Macro Economics Section 2

Which of the following is not counted as a part of GDP?

the purchase of 100 shares of AT&T stock by your grandfather.

The difference between real GDP and nominal GDP is:

real GDP adjusts for inflation

Durable goods and non-durable goods comprise approximately ________ of the supply side of the GDP.

45%

Final goods or services used to compute GDP refer to:

goods and services purchased by the ultimate users.

GDP does not directly include:

the value of intermediate goods sold during a period.

On the supply side of the GDP, Structures account for around __________ of U.S. GDP.

7%

The value of what businesses provide to other businesses is captured in the final products at the end of the __________ chain.

production

In order to avoid double counting, statisticians just count the __________________.

final goods and services

Which of the following is included in the calculated Gross Domestic Product?

A local ice cream store sells $17,000 worth of cones and sundaes on July 1.

Which of the following is not included in GDP?

cash income paid to a day laborer that is not reported to the tax authorities

Which of the following are most likely classified by economists as consumer durable goods?

automobiles, furniture

Which of the following is included in GDP?

the fees charged for a stock broker’s services

Investment (I) includes:

the amount spent on new factories and machinery.

___________ is a small category that refers to the goods produced by one business that have yet to be sold to consumers, and are either still sitting in warehouses and on store shelves.

Inventories

For most high-income countries of the world, GDP _________________ over time.

has risen gradually

Consumption is the purchase of goods and services by:

households.

_________ is calculated by taking _________ and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year.

NNP; GNP

Which of the following statements is true?

GDP includes spending on recreation and travel, but it does not cover leisure time.

Consumption in the United States is about ____________ of GDP, and it moves relatively little over time.

68%

_________ are now the largest single component of the supply side of GDP, representing over half of GDP.

Services

Which of the following is correct?

Increased education adds to the stock of human capital, not unlike building factories adds to the stock of physical capital.

In certain African countries like Niger, Tanzania, Nigeria, and Sudan, for example, GDP per capita at the start of the 2000s was still less than $___________.

300

When society has a higher level of capital per person, it is called ______________.

capital deepening

A nation’s perity is sometimes measured in terms of ___________.

GDP per capita

In the long run, the most important source of increase in a nation’s standard of living is a:

high rate of economic growth.

Which of the following did not result in economic growth?

Many citizens emigrating from Zimbabwe when a politically repressive regime took office.

____________ is a term which refers to the widespread use of power-driven machinery and the economic and social changes that resulted in the first half of the 1800s.

Industrial Revolution

Which of the government policies below is most unlikely to encourage per capita economic growth?

high taxes on companies that spend a lot on capital formation

To achieve a high standard of living, a nation should

promote economic growth.

The value of what is produced per worker, or per hour worked, is called ____________.

productivity

Of the world’s population of 6.7 billion people, _________ are scraping by on incomes that average less than $2 per day.

2.6 billion

Country Able and Country Baker initially have the same real GDP per capita. Country Able experiences no economic growth, while Country Baker grows at a sustained rate of 7 percent. In 12 years, Country Baker’s GDP will be approximately ___________ that of Country Able.

double

During the last two centuries, the average rate of growth of GDP per capita in the leading industrialized countries has averaged about _________ per year.

2%

Which of the following is most likely to contribute to economic growth as measured by GDP per capita?

increased capital formation

An economy’s rate of productivity growth is closely linked to the growth rate of its ______________, although the two aren’t identical.

GDP per capita

Over the long run, ____________ per hour is the most important determinant of the average wage level in any economy.

productivity

To achieve a high standard of living, a nation should:

promote economic growth.

Investment in human capital:

is characterized by both b) and c).

In macroeconomics, the connection from inputs to outputs for the entire economy is called _______________.

an aggregate production function

Increased investment alone will guarantee economic growth.

This is a false statement, because economic growth hinges on the quality and type of investment as well as the human capital and improvements in technology.

The rise in unemployment that occurs because of a recession is known as cyclical unemployment, because it is closely tied to the ______________.

business cycle

Each month the Census Bureau carries out the Current Population Survey (CPS) (which has been carried out every month since 1940). A total of __________ households are contacted every month.

60,000

Women composed __________ of the paid workforce in 1900 and 50% of the paid workforce in 2010.

18%

The most significant real economic cost of high unemployment is:

the potential goods and services that might have been produced but weren’t.

Gomer 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:

underemployed

______________________ argues that the productivity of workers will increase if they are paid more, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate.

Efficiency wage theory

A forestry worker who is out of work because of the temporarily low demand for wood products associated with a recession is defined as:

cyclically unemployed.

A university student who is enrolled in school fulltime and not seeking employment is considered:

out of the labor force.

The _________________ argument points out that if an employer reacts to poor business conditions by reducing pay for all workers, then the best workers, with the best employment alternatives at other firms, are the most likely to leave and the least-attractive workers, with fewer employment alternatives, are more likely to stay.

adverse selection of wage cuts

The extent of _______________________ will depend on how easy it is for workers to learn about alternative jobs, which may reflect the ease of communications about job prospects in the economy.

frictional unemployment

Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered:

out of the labor force.

Frictional unemployment is:

unemployment that is due to normal turnover in the labor market.

Suppose that everyone who has looked for a job for more than six months gave up in despair and stopped looking. What would happen to the unemployment rate?

It would fall.

During the deep recessions of the early 1980s and of 2007-2009, unemployment reached roughly __________.

10%

The unemployment rate may underestimate the true extent of unemployment if:

many people become discouraged and cease looking for work.

Craigburg has a working age population of 20 million. Of those, 11 million are employed and 1 million are unemployed. The unemployment rate is ________ and the participation rate is __________.

8.3%; 60%.

The development of a nationwide computerized job bank listing of all job openings would be most likely to reduce:

frictional unemployment.

In November 2010 the labor force in Siouxtown, was 14,800. There were 14,483 persons employed. The local unemployment rate:

was 2.1%.

The unemployment rate in a town in which 65,400 persons are employed and 11,000 are unemployed equals:

14.4%.

Through good economic years and bad, many European economies had unemployment rates hovering near _________ since the 1970s.

10%

What distinguishes the real value of a statistic from the nominal value of a statistic?

adjusting for inflation

The most commonly cited measure of inflation in the United States is:

the Consumer Price Index (CPI).

The effects of inflation are seen in:

goods, services, wages and income levels

One of the reasons that a rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer’s true cost of living, is:

substitution bias

Which of the following is an example of one of the major categories in the overall CPI?

recreation

Two factors that complicate the calculation of the inflation rate are:

substitution and quality/new product bias

Inflation can be calculated in terms of how the overall cost of ___________________ changes over time.

the basket of goods

The percentage change in the price level from one time period to the next, whether the price level is measured in terms of money or as a price index, will be the _____________.

inflation rate

The effect of substitution bias is that the rise in the price of a fixed basket of goods over time tends to ___________________ the rise in a consumer’s true cost of living, because it doesn’t take into account that the person can substitute between goods according to changes in their relative prices.

overstate

The basket of goods in the Consumer Price Index consists of about _________ products; that is, several hundred specific products in over __________ broad-item categories.

80,000; 200

The __________________ is the nominal interest rate minus the rate of inflation.

real interest rate

With regard to the economy, the term negative inflation is synonymous with which of the following?

deflation

When Anders took out his first two-year membership with Maxima Gym in 2004, the fee was $540.00. He renewed his membership three times; in 2006 for $580.00, in 2008, for $600.00, and again in 2010, for $630.00. What is the overall rate of inflation for Anders’ gym membership?

16.66%

In the 1970s and 1980s, labor unions commonly negotiated wage contracts that had _______________________ which guaranteed that their wages would keep up with inflation.

cost of living adjustments

When we want to measure wage inflation in the labor market, we use the:

Employment Cost Index

In the early 1990’s extremely high inflation rates of 2500% were common in Russia. During that time, we can say that as a result of those inflation rates, Russia was experiencing ___________________.

hyperinflation

An economics professor is discussing a measure of inflation over time based on a basket of goods comprised of all the components of GDP. Which measure is it?

GDP Deflator

While one occasionally sees references to inflation over short time periods, the term typically implies a(n)_____________ in prices.

ongoing rise

The situation where the buying power of money in terms of goods and services increases is called:

deflation

An analyst needs to adjust the nominal GDP for the years 2000 and 2010 into real terms to conclude his comparison analysis. The nominal GDP in 2000 was $672 billion and $1,690 billion for 2010; the real interest rate was 6.79% in 2000 and 3.71% in 2010; the 2000 deflator was 24 and 51 in 2010. What is the real gain?

18.34%

The change in inventories, a component of aggregate supply, comprises roughly __________ of GDP.

0.5%

GDP in the United States in 2012 was about __________.

$16.2 trillion

The gap between exports and imports in a nation’s economy is called the ___________.

trade balance

In 1990, the GDP of Canada was $680 billion as measured in Canadian dollars, and the exchange rate was that $1 Canadian was worth 85 U.S. cents. In 2000, the GDP of Canada was $1000 billion as measured in Canadian dollars, and the exchange rate was that $1 Canadian was worth 69 U.S. cents. By what percentage did the GDP of Canada increase from 1990 to 2000 in Canadian dollars?

47%

Which of the following is true?

The expansions and contractions of real world business cycles last varying lengths of time and often differ in magnitude.

The difference between nominal GDP and real GDP is:

nominal GDP includes inflation

A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle are:

expansion, peak, recession, trough

_______________, which can be approximated by the growth of gross domestic product, ultimately determines the prevailing standard of living in a country.

Economic growth

The nominal value of any economic statistic refers to the number that is actually announced at that time, while the ________________ refers to the statistic after it has been adjusted for inflation.

real value

To compare the GDP of two different countries with different currencies, it is necessary to use _________________________.

an exchange rate

_________ is output per hour in the business sector.

Productivity

A nation can achieve higher economic growth if:

it devotes more resources to research and development.

Assuming a country’s economy maintains an 8% rate of growth, young adults starting at age 20 would see the average standard of living in their country more than double by the time they had reached age __________.

30

A nation’s prosperity is sometimes measured in terms of ___________.

GDP per capita

Which of the following factors contribute to economic growth?

the discovery of new oil reserves

Country Alpha and Country Beta initially have the same real GDP per capita. Country Alpha experiences no economic growth, while Country Beta grows at a sustained rate of 5 percent. In 14 years, Country Alpha’s GDP will be approximately _________ that of Country Beta.

one-half

Since the late 1950s, economists have performed "growth accounting" studies in the United States. These have determined that ________________ is typically the most important contributor to U.S. economic growth.

technology

Frictional unemployment occurs when:

a worker decides to quit one job to seek a different job.

If the unemployment rate is 6 percent and the number of persons unemployed is 6 million, then the number of people employed is equal to:

94 million.

The U.S. unemployment rate moves up and down as the economy moves in and out of recessions. But over time, the unemployment rate seems to return to a range of ____________.

4%-6%

If the unemployment rate is 8 percent, then this means:

8 percent of the labor force is unemployed.

The definition of market equilibrium states that at the _______________, the quantity of labor demanded by employers will equal the quantity supplied.

equilibrium wage

Freelife, New Hampshire has a labor force of 78,567 persons and employment of 74,382. The unemployment rate for the city is:

5.3%.

Which of the following statements is incorrect?

Employment insurance compensation increases the opportunity cost of being unemployed.

If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals:

25%.

The unemployment rate may overestimate the true extent of unemployment if:

either B) or C) occurs.

The Producer Price Index is based on prices paid for supplies and inputs by:

producers of goods and services

Which of the following is the name used to describe the price index that consists of intermediate goods and finished goods?

Producer Price Index

A payment is said to be ________________ if it is automatically adjusted for inflation.

indexed

Another term used to describe negative inflation is:

deflation

What name is given to the index based on the prices of exported or imported merchandise?

International Price Index

The ____________________ is based on the prices of merchandise that are exported or imported.

International Price Index

__________ implies that pressure for price increases reaches across _______________markets, not just one.

inflation; most

Alex wants to measure the nominal 1998 GDP of $993 billion in 2008 dollars. From the data he gathered, he knows the deflator for 1998 is 30 and for 2008, it is 74, and that real interest in those years was 6.23% and 3.21% respectively. If he avoids making a misleading calculation, what will the value be?

$2,449 billion

Nancy’s union has negotiated a three-year wage contract that provides for a 2.4% increase indexed to inflation. The rates of inflation are forecast to be 1.62%, 1.93% and 2.21% respectively. How will Nancy’s wage increase be expressed in the new contract?

COLA plus 2.4%

Once every __________, the Census Bureau does a comprehensive survey of housing and residential finance.

10 years

The demand measure of GDP accounting adds together:

consumption, investment, government purchases, and trade balance.

On the demand side of GDP, consumption by _____________ is the largest component of GDP, accounting for about two-thirds of the GDP in any year.

households

Gross Domestic Product equals $1.2 trillion. If consumption equals $690 billion, investment equals $200 billion, and government spending equals $260 billion, then:

imports exceed exports by $50 billion.

GDP is:

the value of all final goods and services produced domestically.

If imports exceed exports, as in recent years, then __________ exists.

a trade deficit

Which of the following is unlikely to affect the rate of economic growth?

the level of government spending

In the early 2000s, the illiteracy rate for girls between the ages of 15 and 24 was __________ and the illiteracy rate for males in this age group was ______________.

78%; 75%

Which of the following best describes the relationship between economic growth and literacy?

Increased literacy stimulates economic growth by raising labor productivity, and as the economy grows, people consume more education.

Economists typically measure economic growth by tracking:

real GDP per capita.

Which of the following factors contribute to economic growth?

an increase in the proportion of the population that is college educated

Karen chooses to go to university fulltime rather than to work. Karen:

is not part of the labor force.

The labor force consists of:

all adults who are working or actively seeking work.

The unemployment rate may underestimate the true extent of unemployment if:

many part-time employees would like to work fulltime, but are unable to get the additional work.

The unemployment rate measures:

unemployed workers as a percentage of the labor force.

A lender demands an interest rate in part to compensate for any expected ___________, so that the money that is repaid in the future will have at least as much buying power as the money that was originally loaned.

inflation

If the price index moves from 107 to 110, the rate of inflation is:

2.8%

The GDP deflator is a price index that includes the following components of GDP:

Consumption, Investment, Government plus Exports minus Imports