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A good measure of the standard of living is

real GDP per capita.

If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion, the growth rate of real GDP between 2010 and 2011

is 3.75%.

If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from

23.3 years to 17.5 years.

Human capital refers to which of the following?

the accumulated knowledge and skills workers acquire from education and training or from their life experiences

Potential GDP refers to

the level of GDP attained when all firms are producing at capacity.

The Bureau of Labor Statistics would categorize a retiree who is not working as

out of the labor force.

Suppose the working-age population of a fictional economy falls into the following categories: 90 are retired or homemakers; 60 have full-time employment; 20 have part-time employment; 20 do not have employment, but are actively looking for employment; and 10 would like employment but do not have employment and are not actively looking for employment. The official unemployment rate as calculated by the U.S. Bureau of Labor would equal


The labor force participation rate equals the

(labor force divided by working-age population) × 100.

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness?

unemployed persons falsely report themselves to be actively looking for a job

Frictional unemployment is the result of

the search process of matching workers with jobs.

The natural rate of unemployment is the amount of unemployment

equal to frictional plus structural unemployment.

Most of the unemployment that occurred during the Great Depression was

cyclical unemployment.

Which of the following policies would reduce structural unemployment?

a job retraining program

Suppose that the labor movement has a revival in the United States and the majority of workers join labor unions. As a result we would expect

the unemployment rate to rise.

Which of the following is true about the consumer price index?

It assumes that consumers purchase the same amount of each product in the market basket each month.

The consumer price index implicitly assumes that the demand curve for each good and service in the representative market basket is


Which of the following would be a consequence of substitution bias in the CPI?

Businesses would over-compensate employees for inflation when giving the cost of living rises.

You earned $30,000 in 1990, and your salary rose to $80,000 in 2011. If the CPI rose from 82 to 202 between 1990 and 2011, which of the following is true?

The purchasing power of your salary increased between 1900 and 2011.

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

3 percent

When actual inflation is less than expected inflation,

borrowers lose and lenders gain

The resources lost for dealing with inflation:

is called shoeleather cost

If an economy experiences deflation, the real interest rate

will be greater than the nominal interest rate.

During a business cycle expansion, total production ________ and total employment ________.

increases; increases

Suppose, in 2012, you purchased a house built in 2003. Which of the following would be included in the gross domestic product for 2012?

the value of the services of the real estate agent

Gross domestic product is calculated by summing up

the total market value of final goods and services produced in the economy during a period of time.

The nominal GDP of the U.S. in 2010 was approximately $14.6 trillion. This means that

the value of output in 2010 was around $14.6 trillion.
total income in 2010 was around $14.6 trillion.
total spending in 2010 was around $14.6 trillion.
all of the above are true.

To calculate GDP by the expenditure method, one must add

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

In 2011, Kendall Ford, an automobile dealership, spent $20,000 on a new car lift for its repair shop, $2,000 on a new copy machine for its sales division, and $600,000 on Ford Motor company stock. Unsold cars and trucks were valued at $400,000 on January 1, 2011 and unsold cars and trucks were valued at $900,000 on December 31, 2011. What is Kendall Ford's total investment spending in 2011?


In the United States since the mid-1980s, consumption as a percentage of GDP has


Gross domestic product understates the total production of final goods and services because of the omission of

household production.

A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements. This will

increase GDP and decrease well-being in the economy.

If nominal GDP exceeds real GDP for a specific year, then the GDP deflator must be

greater than 100.

A country in which a significant fraction of domestic production takes place in foreign-owned factories and facilities is most likely a country where

GDP is much larger than GNP

Increases in capital per hour worked cannot sustain high rates of economic growth unless accompanied by technological change.


Eliminating frictional unemployment would be good for the economy.


Efficiency wage is another name for the minimum wage.


The inflation rate measures the average prices of goods and services in the economy.


The nominal interest rate plus the inflation rate equals the real interest rate.


Residential investment includes spending by firms on office buildings.


For developed countries like the United States, GDP will always exceed GNP.


The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is 5% higher in year 2 than in year 1


Nominal GDP will increase if either the price level or the quantity of goods and services produced rises.


To examine how the total production of an economy has changed over time, it would be better to examine real GDP.


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