unemployed workers as a percentage of the labor force.
Kathryn chooses to go to college full-time rather than to work. Kathryn:
is not part of the workforce.
Inflation exists whenever:
the overall price level is rising
If the nominal interest rate is 6% and the inflation rate is 3%, the real interest rate is
3%
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.
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:
unemployed
Structural unemployment occurs when:
automation reduces the need for welders in Detroit
When unemployment rises above the natural rate it reflects the existence of _______ unemployment.
cyclical
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.
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.
IF the nominal interest rate is 6% and the inflation rate is 3%, the real interest rate is
3%
Which of the following would not be counted as a final good for inclusion in GDP?
B.
Residental construction is generally included in which category of GDP
investment
If real GDP decresed by 1% and nominal GDP increaded by 2%, then output:
decreased and the price level increased
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
An increase in the stock capital:
causes an economy's production possibilities curve to shift outward over time
A country will roughly double its GDP in 20 years if its annual growth rate is
3.5 %
Which of the following factors contribute to economic growth?
D.
As more capital per worker is added, a per worker production function generally becomes:
flatter because capital is subject to diminishing marginal returns
In the 1700s, Reverent Thomas Malthus predicted that:
per capita economic growth would eventually become negative since population growth would tend to outstrip production
GDP is:
the value of all final goods and services produced domestically within a given period of time.
The formula from the expenditure method indicated that GDP is equal to:
C+I+G+X-M
Which of the following is an example of an intermediate good?
C.
Residential construction is generally included in which category of GDP?
Investment
Why has nominal GDP increased historically more rapidly than real GDP in th eUnited States?
because of inflation
Labor force=
Employed+Unemployed
Problems with measuring Unemployment rate
Discouraged workers, Part timers, Underground Economy
Why Unemployed?
Job Leavers,
Re-entrants,
New Entrants
Reasons for Unemployment (factors that increase the Unemployment)
Minimum wages,
Unions,
Efficiency wage,
Unemployment insurance
Problems with the CPI (Consumer Price Index)
overestimates true price level about 0.5% per year
GDP=
value of all final goods and services produced domestically (in one year)
Income Approach
GDP= income received by the factors of production (+ indirect sales tax + depreciation)
Nominal GDP
in current or "market" prices
Real GDP
in base year prices-> ex., holding prices fixed to base year to remove effect of inflation
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
Economic growth is measured by changes in
real GDP per capita
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
The unemployment rate is the number of people officially unemployed divided by
the civilian labor force
The labor force consist of
all persons over the age of 16 who are working or actively seeking work
Discouraged workers are consided
not in the labor force
Which of these groups tends to hae the lowest unemployment rate?
college graduates
The largest fraction of those counted as unemployed is due to
job losers
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
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
rise
After looking for a job for more than 8 months, Kyle became frusturated and stopped looking. Economists view kyle as
discouraged worker
Frictional unemployment is
unemployment that is due to normal turnover in the labor market
Unemployment caused by a contraction in the economy is called
cyclical unemployment
A federal program aimed at retraining the unemployed workers of the decling auto and steel industries is designed to reduce which type of unemployment
structural
When unemployment rises above the natural rate, it reflects the existence of _________ unemployment.
cyclical
When an economy is operating at full employment,
cyclical unemployment will equal zero
The natural rate of unemployment would increase when which of the following increases?
either frictional or structural
If action's labor force receives a significant influx of young workers,
the natural rate of unemployment is likely to increase
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
At minimum wage, the quanity of labor supplied _____ because more people are willing to work at a higher wage.
grows
At minimum wage, the quantity of labor demanded ______ because some employers wold find it unprofitable to hir low-skilled workers at the higher wage
falls
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
Unemployment insurance
may reduce the drive for workers to find jobs and thereby prolong unemployment
If unions are able to increase wages through collectvie bargaining, the
some union workers will become unemployed
some union workers will be better off
When would consumers and producers experience increased difficulty in coordinating their plans and decisions?
in a period of either inflation or deflation
Teh CPI is a measure of
the overall cost of buying a market basket of goods and services purchased by a typical consumer
If the consumer price index was 100 in the base year and 110 in the following year, the inflation rate was
10 percent
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
Which measures of inflation tend to overstate it?
both the GDP deflator and the CPI
Inflation can harm
retirees on fixed pensions
borrowers who have long-term fixed interest rate loans
wage earners whose incomes grow slower than inflation
Inflation will be least harmful if
it is correctly anticipated and interest rates adjust accordingly
Unexpected inflation generall benefits
borrowers
The costs of inflation include
menu costs
shoe-leather cost
a distortion of price signals
If the nominal interest rate is 9% and the inflation rate is 3%, the real interest rate is
6%
A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle in order are
expansion, peak, contraction, trough
The contractionary phase of the business cycle is characterized by
reduced output and increased unemployment
A _______ is a period of falling real output and is usually accompanied by rising unemployment and decling business and consumer confidence
contraction
GDP is defined as the
value of all final goods and services produced in a country in a period of time
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
The expenditure measure of GDP accountning is the total of
consumption, investment , government purchases, and net exports
Investments include
fixed investment plus additions to business inventories
Government purchases include government purchases of
investment goods
government spending on services
A negative amount of net exports in the GDP expenditures accountin gmeans
exports are less than imports
The largest category of GDP is __________, and the most unstable category of GDP is _________
consumption, investment
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
Examples of factor payments are
wages
interest
rent
profit
What is subtracted from GDP to get national income
the net income of foreigners
depreciation
indirect business taxes
Disposable income is
a measure of th eincome households have to spend after paying taxes
Disposable personal income will increase when
taxes fall and transfer payments rise
Nominal GDP is
the current year market value of all final goods and services produced domestically during a given period
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
Real GDP in base year dollars equals
nominal GDP divided by the price index, time 100
If real GDP increases and population increases, then real GDP per capita
could either rise, fall, or remain unchanged
Important factors that are excluded form GDP measurements include
leisure
the underground economy
nonmarket transactions
the value of changes in the environoment
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
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
less-developed
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
Economic growth is usually measured by the annual percent change in
real GDP per capita
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
An economy's production possibilities curve will shift outward over time if
technological progress occurs or
the productivity of labor increases
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
What will lead to economic growth?
technology
natural resources
physical capital
human capital
In the long run, the most important determinant at a nation's standard of living is
its rate of productivity growth
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
If a country increased its saving rate,
its current consuption would have to fall
its future consumption possibilities will rise
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
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
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
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
Malthus
predicted that per capita economic growth would eventually become negative
predicted that wages would ultimately reach equilibrium at a subsistence level
