) The net inflow of foreign capitol will tend to increase
International trade if advantageous because trade makes it possible for people in each country to A) Import more than they export B) Export more than they import C) Employ more of their domestic resources producing things that are costly for the to produce domestically D) Acquire goods from foreigners more economically than they could be produced domestically
D) Acquire goods from foreigners more economically than they could be produced domestically
When the expenditure approach is used to measure GDP, the major components of GDP are A) Consumption, investment, indirect business taxes, and depreciation B) Employee compensation, rents, interest, self-employment income, and corporate profits C) Employee compensation, corporate profits, depreciation, and indirect business taxes D) Consumption, investment, government consumption and gross investment, and net exports
D) Consumption, investment, government consumption and gross investment, and net exports
Which of the following individuals would be considered unemployed by the official government definition? A) Alex, a mathematician, who returned to graduate school after failing to find a job for 4 months B) Abigail, a med student, who is still in college not working C) Liz, who is employed part time but desires a full time job D) Darius, an auto worker vacationing in Florida during a lay off at General Motors plant
D) Darius, an auto worker vacationing in Florida during a lay off at General Motors plant
Actually GDP will be below potential GDP A) When the economy is at full employment B) During and Economic boom C) When resources are fully utilized D) During a recession
D) During a recession
Frictional unemployment is the result of A) Not enough jobs for everyone to be employed B) Unemployed workers skills not matching those needed for the available jobs C) A decline in the demand for labor, such as during a recession D) Imperfect information and temporary periods of unemployment while workers are changing jobs
D) Imperfect information and temporary periods of unemployment while workers are changing jobs
Alex is a homemaker. Last week, they were busy with their normal household activities. Alex is A) A member of the civilian labor force who is unemployed B) A member of the civilian labor force who is underemployed C) A discouraged worker who is not a member of the labor force D) Not a member of the labor force
D) Not a member of the labor force
If you wanted to measure whether the output of an economy was increasing or decreasing across time periods you would use the real GDP date rather than the nominal GDP date because A) Exports are excluded from real GDP but not nominal B) Real GDP incorporates the impact of federal budget deficits and surpluses, nominal GDP does not C) Real GDP reflects the impact of transfer payments on the economy, but nominal GDP does not D) Real GDP adjusts for changes in the general level of prices, but nominal GDP does not
D) Real GDP adjusts for changes in the general level of prices, but nominal GDP does not
GDP
Market value of final goods and services produced within a country during a specific time period, usually a year
Suppose a country has 100 people. 80 are civilian adults. Of these 40 are employed and 20 are unemployed. What is the labor force? What is the labor force participation rate? What is the unemployment rate?
The labor force is 60 The labor force participation rate is 75% The unemployment rate is 33%
Inflation Rate Formula
[(This year price index - last year price index)/ Last year price index] X 100