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Econ 202 Exam 2
Terms in this set (93)
In the U.S., imports
are smaller fractions of GDP than in most other countries.
The world is often described as having a global economy. How important is international trade to the United States?
Exports, Imports, Tariffs
are goods and services produced domestically but sold to other countries.
are goods and services bought domestically but produced in other countries.
are taxes imposed by a government on imports of a good into a country.
All of the above
Why in microeconomics can we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value?
Which equation represents the relationship between GDP and the four major expenditure components?
Consumption, Investment, Government Purchases, and Net Exports
What are the four major components of expenditures in GDP?
The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.
What is the difference between the value of a firm's final product and the value added by the firm to the final product?
No. GDP for 2019 includes only production that occurs during 2019.
Suppose a house is built and sold in the year 2008. If the house is resold in the year 2019, is the value of the house included in
Gross Domestic Product
(GDP) for 2019?
Yes. GDP for 2019 includes the market value of final goods and services. This includes real estate services.
Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2019?
The Nominal GDP for the year 2019 is
Suppose that a simple economy produces only the following four goods and services: shoes, hamburgers, shirts, and cotton. Further, assume that allall of the cotton is used in the production of shirts.
Use the information in the following table to calculate Nominal Gross Domestic ProductLOADING... (Nominal GDP) for 2019.
PRODUCTION AND PRICE STATISTICS FOR 2019
2 comma 0002,000
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
Indicate whether you agree or disagree with the following statement:
"In years when people buy many shares of stock, investment will be high and, therefore, so will gross domestic product (GDP)."
Consumption, investment, government purchases, and net exports.
What are the four major categories of expenditure?
Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.
Which of the following statements about the consumption component of GDP is not correct?
the market value of all final goods and services produced in a country during a period of time.
Gross Domestic Product (GDP) is
Which of the following equations sums up the components of Gross Domestic Product (GDP)?
firms produce goods, however sometimes the goods may be unsold at the time GDP is computed.
Inventories are part of investment and therefore included in GDP because
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
Transfer payments are not included in GDP calculations because
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called
Generally, the more goods and services people have, the better off they are
How does the size of a country's GDP affect the quality of life of the country's people?
Household production and the underground economy
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
All of the above
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
The increase in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP
We often use real GDP per capita as a measure of a country's well-being. Review the definition of real GDP per capita before answering the following question.
Today, the typical American works fewer than 40 hours per week. In 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the population's economic well-being?
All of the above
Real GDP per capita is often used as a measure of generalwell-being. While increases in real GDP often do lead to increases in thewell-being of thepopulation, why is real GDP not a perfect measure ofwell-being?
nominal GDP is larger than real GDP in years after the base year
In an economy with rising prices, compared to the base year
Unemployment rate=Number of employed/Labor force X 100
The unemployment rate is calculated as follows
They had worked only one hour per week during the previous four weeks
Which of the following is not one of the conditions someone needs to meet to be counted as unemployed?
people on active military service are included as unemployed
All of the following are problems in measuring the unemployment rate except that
When there are
part minus time workers nbsppart−time workers ,
the official BLS measure of the unemployment rate
----- the true degree of unemployment
percentage of the working age population that is employed
The employment-population ratio measures the
understates the true degree of joblessness in the economy
When an unemployed person drops out of the labor force, the unemployment rate
does not affect the employment-population ratio
When an unemployed person drops out of the labor force, it
The household survey interviews households and collects data that is used to measure the unemployment rate whereas the establishment survey interviews businesses and measures total employment in the economy
Which one of the following depicts an accurate description of the household survey and the establishment survey?
the establishment survey because it is determined by actual payroll records rather than unverified answers
Many economists prefer
more people are likely to be employed
In discussing the labor market during the recovery from the 2007-2009 recession, Federal Reserve Chair Janet Yellen noted that "the employment-to-population ratio has increased far less over the past several years than the unemployment rate alone would indicate, based on past experience."
Source: Janet L. Yellen, "Labor Market Dynamics and Monetary Policy," Speech at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, August 22, 2014.
During an economic expansion, we would normally expect the employment-population ratio to increase as the unemployment rate falls because
the recovery was sluggish and employment did not expand as rapidly
During the recovery from the 2007-2009 recession, the employment-population ratio did not increase as much as it might have been expected to because
No, the economy could have created more jobs, but some were also lost during that period
In his 2016 State of the Union address, President Barack Obama observed that in the previous 70 months, the U.S. economy had created "more than 14 million new jobs."
Source: Barack Obama, "Remarks of President Barack Obamalong dash—State of the Union Address As Delivered," obamawhitehouse.archives.gov, January 13, 2016.
Is it likely that the U.S. economy created only 14 million jobs during this time period?
All of the above
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
When compared to the Great Depression, the typical length of unemployment in the modern (post-Great Depression-era) U.S. economy is
what we would expect in a vibrant market system
The extent of job creation and job destruction is
The BLS defines a job quit as a "voluntary separation initiated by an employee." The BLS estimated that there were 3.1 million job quits in March 2017.
Source: Bureau of Labor Statistics, "Job Openings and Labor Turnover Surveylong dash—March 2017," May 9, 2017.
Unemployment caused by an increase in job quits would be classified as
easier to find jobs because employees who leave voluntarily are confident of finding another one
An increase in the number of job quits would suggest that it is becoming
the economy needs some short-term unemployment in order to allow for better matching of jobs with workers that possess the proper skill sets
Why do economists believe that setting a goal of zero percent unemployment is not feasible or desirable?
Creating a goal of zero percent unemployment for an economy is not feasible nor is it desirable because
Structural unemployment in the country is at 3 percent while frictional unemployment is at 4 percent
Justin Weaver reads a newspaper article in which an analyst points out that the country's 7 percent unemployment figure is actually its full-employment rate of unemployment. Justin is puzzled as to why this would be considered the full-employment rate of unemployment, when 7 out of 100 people in the labor force do not have jobs.
Which of the following, if true, would best explain this to Justin?
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called
has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage
Consider the effect of each of the following on the unemployment rate:
increases the unemployment rate since firms pay a higher-than-market wage that increases the quantity of labor supplied
An efficiency wage
increase unemployment among teenagers
Increases in the minimum wage will
lower; more stringent
The unemployment rate in the United States is usually ________ than the unemployment rates in most other high-income countries, partly because the United States has _________ requirements for the unemployed to receive government payments.
The consumer price index is an average of the prices of the goods and services purchased by the typical urban family of four, whereas the producer price index is an average of the prices received by producers of goods and services at all stages of the production process.
What is the difference between the consumer price index and the producer price index?
No, because the CPI and inflation measure only changes in the price level, not the absolute level of prices.
An article in the Wall Street Journal asks the question, "How can inflation be low when everything is so expensive?" The article also notes that "the CPI shows that prices are the highest they've ever been."
Josh Zumbrun, "5 Things You Always Wanted to Know about Inflation Statistics," Wall Street Journal, May 15, 2014.
Is there a contradiction between a low inflation rate as measured by the CPI and the observations that prices are "the highest they've ever been" and everything is "so expensive"?
The CPI does not change
In the fall of 2017, Apple introduced two new models of its iPhone. The new models had faster processors and better cameras than the previous model and sold for higher prices.
How did the introduction of the new models of the iPhone affect the CPI?
All of the above
Which of the following causes changes in the CPI to overstate the true inflation rate?
Producer price index
Which of the following can give an early warning of future increases in the price level?
Prices generally increase at the same rate across most periods of time
Which of the following statements about prices and inflation is not correct?
nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation
The difference between a nominal variable and a real variable is that
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate
he difference between the nominal interest rate and the real interest rate is
the nominal interest rate will increase
If inflation is expected to increase
it all depends on the inflation rate
The chapter explains that it is impossible to know whether a particular nominal interest rate is "high" or "low" because
No. Deflation is defined as a negative inflation rate
The following appeared in a newspaper article:
"Inflation in the Lehigh Valley during the first quarter of [the year] was less than half the national rate...So, unlike much of the nation, the fear here is deflation-when prices sink so low that the CPI drops below zero."
Source: Dan Shope, "Valley's Inflation Rate Slides," (Allentown, PA) Morning Call, July 9, 1996.
Do you agree with the reporter's definition of deflation?
inflation, since it causes greater redistribution of income between those making payments and those awaiting payments in the future
The type of inflation that is a greater problem to society is
the costs to firms of changing prices
Menu costs are
a borrower will
from the situation while a lender will
Suppose that the
turns out to be much
than most people expected. In that case,
the price level and the quantity of real GDP demanded by households, firms, and the government
What relationship is shown by the aggregate demand curve? The aggregate demand curve shows the relationship between
the price level and the quantity of real GDP supplied by firms
What relationship is shown by the aggregate supply curve?
The short run aggregate supply curve shows the relationship in the short run between
government-spending effect, where a change in the price level affects government purchases
Give the three reasons the aggregate demand curve slopes downward.
The U.S. aggregate demand curve slopes downward due to all of the following reasons except the
different, because consumers can substitute between individual products
Compared to the U.S. aggregate demand curve, the reason that the demand curve for an individual product, such as bananas, slopes downward is
downward sloping because as prices rise, consumer real wealth declines, interest rates rise, and exports become more expensive
An economics student makes the following statement:
"It's easy to understand why the aggregate demand curve is downward sloping: When the price level increases, consumers substitute into less expensive products, thereby decreasing total spending in the economy."
This statement is false because the aggregate demand curve is
government spending, consumption, investment, and net exports
Aggregate demand (AD) is comprised of expenditure components that include:
a decrease in government spending
Which of the following would cause a decrease in aggregate demand?
when the price level falls, the real value of household wealth rises, and so will consumption
The wealth effect refers to the fact that
higher interest rates and lower investment
The interest rate effect refers to the fact that a higher price level results in
a decrease in exports and an increase in imports
The international-trade effect refers to the fact that an increase in the price level will result in
there will be a movement up along a stationary aggregate demand curve
If the price level increases, then
changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology
The long-run aggregate supply curve is vertical because in the long run,
shift to the right
More capital accumulationMore capital accumulation
will cause thelong-run aggregate supply curve to
change in the price level
Consider the short-run aggregate supply curves in the graph at right.
A movement from point A to point B on SRAS1 could be the result of a
the labor force
A movement from point A to point C could be the result of a change in
incorrect since changes in the expected price level affect short run aggregate supply but not the long run aggregate supply
An article in the Economist magazine noted that:
"the economy's potential to supply goods and services [is] determined by such things as labour force and capital stock, as well as inflation expectations."
Source:"Money's Muddled Message" Economist, May 19, 2009.
This list of the determinants of potential GDP is
upset workers and lower their productivity
Economists Mary Daly, Bart Hobijn, and Timothy Ni of the Federal Reserve Bank of San Francisco argue that "employers hesitate to reduce wages and workers are reluctant to accept wage cuts, even during recessions."
Source: Mary C. Daly, Bart Hobijn, and Timothy Ni, "The Path of Wage Growth and Unemployment," Federal Reserve Bank of San Francisco Economic Letter, July 15, 2013.
Employers are hesitant to cut workers' salaries because wage cuts
the costs to firms of changing prices
Consider the following information about menu costs
Profits rise when the prices of the goods and services firms sell rise more rapidly than the prices they pay for inputs
Why does the short-run aggregate supply curve slope upward?
All of the above
Why does the failure of workers and firms to accurately predict the price level result in an upward-sloping aggregate supply curve?
a positive technological change
Which of the following causes the short-run aggregate supply curve to shift to the right?
an increase in the expected price of an important natural resource
Which of the following causes the short-run aggregate supply curve to shift to the left?
When the economy is at long-run equilibrium, firms will have excess capacity
Which one of the following is not true when the economy is in macroeconomic equilibrium?
a sudden increase in the price of an important natural resource, resulting in a leftward shift of the SRAS curve
A supply shock is
housing is very sensitive to interest rate changes, which are cyclical
Edward Leamer of UCLA has argued that "housing is the business cycle."
Spending on housing is likely to fluctuate more than spending by households on consumer durables, such as automobiles or furniture, or spending by firms on plant and equipment because
All of the above
Which of the following factors brought on the recession of
Home prices in Canada have risen well above their underlying fundamental value as an asset
In 2017, an editorial on bloomberg.com was titled: "Canada Must Deflate Its Housing Bubble."
Source: "Canada Must Deflate Its Housing Bubble," bloomberg.com, May 23, 2017.
What did the editorial mean by the "housing bubble"?
A housing bubble would deflate housing prices, which would decrease household wealth, which would decrease aggregate demand, which could cause a recession
Why should government policymakers be worried about a housing bubble?
monetary growth rule
Milton Friedman argued that the Federal Reserve should adopt a ________ to reduce fluctuations in real GDP, employment, and inflation
All of the above
Which of the following are views new classical macroeconomists hold?
The real business cycle model focuses on changes in the quantity of money to explain fluctuations in real GDP
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