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Econ exam #2

Terms in this set (55)

The minimum wage is an example of what?
Price floor
Look at graph in #1 and know how to interpret it
...
Disposable personal income is equal to what?
Personal income minus personal tax payments
The difference between a nominal variable and a real variable is that
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
True or false: real values are inflation adjusted
True
True or false: nominal values are not inflation adjusted and are used for current year prices
True
The short-term unemployment that arises from the process of matching workers with jobs is called what?
Frictional unemployment
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called what?
Structural unemployment
What are the shortcomings of GDP as a measure of well-being?
- GDP is not adjusted for crime and other social problems
- GDP is not adjusted for the effects of pollution caused by the production of goods and services
- GDP does not include the value of leisure
If inflation is expected to increase..... the _______ ________ ____ will increase
Nominal interest rate
Inflation + real interest =
Nominal interest rate
Nominal interest - real interest =
Inflation
If the economy is experiencing deflation the _______ ________ ____ will be lower than the ____ ________ ____
The nominal interest rate will be lower than the real interest rate
Deflation =
Negative inflation
Look at #9 and know how to interpret it
...
Why is the unemployment rate, as measured by the bureau of labor statistics, an imperfect measure of the extent of joblessness in the economy?
- discouraged workers are not considered unemployed
- underemployment people are considered employed
- it does not account for inaccurate responses to the current population survey
- it fails to account for illegal activities
What does underemployed mean?
Someone working less hours than they should be
Since the 1940's, what happened to the overall labor force participation rate?
It has risen because the decline in labor force participation rate of adult men has been more than offset by the increase in the labor force participation rate of adult women
Workers that are being laid off because they lack the skills that employers now need are thought of as...
Structurally unemployed
What are the costs or disadvantages to the federal government from adopting policies like the one used in Canada?
- Workers may take more time looking for better jobs
- there may be less incentive for workers to actively look for work
- people may remain unemployed for a on extended period of time
Would paying higher wages to employees reduce a companies profits? Why would they adopt this policy?
No, the higher wage would not decrease it's profits if it motivates workers to work harder and be more productive
Consumer surplus is...
The difference between the highest price a consumer is willing to pay and the price the consumer actually pays
Producer surplus is...
The difference between the lowest price a firm would be willing to accept and the price it actually receives
Look at #17 and know how to interpret it
...
Look at #18 and know how to interpret it
...
Look at #19 and know how to interpret it
...
When does deadweight cost occur?
When there is a government intervention
— if there is no government intervention then the deadweight loss would be 0
What is the formula to find consumer surplus?
(Height x base) / 2
#22 know how to interpret it
...
How do economists define economic efficiency?
- to help policymakers understand the negative consequences of taxes
- to help policymakers understand the negative consequences of price floors
- to illustrate the benefits of a competitive market equilibrium
- to o help policymakers understand the negative consequences of price ceilings
What are the components of GDP?
consumption, investment, government spending, exports, and imports.
Which component of GDP will be affected by the following:
- Andy Bernard purchases a brand new Chevrolet trailblazer from a GM dealer
Consumption
Which component of GDP will be affected by the following:
- Dwight Schrute purchases a used trailblazer from his coworker, Andy Bernard
Not included in GDP
Which component of GDP will be affected by the following:
- Dunder Mifflin, a company that sells paper products, purchases lumber from a logging company in Alabama that it then uses to create its paper product
Not included because it is an intermediate good
Which component of GDP will be affected by the following:
- the state of Pennsylvania builds a new highway to help improve access to Dunder Mifflin's branch in Scranton, PA
Government spending
Which component of GDP will be affected by the following:
- Dunder Mifflin uses that limber to produce 1,000 crates of paper that it then ships to a business in Canada
Export
Which component of GDP will be affected by the following:
- Dunder Mifflin purchases a new forklift (machine building) from a local firm for its paper warehouse in Scranton, Pennsylvania
Investment
Long-run economic growth in the United States is best measured using what?
Real GDP per capital, which has been trending strongly upwards over the past century
What leads to long-run economic growth?
- improved labor productivity
- increase in the capital stock
- technological change
Long-run growth in GDP is determined by what?
Capital, labor productivity, and technology
Average standard of living =
Real GDP / population
What is the best measure of the standard of living of the typical person in a country?
Real GDP per person
Does an increase in the number of workers increase the quantity of goods and services that can be produced by one worker, or in one hour of work?
No, adding one worker will not affect ONE person's productivity
What change will ensure that an economy experiences sustained economic growth?
Technological change
The ease with which a financial security can be exchanged for money is referred to as what?
Liquidity
What is the most "liquid" thing in economics?
Cash
In the market for loanable funds, the effect of an increase in the profitability of new investment would be:
the demand curve would shift to the right and the equilibrium real interest rate would increase.
Crowding occurs when...
Governments must borrow funds which causes interest rates to rise and this private investment is reduced
Review #34 and know how to interpret it
...
Business cycles are...
Alternating periods of expanding and contracting economic activity, which are usually illustrated using movements in real GDP
As the CPI (consumer price index) increases,
The level of prices in the economy increases
What is a financial security that represents promises to repay a fixed amount of funds?
Bonds
#38!!!! Review it
...
Statement: "Saving money is not lending. How can it be? When i save my money, i put it in a bank. I don't loan it out to someone else." ..... is this statement correct? Why or why not?
It is incorrect. The supply of loanable funds is determined by household saving
Crowding out occurs when...
Governments must borrow funds which causes interest rates to rise and thus private investment is reduced
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