Econ ch 19 – 22

Which of the following by definition directly adds to a country’s GDP (gross domestic product)?

increased commercial travel

What data do economists use to calculate the real GDP of a nation?

correct: market values, price level incorrect: income tax rate, unemployment rate

Which questions explore microeconomic topics and which explore macroeconomic topics? Apply the correct label to each question.

Macro: -what effect did the interest rate have on inflation? -what effect did falling homes values have on unemployment? Micro: -why did company c increase its advertising budget? -why did billi buy a new house?

Underground economies are smallest in countries with strong economies.
T/F

true

Which of the following are examples of non-market services?

correct: -changing the oil in your car yourself -cutting your own hair incorrect: -taking your car to the mechanic for routine maintenance -going to the barber

For purposes of computing GDP, how are net exports calculated?

net exports = exports -imports

For each output, apply the appropriate label.

*not included in GDP: -a microprocessor chip sold to a computer manufacturer -a smartphone manufactured overseas and sold locally *included in GDP: -landscaping on a residence -a computer sold to a retail consumer

Identify each good as either intermediate or final.

*intermediate: -tires used by a car manufacturer -lenses bought by a camera manufacturer *final: -tires bought by a driver for her personal vehicle -a memory card bought by a photographer

How do non-market goods cause inaccuracies in measuring the productivity of a nation?

am economy with many non-market goods may have its output underrated

Which of the following are examples of investment?

*investments: -a photojournalist buys a new camera a professional painter buys new brushes -a mechanic buys a new wrench *not investments: -your neighbor buys a new tv -your friend buys a new set of golf clubs

Calculate the real GDP of the United States for the year 2014. Use 2009 as the base period and round to the nearest whole number.

(17,348.1/ 109) x 100 = 15,916

Match the use of GDP data to the appropriate situation.
-measuring long-term economic growth
-measuring living standards
-measuring business cycles

*long term: -Leia examines real per capita GDP over a ten-year period to determine whether the economy of a particular country is in decline or on the rise. *living standards: -Lupe examines the real per capita GDP of seven nations to determine which country might have the wealthiest citizens. *business cycle: -Brad looks at real per capita GDP to determine what impact the recent recession has had on economic activity.

Canada’s GDP (1) that Canadians have the eleventh-best standard of living. A nation’s (2) is a better standard-of-living indicator, because it measures (3). Using this measure, it looks like Canada has a better standard of living than all but one other nation.

1-does not indicate 2-per capita GDP 3-average income

What might a decrease in sales of new cars indicate about the state of the economy?

*correct: -The economy is weak. -GDP is going to decrease in the near future. *incorrect: -The economy is strong. -GDP rose in the recent past.

Click the year that produced a 3% rate of real GDP growth.

year:2007 Nominal GDP growth rate:9 price level growth rate:6

The real GDP of Country A grew by only 1% from 2011 to 2013, while the real GDP of Country B grew by 5% during that same time span. Based on the data, what can we say definitely about the two countries?

**correct: -Country B will eventually have a higher real GDP than Country A if the economy of each country continues to grow this way. **incorrect: -Country A has a high real GDP. -Country B has a very high quality of life. -Country A has a modestly high quality of life. -Country A’s economy has been in a period of contraction.

Calculate the annual percentage change in price level for the year 2014. Round to two decimal places.

(109 – 107 / 107) x 100 = 1.87%

The most natural interpretation of "better off" is that citizens of Country B have a higher (1). It is possible that the citizens of Country B spend more time (2). It is also possible that they live in a (3). GDP (4) measure the quality-of-life indicators that would explain this.

1-quality of life 2-in leisure activities 3-cleaner environment 4-does not

Assuming that the trends from 1980 to 2008 continue for another decade, which country would you expect to have a lower standard of living in 2020 than in 1970?

higher: -turkey -mexico -India lower: -Nicaragua

Low GDP is not necessarily an indicator of an economy in poor health. For one thing, a (1) country may have a low GDP but a high (2). For another thing, an economy with a low GDP but a strong (3) is healthier than an economy with a comparable GDP that is stagnant or declining.

1-small 2-per capita GDP 3-real GDP growth rate

Classify each concept as microeconomic or macroeconomic.

Micro: -The financial decisions of a family -The hiring decisions of a company Macro: -The median income of a small state -The unemployment rate of a nation

In the graph, click on the start and end points of a period of recession or contraction.
( long run trend of GDP vs. short run path(business cycle) )

box 2 and 4 on graph

Which of the following statements are good assessments of the value of GDP as an economic statistic?

**correct: -Nominal GDP cannot indicate whether the economy is getting stronger or weaker. -GDP is correlated with many measures of human welfare. **incorrect: -GDP accurately captures all economic activity. -GDP does not account for goods being imported rather than locally produced.

You can figure out how much the economy has grown over the years by simply looking at nominal GDP.
T/F

False

Calculate the GDP for a country that in one year sells 10,000 speedboats for $40,000 each and 5,000 race cars for $90,000 each, and nothing else. A speedboat engine contributes $9,000 to the total price, and a race car engine is worth $12,000.

( 10,000 x $40,000) + (5,000 x $90,000) = $850 million

Match the component of GDP national income accounting to the correct expenditure.

1-Jennifer buys toothpaste.
2-David buys a new car.
3-Lonnie the police officer cashes her paycheck at the end of the week.
4-Almonds are grown for sale overseas.
5-A farmer buys a new tractor.
6-A family of three purchases a newly built home.

1-consumption 2-consumption 3-government spending 4-net exports 5-investment 6-investment

GDP is the best measure of a nation’s economic activity. However, GDP does not take into account many factors that affect quality of life, like the amount of people’s (1) or the cleanliness of the 920. GDP only measures a country’s economic (3).

1-leisure time 2-environment 3-output

Goods created within the borders the United States contribute to the (1) of the United States, (2) the company that makes them is foreign-owned. The output of an American company operating in another country contributes to the (3) of the United States.

1-GDP 2-even if 3-GNP

Which three countries would you expect to have the highest standard of living? Drag the labels to the appropriate country.

(keep in mind to look at the per capita GDP to calculate this)

highest:US 2nd highest:Canada 3rd highest:Germany

Do recessions always prevent a long-term increase in a nation’s real GDP?

No; a nation will normally also have periods of economic expansion that balance out recessions.

Apply the appropriate label to each situation.

1-Your neighbors grow and eat their own vegetables from their private garden.
2-Your mom made a sweater for you for your birthday.
3-The neighborhood kids sell lemonade when it is hot outside.
4-Your child is paid $40 to walk your friends’ dog while they are on vacation.

1-non-market good 2-non-market good 3-underground economy 4-underground economy

Which of the following products would count toward GDP?

Counted in GDP: -a new bicycle sold by a bike shop -bicycle handlebars sold to consumers as a customization item Not counted in GDP: -a used bicycle sold at a garage sale -bicycle handlebars sold to a bike manufacturer

Which of the following statements are true about the underground economy?

correct: -It is possible for the underground economy to have an effect on the legitimate economy. -It is not possible to accurately measure the size of the underground economy. incorrect: -All underground economic activity is harmful to society. -All of the goods and services traded in the underground economy are illegal.

Click on the names of countries where the standard of living improved substantially between 1950 and 2000.

poland turkey mexico india

A service-based economy is less likely to be a source of prosperity than a goods-based economy.
T/F

False

Correctly classify each situation that GDP cannot measure.

1-You repair your own pants when your rip them.
2-Country A has a very high GDP, but the average person works 60 hours a week.
3-Unregulated industries pollute the air.
4-A restaurant server takes home $75 in unreported tips each night.

1-non-market good 2-leisure time 3-quality of environment 4-underground economy

How do intermediate goods factor into the calculation of GDP?

Intermediate goods do not factor into GDP; only final goods are counted

Assume Country X has the following statistics:
Total relevant population = 50,000,000
Full-time students = 4,200,000
Not employed and not currently searching for jobs = 6,000,000
Not employed and currently searching for jobs = 2,336,000
Currently employed = 29,664,000

Country X has a labor force of (1), a labor force participation rate of (2), and an unemployment rate of (3).

1-32,000,000 2-64% 3-7.3%

The unemployment rate includes discouraged workers and underemployed workers.
T/F

false

Which of the following type(s) of unemployment are most associated with an economy that is experiencing dynamic growth and technological progress?

structural unemployment

Based on recent statistics, which of the following individuals would have the greatest probability of being unemployed?

greg, a 19 year old African american male

A country has a non-institutionalized civilian adult population of 263 million. Out of that number:
85 million are students, homemakers, retirees, etc.
11 million are discouraged workers.
122 million are employed full-time.
30 million are employed part-time.
15 million are out of work and actively looking for work.

What is the unemployment rate? Round to one decimal place.

9%

Match the job sectors to their workforce shares from 1800 to 2010.
(graph: bottom triangle, middle section, top triangle)

bottom:agriculture middle:industry top: services

Match the level of unemployment with the condition of the overall economy.
1-Actual GDP is above potential GDP.
2-Actual GDP is below potential GDP.
3-Actual GDP is equal to potential GDP.

1-Unemployment is below the natural rate. 2-Unemployment is above the natural rate. 3-Cyclical unemployment equals zero. & Unemployment equals the natural rate.

For each curve below, apply the correct label.
(percentage of labor forces: blue top line and red bottom line)

blue: -unemployed plus discouraged and underemployed workers red: -officially unemployed

Based on the table below, what conclusions can you draw about unemployment in the United States?

**correct: -After the Great Recession, more than one-quarter of unemployed people spent more than 6 months looking for a job. -The length of time people remained unemployed in 2015 was generally longer than it was in 2007. **incorrect: -The Great Recession did not affect the length of time people remained unemployed. -The majority of people who were unemployed in 2015 were looking for work for an extended length of time.

Click the area on the graph below that represents when the United States had the highest level of cyclical unemployment.

7%-11%

Click on the unemployment rate range in which the U.S. natural unemployment rate is located.

5%

When the managers of a grocery store install self-checkout lanes, they place greater value on efficiency than on jobs.
T/F

True

The unemployment rate in Economy X when it is growing normally is 5%. When Economy X is in a recession, the unemployment rate is 10%. Drag each word or phrase to the appropriate blank space in order to complete the paragraph correctly.

Drag word(s) below to fill in the blank(s) in the passage.

For Economy X, the natural rate of unemployment (1) 5%. This rate is not due to (2) factors. It applies (3).

1-is always 2-cyclical 3-at all times

Which of the following represent negative and positive reasons for job separations?

***Positive: -innovations in product markets -returning to full-time schooling ***Negative: -economy in recession -poor work performance

Which of the following groups would be not be counted as unemployed when calculating the unemployment rate?

***Included: -recently laid-off workers who are searching for new jobs ***Not included: -retired workers -recently laid-off workers who are not searching for jobs -a 15-year old student searching for his first job -employed workers who want to work more hours

Match each scenario to the label that best represents the person’s employment situation. Labels may be used more than once.

1-Keith is a captain in the U.S. Army.
2-Carla is a retired librarian who works part-time at a local bookstore.
3-Elisha has moved to California and is taking classes while trying to find a job.
4-Darnell has a part-time job at the post office while looking for a full-time position as an accountant.
5-Olivia can’t find a job in her college major, so she’s no longer looking for work.

1-not in the labor force 2-employed 3-unemployed 4-underemployed 5-not in the labor force

Which of the following can be causes of frictional unemployment?

*** correct: -unemployment benefits -government regulation -lack of information ***incorrect: -industries shutting down due to long-term changes in consumer tastes -recession

Marshall has recently lost his job and is currently receiving federal jobless benefits.
Marshall benefits by receiving income so that he can continue to (1) goods and services while searching for a new job, which benefits society because it decreases the likelihood of an economic (2). On the other hand, the benefits may also cause Marshall to become (3) incentivized to take a job and (4) the amount of time he spends unemployed.

1-consume 2-recession 3-less 4-increase

A country has a noninstitutionalized population of 243 million people. Out of that number,
38 million are under the age of 16
70 million are full-time students and retirees
8 million are unemployed workers
31 million are underemployed
96 million are employed full-time
What is the labor force participation rate? Round to the nearest whole percentage.

66%

Government policies are sometimes created to help reduce different types of unemployment. Drag each government program to the appropriate type of unemployment the program would reduce.

***Structural -unemployment: offering job training and educational programs -providing subsidies to encourage people to relocate ***frictional -unemployment: decreasing the amount of paperwork employers must complete for newly hired workers -increasing the amount of severance pay employers must pay when they fire someone

Use the table to complete the sentence about race and unemployment.
The U.S. unemployment rate of (1) adult workers is consistently higher than that of (2) adult workers, and the labor force participation rate is consistently higher for (3) adult workers than for (4) adult workers.

1-black 2-white 3-male 4-female

Match each form of unemployment with an example. Note that every item may not have a match.
-An unemployed paper mill worker. The local paper mill shut down due to lack of demand for paper products in a digital age.

-An unemployed banker during a recession. The banker would be hired back once the economy began growing normally again.

-An unemployed cashier. A small clothing store shut down due to its customers buying clothes from a new big-box retailer.

1-structural unemployment 2-cyclical unemployment 3-frictional unemployment

Which statement is not true of full employment output (Y*)?

it is the economic output when unemployment is at 0

The unemployment rate in Economy X when it is growing normally is 5%. When Economy X is in a recession, the unemployment rate is 10%. Drag each word or phrase to the appropriate blank space in order to complete the paragraph correctly.

Drag word(s) below to fill in the blank(s) in the passage.

The (1) unemployment rate while Economy X is (2) is 0%. The 5% unemployment rate is due to structural and (3) factors.

1-cyclical 2-growing normally 3-frictional

Put the following hypothetical events, illustrating frictional unemployment, in chronological order.

1-burger chain A intro… 2-customer demand… 3-burger chain A hires… 4-burger chain B lays off… 5-unemployed burger chain…

Apply the correct label to each labor force participation rate line.
(top blue and bottom red)

blue: men red: women

Not all unemployment is (1). Sometimes, unemployment is due to (2), which is the introduction of new (3) and technologies that leads to the shutdown of other industries and jobs, as some jobs become (4).

1-unhealthy 2-creative destruction 3-products 4-obsolete

Some amount of unemployment will always exist, even in a healthy economy.
T/F

true

What best describes why inflation occurs?

increased money supply, relative to the supply of goods and services

Surprise inflation can help people who have borrowed money.
T/F

true

All prices rise evenly during periods of inflation and deflation.
T/F

false

What is the main advantage of the Billion Prices Project over the CPI?

many prices can be monitored daily

Which of the following scenarios make it difficult to accurately measure the CPI?

***correct: -The price of a ticket to a baseball game increases after the stadium is rebuilt. -A company releases a new product that many consumers adopt. ***incorrect: -Consumers need to purchase gas to get to work. -The typical basket of consumer goods does not change.

Two things tempt governments to enact inflationary policies. The first is (1), which can be paid off by (2). The second is (3) economy, which in the short term can be jump-started by a (4) increase in the money supply.

1-gov debt 2-printing money 3-a sluggish 4-surprise

Inflation occurs when the overall prices of goods (1). This means that consumers have (2) purchasing power. Deflation occurs when the overall prices of goods (3). When this happens, consumers have (4) purchasing power.

1-increase 2-less 3-decrease 4-more

Mary’s costs will rise, and for revenue to keep pace she will have to (1) to keep her prices consistent with inflation. If Mary mistakenly believes the rising price of seafood is the result of increased (2), she may misdirect restaurant resources. This would be an example of price (3).

1-deal with menu costs 2-demand 3-confusion

What are the three reasons why the CPI is hard to measure accurately?

***correct: -consumers substituting one good for another because of price -changes in the quality of the same good, over time -new products to buy and new ways for consumers to buy them ***incorrect: -the difference between nominal and real buying power -changes in the tax rate and therefore in take-home income

The graph shows the relationship between money supply growth rate and average inflation for 257 nations over the years 1991-2011. Which two nations lie in the upper right corner, with explosive growth in the money supply and, correspondingly, runaway inflation?

***correct: -brazil -angola ***incorrect: -nicaragua -guinea

Max lives in Boston and earns $132,500 per year. If Max decides to move to San Francisco, what annual salary will he need to make in order to maintain the same real wage?

$164000

The velocity of money is the frequency with which money (1). The greater the money velocity, the (2) goods and services are being traded. By the equation of exchange, the money velocity times (3) equals the price level times (4).

1-changes hand 2-more 3-the size of the money supply 4-real GDP

Your parents bought their first car for $5,000. The price level in the year your parents bought their car was 50, while the price level today is 200. Calculate how much your parents’ car would have cost if they bought it today.

$20,000

Take 2014 as the price index base year. That year, you paid $80 for a day at a theme park. In 2015, the price was up to $84. Assuming that the increase reflects the inflation rate and that this rate continues in 2016, match each number to its description.

1-the 2016 price index
2-the cost of a theme park visit in 2016 dollars
3-the 2015 price index
4-the inflation rate as a percentage

1-110.25 2-88.20 3-105 4-5

Gwyn owns a furniture store. She notices prices at other furniture stores have increased dramatically over the past two years. She decides she needs to expand her output because demand must be growing. However, in order to do so, she needs to find a loan. What problems could inflation cause for Gwyn?

**correct: -Gwyn may need to spend money to update her price displays throughout the store. -Gwyn might misinterpret rising prices associated with inflation for a higher demand. -Lenders may be wary of providing Gwyn a loan because it is difficult to predict future price levels. ***incorrect: -Gwyn will need to pay more capital gains taxes.

Thirty years ago Daniel bought a plot of land for $50,000 when the CPI was 50. Now the CPI is 180 and he sold the land for $180,000. What issue might inflation cause for Daniel?

tax distortions

Suppose the consumer price index for one year was 120 and for the next year it was 132. What is the corresponding inflation rate?
(P2-P1/P1) x100

10%

Click on the part of the graph that best illustrates the upward bias of traditional CPI.

130 -145 consumer price index

Which of the following problems can inflation cause for suppliers?

***correct: -Long-term agreements become too risky for lenders, making it more difficult to obtain a loan. -Prices begin to rise, so firms increase output. ***incorrect: -higher demand -lower prices

Match the situation to the inflation-related problem it illustrates.
1-Unstable inflation makes it difficult for lenders to anticipate the value of their money in the future.
2-A surprise increase in inflation devalues borrowers’ future payments to lenders.
3-Producers are unable to determine how much output to produce.

1-uncertainty about future price levels 2-wealth redistribution 3-price confusion

Why might the prices of some products decrease while others increase?

advances in tech typically cause the price of some goods to decrease over time

Match the situation to the factor that affects the accuracy of the CPI

1-The cost of bananas increases dramatically. Many people switch to oranges because they are cheaper.
2-A new smartphone app solves math problems simply by pointing the camera at the page.
3-Video game consoles offer better graphics and gameplay than they did a decade ago.
4-Newer cars have built-in GPS and Bluetooth capabilities.
5-New pop-up stores at airports sell clothing, personal electronics, and designer eyewear at low prices.
6-The cost of cable increases. People decide to switch to Netflix instead.

1-substitution 2-new products 3-changes in quality 4-changes in quality 5-new location 6-substitution

The Consumer Price Index (CPI) and the GDP deflator are both price indices, so they both serve as measures of inflation. However, the (1) uses a smaller basket of goods. The (2) aims to take into account all final goods and services, whereas the (3) only includes goods and services sold to (4). So, for instance, prices on farm equipment are included in the (5) but not in the (6).

1-CPI 2-GDP deflator 3-CPI 4-consumers 5-GDP deflator 6-CPI

Place the correct price in each blank, to reflect the effects of inflation. Use 230 as the price index for the current year.

1932: 0.82 1950: 0.96 1975: 0.61

Which of the following scenarios could lead to inflation?

***correct: -The quantity of goods and services in the economy increases by 2% while the supply of money increases by 4%. -The government prints $500 million in new currency to pay off foreign debts. ***incorrect: -The supply of money decreases. -The population of a nation decreases.

You live in Atlanta and earn $95,600 a year. Your boss offers you a $10,000 raise and the opportunity to move to another city and work remotely. If maintaining at least the same real wage is your only concern, select all the cities to which you could relocate.

Richmond,VA Phoenix, AZ Detroit, MI Charlotte, NC Dallas, TX

Which of the following may be considered as part of the consumer price index?

***correct: food housing transportation ***incorrect: taxes investments

Suppose you’re working in your hometown. You have an opportunity to take a new job in a different city, where the cost of living is different.
In each of the following situations, would your real wage be higher or lower in the new job?

***real higher: -The cost of living in the new city is 8% higher, and you’d get a raise of 10%. -The cost of living in the new city is 10% lower, and you’d take a 5% pay cut. -The cost of living in the new city is 3% lower, and you’d be paid the same amount. ***real lower: -The cost of living in the new city is 12% higher, and you’d get a raise of 10%.

Last year you paid $24 for a round of golf and $12 to rent a golf cart. This year it cost you $30 to golf and $15 to rent a cart. Based on this simple basket of goods, calculate a price index for this year using last year as the base year.

125

What could happen if the CPI were under-calculated?

wages will be too low

The chained CPI is (1) than the traditional CPI. The chained CPI is updated (2) in an effort to compensate for the (3) of new products. The traditional CPI has a strong (4) bias.

1- 2- 3- 4-