Macroeconomics Exam 2 (Chapters 9, 11, 12, & 13)
Policies designed to protect workers:
-Include minimum wage laws. -Include unionization laws. -Can lead to unemployment.
Why don't wages fall so everyone with the skills and desire gets a job?
-The government might prevent it, through minimum-wage legislation. -Labor unions might prevent it, through bargaining backed by the threat to strike. -Firms themselves might prevent it, by voluntarily choosing to pay higher wages than necessary.
The multiplier effect suggests that:
-a ripple effect occurs from one person's initial spending. -government spending $1 will create more than a $1 increase in GDP. -a tax cut will crease GDP by more than the amount of the initial tax cut.
Wages tend to be "sticky" because:
-contracts are often negotiated for long terms and cannot be easily changed. -workers are less likely to work as hard if their pay may be cut due to market performance and not their performance. -constantly changing wages creates uncertainty and costs the employer a lot of time and energy to change wage rates.
When the economy slows down:
-firms contract their operations -demand for workers decreases -GDP growth is slowing or negative
When the prevailing market wage is above equilibrium:
-the surplus of labor is the amount of unemployment in the market -the difference between the quantity supplied and the quantity of labor demanded is unemployment. -unemployment occurs
In 2016, the labor force participation rate was 62.6 percent. This means that:
62.6% of working age people wanted a job.
Bob just graduated from college and has just landed his first job with a local accounting firm that will start in three months. Bob plans to use that time to find a place to live, and adjust to the new area. Bob would be considered:
Bob is not in the labor force.
How would the real exchange rate need to change to get aggregate expenditure to increase?
Decrease.
Which of the following could be cause of consumption decreasing?
Interest rates increase.
Which of the following is not a direct determinant of net export spending?
Interest rates.
The economist in the 1930s who is credited with key insights into causes of economic downturns was:
John Maynard Keynes
Real-wage unemployment can be caused by which of the following?
Minimum wage laws
Which of the following is not a primary detriment of consumption spending?
Rate of return on capital.
Which of the following is not a determinant of Investment spending?
Real income
Which type of unemployment contributes to the natural rate of unemployment?
Real-wage unemployment
An inflationary output gap is defined to be when the current level of output is:
above full employment GDP.
Giving people income through unemployment insurance:
allows people to prolong their unemployment until they find a better match.
Planned investment is the:
amount that firms decide to allocate to new capital resources and inventory accumulation.
Actual investment is the:
amount that firms really allocated to new capital resources and inventory accumulation.
When economists say wages are "sticky," they mean that they:
are slow to adjust to changes in the economy, and can cause unemployment.
If we consider the equation PAE=A +bY the independent part of the equation that depends on income is:
b
One of the reasons the government may choose to spend would be the:
beliefs about what citizens may need.
Unemployment insurance:
can affect how quickly people find jobs.
The four components of aggregate expenditure (AE) are:
consumption, investment, government, and net export spending
If the foreign income decrease, then we might expect net export spending to:
decrease
If tastes for foreign goods and services go up, then we would expect aggregate expenditure to:
decrease.
A main reason the federal government may choose to spend would be the:
desire to achieve full-employment GDP.
When the economy goes through ups and downs over time:
economists call this pattern the business cycle.
A recessionary output gap is defined to be when:
equilibrium aggregate expenditure is below full employment GDP.
One of the major insights by economist John Maynard Keynes about production was that:
firms may not produce all they can at a given price, but what they can sell.
Johnny has been working in a sandwich shop full-time while he attends college. When he graduates, he quits the sandwich shop and begins to search for full-time employment related to his college degree. Johnny would be considered:
frictionally unemployed
When PAE increases we expect that the economy will be at ____ levels of equilibrium GDP.
higher.
Which of the following conveys the correct relationship between production and inventories?
if planned inventories > actual inventories then increase production.
Economist John Maynard Keynes noted one of the main contributors to the Great Depression in the 1930s was:
insufficient spending causing below natural rate output.
When we compare PAE and actual output (Y) if PAE is greater than Y we expect that:
inventories to decrease.
The labor supply curve:
is made up of workers who want to work for firms at each given wage
The labor demand curve:
is provided by firms who want to hire workers at each given wage
We define autonomous expenditure to be expenditure that:
is unaffected by the current level of income in the economy.
The business cycle matters for unemployment because:
it affects the demand for labor.
Policies that make it more difficult to fire an employee are likely to:
lead to greater unemployment.
Discouraged workers are people who have:
looked for work in the past year but have given up looking because of the condition of the labor market.
Unemployment insurance is:
money that is paid by the government to people who are unemployed
The effect of government spending or tax cuts on national income is measured by the:
multiplier.
Domestic income has a ______ relationship with net export spending.
negative
What type of relationship does the real interest rate have with respect to Investment spending?
negative relationship
The aggregate supply and aggregate demand model is used to explain the:
overall health of the economy.
Transfer payments are payments that are:
payments made to households that can then be spent by the households.
Economists believe that lower taxes should reduce unemployment because:
people have more incentive to find a job, knowing they will keep more of the income they earn from the job when taxes are low.
When we say investment in economics we are talking about:
physical capital.
Some call the Great Recession the:
recession that began in 2007 due to the decline in consumer spending when the housing bubble burst.
The multiplier effect suggests that:
spending $1 increases GDP by more than $1.
The multiplier effect occurs when:
spending by one person causes others to spend more too, increasing the impact of the initial spending on the economy
Carol is a coal miner who just got laid off when the last coal mine in the area was shut down. She has looked everywhere for another job as a miner, but cannot find one. Given that Carol is unlikely to find another job as a miner, she would be considered:
structurally unemployed
If we wanted to describe unemployment in terms of supply and demand, we could say:
there is a surplus of labor.
Matt is a college graduate who majored in creative writing and currently works at a local bookstore as a sales clerk. The best way to describe Matt is to say he is:
underemployed.
Sasha has a master's degree in writing, and currently works full-time as a 2nd grade classroom helper. She submits articles for the local paper on occasion, and gets paid only when the editor agrees to publish a submission. Sasha would love to be a full-time reporter. The best way to describe Sasha is to say she is ________; the Bureau of Labor Statistics would count Sasha as ________.
underemployed; employed
The unemployment rate may:
understate the effect of a recession on employment because some leave the labor force.
The unemployment rate tells us:
what percentage of the labor force wants to work and can't find a job
