1. The unemployment rate measures:
    unemployed workers as a percentage of the labor force.
  2. Kathryn chooses to go to college full-time rather than to work. Kathryn:
    is not part of the workforce.
  3. Inflation exists whenever:
    the overall price level is rising
  4. If the nominal interest rate is 6% and the inflation rate is 3%, the real interest rate is
  5. The official unemployment rate may not reflect the true state of unemployment because:
    • Part-time employees who want to work more hours are treated the same statistically as those who hold full-time jobs. 
    • Some individuals who want to work may become discouraged and cease actively looking for work.
  6. Billy loses his job as a road construction worker and cannot find another position with equivalent pay and benefits. As a result, he is still checking the want ads and reporting to the unemployment office on a weekly basis. He is considered to be:
  7. Structural unemployment occurs when:
    automation reduces the need for welders in Detroit
  8. When unemployment rises above the natural rate it reflects the existence of _______ unemployment.
  9. If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor:
    the quantity of unskilled labor supplied will exceed the quantity of unskilled labor demanded.
  10. Why are creditors harmed by unexpected inflation?
    Creditors are paid back money with less spending power than they expected when the money was loaned out.
  11. IF the nominal interest rate is 6% and the inflation rate is 3%, the real interest rate is
  12. Which of the following would not be counted as a final good for inclusion in GDP?

  13. Residental construction is generally included in which category of GDP
  14. If real GDP decresed by 1% and nominal GDP increaded by 2%, then output:
    decreased and the price level increased
  15. If nominal GDP increased from $4,500 billion in 2010 to $5,000 billion in 2011 and the GDP deflator increased from 100 to 105 over the same time period what would the 2011 real GDP equal expressed in terms of 2010 dollars?
    $4,762 billion
  16. An increase in the stock capital:
    causes an economy's production possibilities curve to shift outward over time
  17. A country will roughly double its GDP in 20 years if its annual growth rate is 
    3.5 %
  18. Which of the following factors contribute to economic growth?

  19. As more capital per worker is added, a per worker production function generally becomes:
    flatter because capital is subject to diminishing marginal returns
  20. In the 1700s, Reverent Thomas Malthus predicted that:
    per capita economic growth would eventually become negative since population growth would tend to outstrip production
  21. GDP is:
    the value of all final goods and services produced domestically within a given period of time.
  22. The formula from the expenditure method indicated that GDP is equal to:
  23. Which of the following is an example of an intermediate good?

  24. Residential construction is generally included in which category of GDP?
  25. Why has nominal GDP increased historically more rapidly than real GDP in th eUnited States?
    because of inflation
  26. Labor force=
  27. Problems with measuring Unemployment rate
    Discouraged workers, Part timers, Underground Economy
  28. Why Unemployed?
    • Job Leavers,
    • Re-entrants,
    • New Entrants
  29. Reasons for Unemployment (factors that increase the Unemployment)
    • Minimum wages,
    • Unions,
    • Efficiency wage,
    • Unemployment insurance
  30. Problems with the CPI (Consumer Price Index)
    overestimates true price level about 0.5% per year
  31. GDP=
    value of all final goods and services produced domestically (in one year)
  32. Income Approach
    GDP= income received by the factors of production (+ indirect sales tax + depreciation)
  33. Nominal GDP
    in current or "market" prices
  34. Real GDP
    in base year prices-> ex., holding prices fixed to base year to remove effect of inflation
  35. Productivity of Labor=
    real GDP/# hours of labor
  36. Determinants of Economic Growth
    • Increase labor (includes increase "human capital")
    • Increase land (or increase natural resources)
    • Increase physical capital
    • Increase technology
  37. Society's major economic goals
    • maintaining employment at high levels
    • maintaining prices at a stable level
    • maintaining a high rate of economic growth
  38. The 3 major macroeconomic goals of nearly every society are
    maintaining stable prices, maintaining high levels of employment, and acheiving high rates of economic growth
  39. Economic growth is measured by changes in
    real GDP per capita
  40. High rates of unemployment
    • can lead to increased tensions and despair
    • result in the loss of some potential output in society
    • represent a loss of efficiency in society
  41. The unemployment rate is the number of people officially unemployed divided by
    the civilian labor force
  42. The labor force consist of
    all persons over the age of 16 who are working or actively seeking work
  43. Discouraged workers are consided
    not in the labor force
  44. Which of these groups tends to hae the lowest unemployment rate?
    college graduates
  45. The largest fraction of those counted as unemployed is due to 
    job losers
  46. The offical unemployemtn rate may overstate the extent of unemployment because
    • it does not count those with jobs in the underground economy as employed
    • it includes those who claim to be looking for work as unemployed, even if they are just going through the motions in order to get government benefits
  47. If unemployment benefits increase and encourages more people to claim they are looking for work when they really are not, then the measured employment rate will
  48. After looking for a job for more than 8 months, Kyle became frusturated and stopped looking. Economists view kyle as
    discouraged worker
  49. Frictional unemployment is
    unemployment that is due to normal turnover in the labor market
  50. Unemployment caused by a contraction in the economy is called
    cyclical unemployment
  51. A federal program aimed at retraining the unemployed workers of the decling auto and steel industries is designed to reduce which type of unemployment
  52. When unemployment rises above the natural rate, it reflects the existence of _________ unemployment.
  53. When an economy is operating at full employment,
    cyclical unemployment will equal zero
  54. The natural rate of unemployment would increase when which of the following increases?
    either frictional or structural
  55. If action's labor force receives a significant influx of young workers,
    the natural rate of unemployment is likely to increase
  56. Which of the following reasons why wages may fail to bring the quantity of labor demanded into balance with the quantity of labor supplied?
    the minimum wage, unions, efficiency wage theory
  57. At minimum wage, the quanity of labor supplied _____ because more people are willing to work at a higher wage.
  58. At minimum wage, the quantity of labor demanded ______ because some employers wold find it unprofitable to hir low-skilled workers at the higher wage
  59. Efficiency wages
    • can lead to greater unemployment if th equantity of labor supplied is greater than the quantity of labor demanded
    • may attract the most productive workers
    • may lead to less turnover
    • may reduce morale problems
  60. Unemployment insurance
    may reduce the drive for workers to find jobs and thereby prolong unemployment
  61. If unions are able to increase wages through collectvie bargaining, the 
    • some union workers will become unemployed
    • some union workers will be better off
  62. When would consumers and producers experience increased difficulty in coordinating their plans and decisions?
    in a period of either inflation or deflation
  63. Teh CPI is a measure of
    the overall cost of buying a market basket of goods and services purchased by a typical consumer
  64. If the consumer price index was 100 in the base year and 110 in the following year, the inflation rate was
    10 percent
  65. The CPI overestimates changes in the cost of living because
    • the growth of the discount stores where consumers can obtain goods at discount prices has not been adequately  represented in the construction of the CPI
    • the CPI does not adequately deal with changes in the quality of products over time
    • the CPI deals with a fixed market basket and doesnt capture the savings households enjoy when they substitute cheaper alternatives in response to a price change
  66. Which measures of inflation tend to overstate it?
    both the GDP deflator and the CPI
  67. Inflation can harm
    • retirees on fixed pensions
    • borrowers who have long-term fixed interest rate loans
    • wage earners whose incomes grow slower than inflation
  68. Inflation will be least harmful if
    it is correctly anticipated and interest rates adjust accordingly
  69. Unexpected inflation generall benefits
  70. The costs of inflation include
    • menu costs
    • shoe-leather cost
    • a distortion of price signals
  71. If the nominal interest rate is 9% and the inflation rate is 3%, the real interest rate is 
  72. A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle in order are
    expansion, peak, contraction, trough
  73. The contractionary phase of the business cycle is characterized by
    reduced output and increased unemployment
  74. A _______ is a period of falling real output and is usually accompanied by rising unemployment and decling business and consumer confidence
  75. GDP is defined as the
    value of all final goods and services produced in a country in a period of time
  76. An example of an intermediate product is 
    • the purchase of tires by Ford Motor company to put on its Ford Explorers
    • the purchase of wood by a home construction firm
    • the purchase of leather by a shoe manufacturer
  77. The expenditure measure of GDP accountning is the total of
    consumption, investment , government purchases, and net exports
  78. Investments include
    fixed investment plus additions to business inventories
  79. Government purchases include government purchases of 
    • investment goods
    • government spending on services
  80. A negative amount of net exports in the GDP expenditures accountin gmeans
    exports are less than imports
  81. The largest category of GDP is __________, and the most unstable category of GDP is _________
    consumption, investment
  82. In the income approach to measuring GDP, factor payments include
    • wages and salaries for the use of labor services
    • rent for land
    • interest payments for the use of capital goods
    • profits for entrepreneurs
  83. Examples of factor payments are
    • wages
    • interest
    • rent
    • profit
  84. What is subtracted from GDP to get national income
    • the net income of foreigners
    • depreciation
    • indirect business taxes
  85. Disposable income is
    a measure of th eincome households have to spend after paying taxes
  86. Disposable personal income will increase when
    taxes fall and transfer payments rise
  87. Nominal GDP is 
    the current year market value of all final goods and services produced domestically during a given period
  88. Nominal GDP differs from the real GDP in that
    nominal GDP meausured in  current year prices, while real GDP is measured in base year prices
  89. Real GDP in base year dollars equals
    nominal GDP divided by the price index, time 100
  90. If real GDP increases and population increases, then real GDP per capita 
    could either rise, fall, or remain unchanged
  91. Important factors that are excluded form GDP measurements include
    • leisure
    • the underground economy
    • nonmarket transactions
    • the value of changes in the environoment
  92. If country A has a bigger underground economy than country B, and country A's citizens work fewer hours per week than the citizens of country B, other things being equal, then
    GDP comparisons between the countries would understate the economic welfare of country A compared to B
  93. In __________ countries, where significant amount of food and cloting output is produced in the home, the failure to inlcude non-market economic activity in GDP is a serious deficiency
  94. Economic growth refers to an ______ in the output of goods and serices in an economy. The greater the economic growth, the _____ goods citizens and their descendants will have to consume.
    increase; more
  95. Economic growth is usually measured by the annual percent change in
    real GDP per capita
  96. How much the economy can produce at its natural rate of output depends on
    • technology 
    • the quantity of available natural resources
    • the productivity of labor
    • the stock of available capital
  97. An economy's production possibilities curve will shift outward over time if
    • technological progress occurs or
    • the productivity of labor increases
  98. According to the Rule of 70, if a nation grows at a rate of 5 percent per year, it will take roughly ______ for national income to double
    14 years
  99. What will lead to economic growth?
    • technology
    • natural resources
    • physical capital 
    • human capital
  100. In the long run, the most important determinant at a nation's standard of living is
    its rate of productivity growth
  101. According to Paul Romer, a new growth economist
    • economic growth can continue unimpeded, as long as we keep coming up with new ideas
    • while the market is a great engine for economic growth, it can be "turbocharged" with strong institutional support for education and science
    • economic growth comes from increses in value -- rearranging fixed amounts of matter and making new combinations that are more valuable
  102. If a country increased its saving rate,
    • its current consuption would have to fall
    • its future consumption possibilities will rise
  103. High rates of saving and investment in a country
    • tend to increase economic growth but do not guarantee it
    • will result in greater economic growth if they are accompanied by advances in technology than if they are not
    • will result in greater economic growth if they are acompanied by more investment in human capital than if they are not
  104. Economic growth tends to be greater in countries where
    • the government effectively protects property rights
    • more resources are devated to research and development
    • there is greater freedom to trade freely
  105. In a country that has an unstable government or judiciary, would you expect to see more or less entrepreneurial activity?
    more, because of less taxation of comercial and research activities
  106. Thomas Malthus's model assumed that
    • the economy was agricultural, using land and labor
    • the supply of land was fixed 
    • sexual desire worked to increase population
  107. Malthus
    • predicted that per capita economic growth would eventually become negative
    • predicted that wages would ultimately reach equilibrium at a subsistence level
    • relied heavily on the law of diminishing returns
    • ignored the potential for technological advances
Card Set
Economics unit 1 text