Econ 202 EXAM#1 FTBs – Flashcards
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DVD players can be added to bicycles to compute the GDP by
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Multiplying output by price and adding the resulting dollar values. -The total market value of all production of all goods and services is represented by GDP. GDP = (QDVD x PDVD) + (QBIKE x PBIKE).
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Suppose iPhones cost consumers $200 and USB cables cost consumers $25. What contribution does the production of 2,000 iPhones and 1,200 USB cables make to GDP?
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$430,000. -GDP represents the total value of production in the economy at current market prices. In this case, the value would be the quantity of iPhones multiplied by the cost of phones, added to the price of USB cables multiplied by the cost of USB cables which is equivalent to $430,000 and can be calculated by: $430,000 = (200 �2,000 + 25 �1,200).
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Which of the following is treated differently in computations of GNP as compared with GDP?
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Goods produced by U.S. firms located in foreign countries. -GDP includes production within the political borders, while GNP measures production by U.S.-owned factors of production regardless of where they may be located.
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Which of the following is excluded from calculations of GDP?
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The value of lawn mowing provided by a teenager for his own family. -Nonmarket production is excluded from GDP.
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Which of the following is directly included in the calculation of GDP?
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The final sale of a brand new Cadillac. -Final goods count in GDP but used, intermediate, and financial goods do not.
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Which of the following is not a final good or service?
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Paper purchased by a textbook company. -The paper purchased by the textbook company is an intermediate good used in producing the textbook.
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A furniture factory produces dining room sets. The lumber it purchases from the lumberyard is a/an
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Intermediate good. -Any good used in the production of a final good is considered to be an intermediate good.
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If one added up the value of all intermediate goods that went into the production of real GDP, the total value of intermediate goods would be
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Greater than the GDP. -By adding up the contribution of all stages of production, you are double-counting and thereby overstating actual GDP. By adding up the 'marginal' contribution you get an accurate measure of real GDP.
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To avoid counting the same output more than once, the calculation of GDP includes
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Only the value of final goods. -We do not count intermediate goods because they will be counted as part of the total market value when the final good is sold.
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The value of final output produced in a given period, measured in current prices, is
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Nominal GDP. -Nominal GDP tracks the value of production in a given year.
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Real GDP is the
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Value of final output produced in a given period measured in constant prices. -Real GDP allows us to express production while controlling for changes to the price level. Real GDP allows us to express production while controlling for changes to the price level so we can make comparisons of production between time periods.
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Real GDP is more accurate than nominal GDP in making comparisons of output over time because
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Nominal GDP can increase simply because of price increases over time. -It's important to distinguish between increases in the quantity of goods and services from increases in their prices. Real GDP tracks only changes to production while nominal GDP tracks changes to production and prices; so nominal GDP is less useful.
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Real GDP is used most effectively to
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Analyze the growth rate of the economy over time. -Growth in actual production means growth in the economy; real GDP is used to measure this growth, which allows us to compare the output over time.
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Suppose the total market value of all the final goods and services produced in the country of Rushya was $8 billion in 2008 (measured in 2008 prices) and $9 billion in 2009 (measured in 2009 prices). Which of the following statements is definitely correct?
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Whether real GDP increased cannot be determined with the information given. -Real GDP in year t can be calculated by dividing nominal GDP in year t by the price index. Nominal GDP can increase if either real GDP or the price level increases, but it is impossible to know with certainty whether one or both of these increased from 2008 to 2009 as price index is unknown. More information is needed.
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If real GDP falls from one period to another and the price level stays the same, we can conclude that
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Nominal GDP decreased. -Production must have fallen and so must have nominal GDP because the price level remained constant. Real GDP year t = (nominal GDP year t/price index)*100
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Inflation is
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An increase in the average level of prices of goods and services. -From year to year, if the average price level is rising, there must be inflation.
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Prices are used in national income accounting for all of the following reasons except to
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Provide an index to measure unemployment.
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If a nation has a population of 100 million, a labor force of 60 million, and GDP of $200 billion, then GDP per capita must be
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$2,000.00.
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When there is no deflation or inflation,
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Average prices do not change.
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The Consumer Price Index is
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A measure of changes in the average price of consumer goods and services.
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To construct the Consumer Price Index, the Bureau of Labor Statistics must
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Find out what people buy with their incomes and how the prices of what they buy change.
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For the CPI, the market basket is expressed in terms of what the goods cost in
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The base period.
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If you were interested in charting prices of resources used by producers of energy, which of the following would you use?
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The Producer Price Index (PPI).
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The price change calculation that refers to all final goods and services produced in a country is the
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Nominal GDP/Real GDP.
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Per capita GDP is
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The dollar value of GDP divided by total population.
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Those who are interested in assessing the relative standard of living of different countries over a given time period are most likely to look at
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Per capita GDP.
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Per capita GDP will rise if GDP
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Increases more rapidly than the population increases.
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Per capita GDP will definitely fall if
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The rate of economic growth is less than the rate of population growth.
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Per capita GDP will definitely rise if
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The population falls and GDP does not fall.
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If population growth is less than output growth for a country,
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The per capita living standard will increase.
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Economic growth
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Is an increase in output or real GDP.
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Which of the following is included in the labor force?
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A part-time store clerk who is looking for another job -Anyone who is 16 years of age or older, is not in the military or prison, is not a patient in a hospital, is actively searching for a job, and has a job is considered to be in the labor force.
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Who among the following is included in the labor force?
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The president of Microsoft. -One has to be employed or actively searching to be considered part of the labor force.
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The labor force participation rate is the number
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In the labor force divided by the working-age population. -The labor force participation rate measures the percentage of the working population either employed or unemployed and can be expressed by the equation: (Employed+Unemployed)/(Labor Force).
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When the labor force participation rate is declining, the
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Percentage of the working-age population that is willing and able to work is declining. -A lower labor force participation rate means a smaller fraction of the population is employed or unemployed and can be expressed by the equation: (Employed+Unemployed)/(Labor Force).
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Jack graduated from college last month, but he has not yet started looking for a job. Jack is
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Not part of the labor force and is not counted in the unemployment rate. -To be considered in the labor force one must be 16 years of age or older, and either working for pay or actively seeking paid employment. As Jack is not seeking work, he's not considered unemployed and thus not part of the labor force.
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For the labor force to definitely increase,
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People must turn from being discouraged workers into people actively seeking employment. -Usually an increase in population or immigration brings about an increase in the labor force. However, if this population or immigration increase is from people under 16 years old, then the labor force has not increased. The labor force definitely increases if discouraged workers who are out of the labor force enter the labor force as active job seekers.
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The macro consequence of unemployment is
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Lost output for the economy. -The dollar value of the decline in output due to unemployment is a measurable macro consequence.
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Those that work part-time and do not desire full-time employment are referred to as
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Employed. -Unless one is out of work and actively seeking work, one will be classified as employed.
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To be officially counted as unemployed, one must be
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Actively seeking employment and currently not working. -Being without a job is insufficient to be considered as unemployed; one must also be actively seeking a job.
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If the population of a country is 250,000 people, its labor force consists of 145,000 people, 35,000 people are unemployed, 10,000 are unable to work, and 5,000 are unwilling to work, the unemployment rate is
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24.1 percent. -The unemployment rate is determined by taking the number of unemployed and dividing it by the number of people in the labor force. Unemployment rate = unemployed/labor force = 35,000/145,000 = 24.1%.
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Suppose that in a population of 50 million persons, 40 million are in the labor force, 36 million are employed, 2 million are classified as unable to work, and 1 million are classified as unwilling to work. The unemployment rate is
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10.0 percent. The number of unemployed people divided by the number of people in the labor force yields the unemployment rate. Thus, the number of unemployed is Labor force- employed (40-36=4). And because unemployment is unemployed divided by the labor force, we can calculate: Unemployment rate = unemployed/labor force = (4/40) = 10%.
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When an economy enters a recession, the
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Duration of unemployment rises -Unemployment usually lasts longer in recessions than during economic expansions.
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Suppose there are 6 million unemployed workers actively seeking a job. After a period of time, 1,500,000 of these workers become discouraged and no longer look for employment. If everything else remains constant, the unemployment rate will
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Decrease. -The official unemployment rate can mask actual unemployment. As the unemployment rate is calculated by dividing the number of unemployed by the labor force, when a portion of the unemployed leave the labor force, the numerator shrinks, causing the unemployment rate to decrease.
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When migrant workers seek employment after the crops have been picked, the unemployment rate goes up. This situation is an example of
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Seasonal unemployment. -Certain types of work take place during the appropriate season. As a result, unemployment tends to rise and fall in sync with the seasons.
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The type of unemployment that economists generally associate with normal growth of the labor force and expanding job opportunities in a dynamic economy is
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Frictional unemployment. -There is always a certain amount of unemployment from job seekers looking for actual jobs that they are qualified for in the economy. A good example is when Jane gets a job in another town. Her husband Bob, who is a highly qualified tax accountant, will be frictionally unemployed until he finds a job in their new location.
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Frictional unemployment can be distinguished from other types of unemployment in that we assume all of the following except
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The skills of the frictionally unemployed are no longer in demand. -If the skills of the unemployed worker were no longer in demand, the worker would be considered structurally unemployed.
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A teenager without a high school diploma is unable to find work because all of the available jobs require a certain minimum reading skill level which he is not proficient in. Which of the following best characterizes the teenager's circumstances?
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Structurally unemployed -The individual does not possess any skills that are desired by current employers.
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Which of the following unemployment categories is most clearly related to the rate of growth in real GDP?
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Cyclical. -Recessions reduce or eliminate growth in the economy, thereby causing an increase in cyclical unemployment.
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Which of the following government policies or programs would be most appropriate to offset cyclical unemployment?
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Those that stimulate more demand. -A government stimulus that creates more demand will blunt the effect of diminished private sector demand.
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The amount of money income received in a given time period, measured in current dollars, is
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Nominal income -Nominal income is not adjusted to any changes in the price level.
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If your nominal income rises faster than the price level,
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Your real income has risen -Real income can rise when nominal income is rising faster than the price level, or real income can fall if nominal income is rising slower than the price level.
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If your nominal income remains constant at $3,000 while the price of an important product in your budget, such as cell phone service, rises from $50 to $100, your real income has
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Decreased by $50. -Being forced to pay higher prices while income remains constant indicates that one's purchasing power is falling.
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Which of the following is illustrated by the aggregate demand curve?
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How total quantity of output demanded varies with the average price level -The aggregate demand curve shows the relationship between the price level and the total amount of real output demanded in the economy.
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The aggregate demand curve is downward-sloping because, other things being equal,
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People buy more goods and services at lower average prices. -As the price level falls, buyers are willing and able to purchase more goods and services.
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What is the likely consequence of an unemployment rate falling below the rate at which "full employment" is achieved?
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Increased inflationary pressures -As an economy approaches its production possibilities, labor and other recourses become increasingly scarce, and market participants bid for these remaining resources. In consequence, wages and price start to rise. Thus, inflationary behavior in the marketplace is an indication that employment is nearing capacity.
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Which of the following government programs would be most appropriate to counteract cyclical unemployment?
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Greater government expenditures to increase GDP -Cyclical unemployment arises when there is an inadequate level of aggregate demand. When private sector spending falls, GDP will fall unless government spending increases to offset the fall in private sector spending.
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The seasonally adjusted natural rate of unemployment includes
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Frictional and structural unemployment only. -The natural rate of unemployment does not include seasonal or cyclical unemployment.
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According to The New Yorker cartoon, one restaurant patron states that since he has recently stopped looking for a job, he has helped to lower the unemployment rate. He is:
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Right in that he became a discouraged worker. -People that looked for work in the last 12 months but did not look for work in the last month but wanted a job are discouraged workers. They are not in the labor force and their movement out of the labor force lowers the unemployment rate.
