Flashcards and Answers – ECON EXAM 3
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1. A decline in real GDP for at least two consecutive quarters is referred to as: A. A recession. B. A depression. C. Deflation. D. Inflation.
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A
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2. People are unemployed if they are over 16 and not working due to: A. The inability to find a job even though they are looking. B. A two-week summer vacation. C. A strike. D. The lack of motivation to look for work.
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A
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3. The unemployment rate is calculated by dividing: A. The number of unemployed by the size of the population and multiplying by 100. B. 1.0 by the percentage of the employed population and multiplying by 100. C. The number of unemployed by the size of the labor force. D. The number of employed by the labor force and multiplying by 100.
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C
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4. To be officially counted as unemployed, one must be: A. Fired from previous employment. B. A participant in a state unemployment benefits program. C. Available for only full-time employment. D. Actively seeking employment and currently not working.
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D
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5. All persons over age 16 who are either working for pay or actively seeking paid employment refers to: A. Per capita GDP. B. The labor force. C. The unemployment rate. D. The CPI.
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B
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6. Inflation is defined as: A. The level of prices at full-employment. B. An increase in the price of expensive items, such as cars. C. An increase in the average level of prices. D. An increase in relative prices.
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C
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7. The Consumer Price Index is used specifically to measure the: A. Unemployment rate. B. Inflation rate. C. Growth rate of the economy. D. Business cycle.
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B
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8. Price stability refers to: A. A constant average price level. B. The absence of significant changes in the average price level. C. An inflation rate of zero. D. Increases in prices equal to or less than the growth rate of the economy.
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B
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9. The study of aggregate economic behavior is referred to as: A. Microeconomics. B. Macroeconomics. C. Government policy. D. The business cycle.
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B
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10. During a period of inflation: A. Specific prices are rising, and relative prices are falling. B. Both relative prices and average prices are rising. C. Relative prices are rising, but it is not certain what is happening to average prices. D. Average prices are rising, but it is not certain what is happening to relative prices.
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D
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11. Alternating periods of growth and contraction in real GDP define: A. The business cycle. B. Capitalism. C. Inflation. D. Macro equilibrium.
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A
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12. The total value of goods and services produced within a nation's borders, measured in constant prices refers to: A. Nominal GDP. B. Real inflation. C. Per capita GDP. D. Real GDP.
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D
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13. An extremely deep and long period of negative economic growth is most accurately called: A. Inflation. B. Deflation. C. A recession. D. A depression.
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D
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14. A decrease in the average level of prices of goods and services is known as: A. Deflation. B. The business cycle. C. A recession. D. Inflation.
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A
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15. The price of one good compared to the price of other goods refers to: A. Relative price. B. Inflation. C. Deflation. D. The income effect.
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A
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16. Real income: A. Is income adjusted for unemployment. B. Is income without any adjustment. C. Reflects the purchasing power of money. D. Reflects the stability of the labor force.
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C
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17. The Consumer Price Index is: A. A measure of changes in the relative prices of significant consumer goods. B. A measure of changes in the price of all goods and services. C. A measure of changes in the average price of consumer goods and services. D. Used to determine if the economy is functioning at full employment.
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C
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18. Nominal GDP is defined as the: A. Value of output in current dollars. B. Dollar value of services but not goods. C. Output produced by domestically owned factors of production regardless of where the factors are located. D. Value of output in constant prices.
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A
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19. The alternative combinations of goods and services that can be produced in a given time period with available resources and technology is referred to as: A. The business cycle. B. Real GDP. C. Nominal GDP. D. The production possibilities.
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D
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20. The total value of goods and services produced within a nation's borders, measured in constant prices refers to: A. Nominal GDP. B. Real inflation. C. Per capita GDP. D. Real GDP.
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D
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1. Which of the following is a basic measure of macroeconomic performance? A. The U.S. stock market B. Growth in output C. The U.S. bond market D. Population growth
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B
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2. Which of the following is not one of the three basic measures of macroeconomic performance? A. Inflation B. Unemployment C. Antitrust D. GDP growth
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C
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3. Business cycles in the United States: A. Are similar in length but vary greatly in magnitude. B. Vary greatly in length, frequency, and magnitude. C. Are similar in frequency and magnitude. D. Are similar in length and magnitude.
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B
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4. Which of the following is characteristic of a downturn in the business cycle? A. Higher unemployment rates B. Higher prices C. Growth in real output D. Increased population
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A
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5. Which of the following is true during the expansionary phase of the business cycle? A. The unemployment rate increases B. The inflation rate decreases C. Real GDP increases D. Population falls
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C
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6. Which of the following individuals is part of the labor force? A. The CEO of General Motors B. A retired schoolteacher C. A stay-at-home mom D. A woman serving seven years in the penitentiary for selling drugs
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A
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7. The labor force is smaller than the total population because the labor force does not include: A. People who have jobs. B. The very young and old. C. People looking for a job. D. Teachers.
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B
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8. When construction workers seek work because the ground is covered in snow and ice, the unemployment rate goes up. This situation is an example of: A. Frictional unemployment. B. Seasonal unemployment. C. Structural unemployment. D. Cyclical unemployment.
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B
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9. After quitting one job, some people with marketable skills find that it takes several months to find a new job. This is an example of which type of unemployment? A. Structural unemployment B. Frictional unemployment C. Cyclical unemployment D. Seasonal unemployment
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B
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10. Which of the following types of unemployment is most directly related to real GDP growth? A. Structural unemployment B. Seasonal unemployment C. Frictional unemployment D. Cyclical unemployment
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D
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11. Which of the following is not a basic measure of macroeconomic performance? A. Output growth B. Unemployment C. Public goods D. Inflation
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C
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12. Real GDP measures changes in: A. Prices but not output. B. Output but not prices. C. Prices and output. D. Inflation.
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B
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13. Over time, U.S. real GDP has increased: A. By small, constant increments. B. At a constant geometric rate. C. At an average rate of 3 percent per year. D. At an average rate of 7 percent per year.
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C
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14. Which of the following is likely if an economy is in a recession or headed for one? A. An increase in consumer confidence B. An increase in the rate of inflation C. An increase in unemployment D. An increase in the rate of output
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C
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17. Which of the following types of unemployment would best characterize a tax accountant's unemployment after tax returns are due? A. Seasonal unemployment B. Frictional unemployment C. Underemployment D. Cyclical unemployment
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A
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18. An office worker who loses her job because she does not have the necessary computer skills is, ceteris paribus: A. Frictionally unemployed. B. Seasonally unemployed. C. Cyclically unemployed. D. Structurally unemployed.
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D
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19. Structural unemployment occurs: A. Because of a mismatch between skills and jobs. B. When firms fail because of a seasonal downturn. C. When an industry experiences a cyclical downturn. D. When there is inadequate demand for jobs.
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A
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20. Automobile workers in Detroit are unemployed because robots are now being used on assembly lines but, at the same time, job vacancies exist for computer programmers. In this case, the automobile workers are an example of: A. Cyclical unemployment. B. Structural unemployment. C. Frictional unemployment. D. Seasonal unemployment.
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B
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1. Which of the following is characteristic of a downturn in the business cycle? A. Lower unemployment rates B. An increase in population C. A decrease in real output D. A decrease in population
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C
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2. As the economy falls from the peak to the trough of the business cycle: A. Inflationary pressures should increase as unemployment rises. B. Cyclical unemployment should increase and real GDP should decline. C. Frictional unemployment should fall because people find jobs more quickly. D. Structural unemployment will be eliminated.
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B
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3. If the population of a country is 1,000,000 people, its labor force consists of 600,000, and 60,000 people are unemployed, the unemployment rate is: A. 6.0 percent. B. 6.6 percent. C. 10.0 percent. D. 60.0 percent.
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C
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4. Which of the following is an example of cyclical unemployment? A. Qadir is employed in the summer as a lifeguard but cannot find a position in the winter B. Quincy left his job in Dallas to search for a new job in Idaho C. Quinlan worked as an engineer until he was laid off because of a decrease in aggregate demand D. Quinn has few job-related skills so she is never hired even though she continues to apply
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C
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5. Which of the following government policies or programs is most likely to reduce cyclical unemployment? A. Those that stimulate economic growth B. Increased job training C. Additional job-placement services D. Additional health services
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A
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6. According to macroeconomists, a goal for the economy is a: A. Zero unemployment rate. B. High unemployment rate. C. Steadily increasing unemployment rate. D. Low unemployment rate.
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D
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7. One reason our full employment goal is not zero percent is because: A. Frictional unemployment will always exist. B. Cyclical unemployment will always exist. C. Population growth makes such a goal impossible. D. Discouraged workers make such a goal impossible.
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A
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8. When the unemployment rate falls to the full-employment level: A. There is increased concern about inflation. B. Many resources are idle. C. The size of the labor force decreases. D. There is increased concern about deflation.
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A
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9. During a period of inflation: A. All prices will rise. B. People who have borrowed money may be better off. C. The real incomes of everyone will decrease. D. All prices will fall.
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B
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10. Patricia's nominal annual income in 2009 was $60,000. If the rate of inflation is constant at 10 percent, in order to keep Patricia's real income constant, her nominal income in the year 2010 should be: A. $60,000. B. $54,000. C. $66,000. D. $70,000.
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C
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11. Generally speaking, which of the following groups would tend to gain real income from the wealth effects of inflation? A. People who purchase long-term bonds when interest rates are low B. People who have passbook savings accounts C. People who own assets that are appreciating faster than the inflation rate D. People who hold all of their assets in the form of cash
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C
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12. The value of a piece of land, held as an asset, increased in value by 200 percent from 1985 to 2010. Suppose during the same period average prices in the economy rose by 165 percent. The owner of the land, relative to those who do not own land, experienced a: A. Higher real wealth as a result of the wealth effect. B. Higher real income as a result of the price effect. C. Lower real income as a result of the income effect. D. Higher real income as a result of the income effect.
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A
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13. If the Consumer Price Index (CPI) had a value of 128 in 2007, this means that during the period between the base year and 2007: A. All prices increased by 28 percent. B. All prices increased by an average of 1.28 percent. C. Prices of goods and services that the typical consumer buys increased by an average of 28 percent. D. Prices of goods and services that the typical consumer buys increased by an average of 128 percent.
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C
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14. If the CPI is 137 in Year Y, then it costs _______ in Year Y to buy the same market basket that cost _______ in the base period. A. $37; $100 B. $137; $37 C. $100; $137 D. $137; $100
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D
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15. If a market basket of goods cost $100 in the base year and $125 in a later year, then average prices have increased by: A. 25 percent. B. 80 percent. C. 125 percent. D. 225 percent.
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A
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16. If a market basket of goods cost $100 in the base year and $110 in a later year, then average prices have increased by: A. 110 percent. B. 100 percent. C. 90 percent. D. 10 percent.
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D
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17. If the CPI is 119 in Year X, then it costs _______ in Year X to buy the same market basket that cost _______ in the base period. A. $100; $119 B. $119; $100 C. $19; $100 D. $100; $19
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B
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18. If the CPI is 112 in Year Z, then it costs _______ in Year Z to buy the same market basket that cost _______ in the base period. A. $112; $100 B. $12; $100 C. $100; $112 D. $112; $12
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A
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19. If the Consumer Price Index (CPI) had a value of 128 in 2007, this means that during the period between the base year and 2007: A. All prices increased by 28 percent. B. All prices increased by an average of 1.28 percent. C. Prices of goods and services that the typical consumer buys increased by an average of 28 percent. D. Prices of goods and services that the typical consumer buys increased by an average of 128 percent.
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C
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20. Which of the following is an example of the wealth effect during a period of inflation? A. A firm receives a fixed price for the services it sells while the price level is rising B. You hold money in a savings account that earns 5 percent interest while the price level doubles C. Your income stays constant while the price level doubles D. You pay for utilities that are becoming more expensive as the price level is rising
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B
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Meaning of business cycle, stages, what is being measured
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Peak and Trough, measures output of real GDP
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Dictionary definition of recession
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2 consecutive quarters of declines in real GDP
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Theoretical definition of recession using AD/AS graph
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Unemployment rate and how to calculate it
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number of unemployed people/ size of labor force
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4 types of unemployment
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1) Frictional= to find better jobs 2) Structural= lack of skills 3) Cyclical= low GDP output 4) Seasonal
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What 6% unemployment means
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optimal unemployment rate
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Frictional+structural+cyclical=actual rate of unemployment
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all inevitable and desirable
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relative prices compared to average price level
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relative prices are always changing
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redistribution due to inflation
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1) PRICE EFFECTS: people who prefer goods and services that are increasing in price levels quickly end up with a larger share of real income 2) INCOME EFFECTS: people whose nominal incomes rise faster than the rate of inflation end up with a larger share of total income 3) WEALTH EFFECTS: people who own assets that are increasing in real value end up better off than others
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nominal and real income
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nominal= the amount of money income received in a give time period, measured in current dollars real= income in constant dollars, adjusted for inflation
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income effect
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wealth effect
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price effect
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measuring inflation
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CPI and base year
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Determininants and outcomes in macroeconomy
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DETERMINANTS= internal market forces, external shocks, policy levers OUTCOMES= output, jobs, prices, growth, international balances
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Overall meaning of Keyesian versus Classical economics
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KEYESIAN= private economy is unstable, requires government intervention CLASSICAL=
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Say's law
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supply creates its own demand
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AD/AS equilibrium
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Shifts in AD- what causes shifts
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Consumers Investments Government Exports Imports Banking Interest rates
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Shifts in AS- what causes shifts
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changes in energy prices natural disasters government regulations business taxes
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Monetary policy to get economy out of recession
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money and credit affect the ability and willingness of people to buy goods and services.
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business of commercial bank
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business of investment bank
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macroeconomics
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the study of aggregate economic behavior, of the economy as a whole
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business cycle
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alternating periods of economic growth and contraction
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production-possibilities
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the alternative combinations of goods and services that could be produced in a given time period with all available resources and techonology
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nominal GDP
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the total value of goods and services produced within a nation's borders, measured in current prices
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real GDP
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the inflation-adjusted value of GDP; the value of output measured in constant prices
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recession
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a decline in total output (real GDP) for two or more consecutive quarters
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labor force
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all persons over age 16 who are either working for pay or actively seeking paid employment
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unemployment rate
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number of unemployed people divided by the size of the labor force
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unemployment
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the inability of labor-force participants to find jobs
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full employment
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the lowest rate of unemployment compatible with price stability; variously estimated at between 4 and 6 percent unemployment
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inflation
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an increase in the average level of prices of goods and services
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deflation
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a decrease in the average level of prices of goods and services
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relative price
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the price of one good in comparison with the price of other goods
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nominal income
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the amount of money income received in a given time period, measured in current dollars
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real income
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income in constant dollars; nominal income adjusted for inflation
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Consumer Price Index
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a measure (index) of changes in the average price of consumer goods and services
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inflation rate
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the annual rate of increase in the average price level
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price stability
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the absence of significant changes in the average price level; officially defined as a rate of inflation of less than 3%
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Say's Law
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Supply creates its own demand, is the belief of classical economists that a laissez faire economy was naturally self-equilibrating, since supply creates its own demand. The income generated from the sale of goods exactly equals that necessary to buy it.
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aggregate demand
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the total quantity of output demanded at alternative price levels in a given time period, ceteris paribus.
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aggregate supply
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the total quantity of output producers are willing and able to supply at alternative price levels in a given time period, ceteris paribus.
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equilibrium (macro)
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the combination of price level and real output that is compatible with both aggregate demand and aggregate supply
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full-employment GDP
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the rate of real output (GDP) produced at full employment
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fiscal policy
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the use of government taxes and spending to alter macroeconomic outcomes
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monetary policy
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the use of money and credit controls to influence macroeconomic activity
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supply-side policy
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the use of tax rates, (de)regulation, and other mechanisms to increase the ability and willingness to produce goods and services.
