MacroEcon Midterm #1
Drug companies can usually obtain patents on new drugs. This turns new ideas into
private goods, and increase the incentive to engage in research.
In 2019, households spent $1,000 on goods and services; purchases of capital equipment, inventories, and structures amounted to $350; government spent $450 on goods and services; and the value of imports exceeded the value of exports by $50. It follows that 2019 GDP for this economy was
$1750
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
$20.00 purchased in 1955. 95 / 475
A steel company sells some steel to a bicycle company for $100. The bicycle company uses the steel to produce a bicycle, which it sells for $200. Taken together, these two transactions contribute______ to GDP
$200
Frictional unemployment can be the consequence of
- workers leaving existing jobs to find ones they like better. - an industry declining while another is growing. - changes in the working conditions offered by competing firms.
In 2019 real GDP in Latania was 750 billion and the population was 3 million. In 2020 real GDP was 907.5 billion and the population was 3.3 million. What was the approximate growth rate of real GDP per person?
10 percent
Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 Consumption equals 7,500 and Government purchases equal 2,000. What are private saving, public saving, and national saving?
1000, 500, 1500
Cedar Valley Furniture uses 5 workers working 8 hours to produce 80 rocking chairs. What is the productivity of these workers?
2 chairs per hour.
Suppose the CPI was 108 in 1967, and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967. Then today's CPI is
505.44 = 936/200 * 108
In 2019, based on concepts similar to those used to estimate Canadian employment figures, the Japanese adult non-institutionalized population was 109.684 million, the labor force was 65.760 million, and the number of people employed was 62.630 million. According to these numbers, the Japanese labor-force participation rate and unemployment rate were about
60%, 4.8%
Which of the following is not correct? a. The unemployment rate is computed using the number of unemployment insurance claims filed. b. Each adult included in the unemployment statistics is classified as employed, unemployed, or not in the labor force. c. Unemployment numbers are based only on people aged sixteen and older. d. The Bureau of Labor Statistics gathers data on monthly unemployment and employment.
A
For what reason do both households and societies face many decisions?
Because resources are scarce
Which of the following would not be considered physical capital? a. a new factory building b. a computer used to help Mercury Delivery Service keep track of its orders c. on-the-job training d. a desk used in an accountant's office
C
Which of the following items is counted in Canadian GDP? a. final goods and services that are purchased by Canadian government b. intermediate goods that are produced in Canada but which are unsold at the end of the GDP accounting period c. goods and services produced by foreign citizens working in Canada d. All of the above are included in Canadian GDP.
D
Which of the following items is included in Canadian GDP? a. the estimated value of production accomplished at home, such as backyard production of fruits and vegetables b. the value of illegally-produced goods and services c. the value of cars and trucks produced in foreign countries and sold in Canada d. None of the above is included in U.S. GDP.
D
If this year the CPI is 125 and last year it was 120, then a. the cost of the CPI basket of goods and services has increased this year by 4.17 percent. b. the price level as measured by the CPI has increased by 4.17 percent. c. the inflation rate for this year is 4.17 percent. d. All of the above are correct.
D 125-120/120 * 100 = 4.17
A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit.
F
An economic model can accurately explain how the economy is organized because it is designed to include, to the extent possible, all features of the real world.
F
Full-time students, retirees, and unpaid stay-at-home fathers are counted as unemployed.
F
If GDP is higher in one country than in another, we can be sure that the standard of living is higher in the country with the higher GDP.
F
If the nominal interest rate is 5% and the inflation rate is 2%, then the real interest rate is 7%.
F
In a closed economy, investment must be equal to private saving.
F
In a simple circular-flow diagram, firms own the factors of production and use them to produce goods and services.
F
In the markets for goods and services, as in the markets for the factors of production, households are buyers and firms are sellers.
F
Rupert is collecting unemployment insurance benefits. To continue to receive his benefits he must be looking for work. Because he'd like to continue collecting benefits rather than take a job, he applies at places that are unlikely to hire him. People like Rupert make the reported unemployment rate less than it would otherwise be.
F
Someone who is without work but is not looking for work would be counted as unemployed by the Statistics Canada.
F
The CPI is computed by finding the price of a market basket of goods whose contents vary each year.
F
Two countries with the same saving rates must have the same growth rate of real GDP per person.
F
With careful planning, we can usually get something that we like without having to give up something else that we like.
F
Define points A and B in the flow of income payments
Markets of factors of production -> Households
Define points A and B in the flow of goods and services
Markets of goods and services -> Households
Which of the following statements best captures the relationship between microeconomics and macroeconomics?
Microeconomics and macroeconomics are distinct from one another, yet they are closely related.
Jack is a full-time unpaid homemaker not currently searching for other work. Jill is a full-time student who is not looking for a job. Who does the Statistics Canada count in the labor force?
Neither Jack or Jill
Ted is working part time. Alice is on temporary layoff. Who is counted as employed by the Statistics Canada?
Only Ted
. Suppose a small closed economy has GDP of $5 billion, Consumption of $3 billion, and Government expenditures of $1 billion. Then domestic investment and national saving are both $1 billion.
T
A country that made their courts less corrupt and their government more stable would likely see their standard of living rise.
T
A marginal change is a small incremental adjustment to an existing plan of action.
T
Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.
T
Although they sometimes diverge, generally the CPI and the GDP deflator move in the same direction.
T
As capital per worker rises, output per worker rises. However, the increase in output per worker from an addition to capital is smaller the larger the existing amount of capital per worker.
T
Both the standard of living and the growth of real GDP per person vary widely across countries.
T
Canadian GDP excludes the production of illegal goods.
T
Even though GDP is not the only thing that affects the quality of life, it is a useful measure because it measures a nation's ability to purchase the inputs that can be used to produce things such as good health and quality education.
T
For an economy as a whole, income is equal to expenditure.
T
If nominal GDP is $10,000 and real GDP is $8,000, then the GDP deflator is 125.
T
If the current year CPI is 140, then, since the base year the price level has increased 40 percent.
T
Mutual funds are a type of financial intermediary.
T
Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living
T
Scarcity means that there is less of a good or resource available than people wish to have.
T
Substitution bias in computing the CPI tends to make the CPI overstate the true increase in the cost of living.
T
The basic tools of supply and demand analysis are as central to macroeconomic analysis as they are to microeconomic analysis.
T
The unemployment rate is defined as the percentage of the labor force that is unemployed. The labor force participation rate is the percentage of the adult population that is either employed or unemployed.
T
When economists are trying to explain the world they are acting as scientists, and when they are trying to improve it, they are policymakers.
T
Suppose the CPI today is 120 and five years ago it was 80. Then in today's prices something that cost $1 five years ago now costs $1.50.
T. 120/80 = 1.50
Which of the following would necessarily raise the interest rate?
The demand for loanable funds shifts right and the supply of loanable funds shifts left.
What do we know about college-age athletes who drop out of college to play professional sports?
They are well aware that their opportunity cost of attending college is very high.
What does the adage, "There is no such thing as a free lunch," mean?
To get something we like, we usually have to give up another thing we like.
An Italian company operates a pasta restaurant in the U.S. The profits from this pasta restaurant are included in
U.S. GDP and Italian GNP.
Because it is difficult for economists to use experiments to generate data, they generally must
Use whatever data the world gives them.
Suppose some country had an adult population of about 46.5 million, the labor-force participation rate was 63.5 percent, and the unemployment rate was 5.8 percent. What were the number of people employed and the number of people unemployed?
about 27.8 million and 1.7 million.
To compute GDP, we
add up the market values of all final goods and services.
Lucy starts her own psychiatric practice, but her expenditures to open the practice exceed her income. Lucy is a
borrower who demands money from the financial system.
How do economists begin building an economic model?
by making assumptions
In the calculation of the CPI, coffee is given greater weight than tea if
consumers buy more coffee than tea.
Megasoft wants to finance the purchase of new equipment for developing security software called Doors, but they have limited internal funds. Megasoft will likely
demand loanable funds by selling bonds.
One of the widely-acknowledged problems with the consumer price index (CPI) as a measure of the cost of living is that the CPI
fails to account for the introduction of new goods.
If one wants to know how the material well-being of the average person has changed over time in a given country, one should look at the
growth rate of real GDP per person.
When the consumer price index rises, the typical family...
has to spend more dollars to maintain the same standard of living.
Since World War II, the labor-force participation rate
increased for women and decreased for men.
Anna has just finished high school and started looking for her first job, but has not yet found one. As a result, the unemployment rate
increases, and the labor-force participation rate increases
According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would
leave national saving unchanged and reduce private saving.
The slope of the demand for loanable funds curve represents the
negative relation between the real interest rate and investment.
Discouraged workers are counted as part of
the adult population, but not as part of the labor force.
Dilbert's Incorporated produced 5,000,000 units of accounting software in 2019. At the start of 2020 the pointy-haired boss reduced total annual hours of employment from 10,000 to 8,000 and production was 4,800,000. These numbers indicate that productivity
rose by 20%.
Lekeisha's income exceeds her expenditures. Lekeisha is a
saver who supplies money to the financial system.
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
Henry decides to spend 2 hours playing golf rather than working at his job which pays $8 per hour. What is Henry's tradeoff?
the $16 he could have earned working for 2 hours
If the prices of Australian-made shoes imported into Canada increase, then, as a result,
the consumer price index will increase, but the GDP deflator will not increase.
Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has more capital and so more real GDP per person than the other. Finally, suppose that the saving rate in both countries increases from 5 percent to 6 percent. Over the next ten years we would expect that
the country that started with less capital will grow faster.
What basket of goods is used to construct the CPI?
the goods and services that are typically bought by consumers as determined by government surveys
The term inflation is used to describe a situation in which
the overall level of prices in the economy is increasing.
If there is a surplus of loanable funds
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
Paul receives $300. In deciding how to spend the money, he narrows his options down to four choices, Option A, Option B, Option C, and Option D. Each option costs $200. Finally he decides on Option B. What is the opportunity cost of Option B?
the value to him of the Option he would have chosen if Option B were not available
If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,
there is a surplus and the interest rate is above the equilibrium level.
The consumer price index is used to
turn dollar figures into meaningful measures of purchasing power.
Lara bought word-processing software in 2019 for $50. Laura's twin brother, Laurence, buys an upgrade of the same software in 2020 for $50. What problem in the construction of the CPI does this situation best represent?
unmeasured quality change
What is not included in Canadian GDP?
unpaid cleaning and maintenance of houses