Econ Final Exam Practice Qs/As – Flashcards
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The threat of future inflation:
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makes people reluctant to lend money for long periods.
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If the cost of a market basket is $200 in year 1 and $230 in year 2, the price index for year 2 using year 1 as the base is:
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115.
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Which of the following is an example of an intermediate good?
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tires purchased from Goodyear by General Motors for newly produced electric cars.
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You read in the newspaper that the CPI in 2011 was 120. You conclude that a typical market basket in 2011 would have cost:
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20% more than the same market basket purchased in the base year.
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What do a rubbernecking traffic jam and the paradox of thrift have in common?
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In both cases, individual behavior has large negative consequences for the whole of society.
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Technological change:
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increases total factor productivity.
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What is long-run economic growth, and why is it so important for a nation's economy?
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Long-run economic growth is the sustained rise in the quantity of goods and services the economy produces. When long-run growth per capita is rising, each person's share of the nation's output is rising. This is the key to higher wages and a rising standard of living.
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Many impoverished nations struggle with diseases like malaria. How would reduction or elimination of malaria contribute to long-run economic growth?
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We might consider a healthier population to be an improvement in the nation's infrastructure and in human capital, both of which increase long-term productivity. If the nation's public health system is better equipped to prevent and cure illnesses, its population can be more productive. A working adult who is healthier misses fewer days of work and is thus more productive. A healthier child misses fewer days of school and thus acquires a better education and is a more productive adult.
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When inflation rises quickly:
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lenders will be hurt and borrowers will benefit.
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Real GDP is the same as:
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inflation-adjusted GDP.
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The modern tools of macroeconomic policy are:
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fiscal policy and monetary policy.
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For each of the following transactions, explain why they would or would not be counted in the GDP of the United States. a. American auto producer Ford builds a factory in Alberta, Canada. b. You buy a blueberry muffin at your local coffee shop. c. A Ford dealership in Ohio has 15 unsold new 2011 model cars at the end of 2011.
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a. No. This is investment spending but not in the United States, so it does not count in U.S. GDP. b. Yes. This is consumer spending. c. Yes. These unsold cars would be counted as unsold inventory in investment spending.
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Economic recessions tend to be ___________, and economic expansions tend to be ___________.
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short; long.
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If output is growing at 5% annually, how many years will it take for output to quadruple?
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28 years.
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The nominal interest rate equals the:
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real interest rate plus the rate of inflation.
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If a country has a trade deficit, does it indicate that the country has a serious problem?
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No. Trade deficits occur when a country's investment spending is higher than its level of saving.
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Structural unemployment consists of people who are unemployed because of:
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more people seeking jobs in a labor market than there are jobs available at the current wage rate.
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Workers today are more productive than workers in the past because:
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workers now have more physical capital embodying better technology.
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Explain the difference between shoe-leather costs of inflation and menu costs of inflation.
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Shoe-leather costs are the costs of spending valuable time and resources to search for lower prices or making more trips to and from the bank. A menu cost is the cost of frequently changing and posting new prices of goods and services.
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Which of the following questions is appropriate to the study of microeconomics? A) How does the aggregate price level affect overall consumer spending? B) How does the level of interest rates affect investment spending? C) How much will Sony charge for the new game system to be introduced later this year? D) How does the GDP affect overall government spending?
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How much will Sony charge for the new game system to be introduced later this year?
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If the actual unemployment rate is 7% and the natural rate of unemployment is 5%, then the cyclical unemployment rate is:
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2%.
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Economists say that long-run economic growth is almost entirely due to:
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rising productivity.
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Consider an economy that produces only two goods: DVDs and DVD players. If 10 DVDs are sold at $20 each and 5 DVD players are sold at $100 each, then nominal GDP is:
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$700.
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If the CPI changes from 120 to 125 between December 2009 and December 2010, the:
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inflation rate for 2010 is 4.2%.
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According to the Rule of 70, if a country's real GDP per capita grows at an annual rate of 2% instead of 3%, it will take _____ for that country to double its level of real GDP per capita.
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11.67 additional years.
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In a typical business cycle, the peak is immediately followed by the:
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recession.
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A person who is not working and is not looking for work is:
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not counted in the unemployment statistics.
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An open economy:
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trades goods and services with other countries.
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The inflation-adjusted measure of aggregate output typically used by economists is called:
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real gross domestic product.
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A jobless recovery is considered:
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a period when real GDP is rising but the level of unemployment is not decreasing.
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The formula for the Rule of 70, where n is number of years and r is growth rate, is expressed as:
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n × r = 70.
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Nation A's real GDP increased from $100 billion to $106 billion from 2010 to 2011. Nation A's population grew from 50 million to 51 million from 2010 to 2011. The annual growth rate in real GDP per capita in nation A was approximately:
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4%.
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In the United States, recessions are typically associated with:
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a decrease in the percentage of Americans with health insurance.
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The reason the dollar value of only final goods and services are counted in GDP is that:
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if we counted the value of all goods, we would count inputs, like the value of steel in a new automobile, more than once.
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Which of the following statements is true? A) Those who are not working but who have looked for work in the past year are unemployed. B) The labor force is the total number of people working plus those who are unemployed. C) The unemployment rate is the number of people unemployed expressed as a percentage of the population. D) The labor force is the same as the population.
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The labor force is the total number of people working plus those who are unemployed.
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Rising high school graduation rates are an example of an increase in:
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human capital.
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Anna recently moved to Boston because her husband, Joe, was to begin a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is:
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frictionally unemployed.
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When the unemployment rate is very low, most of the unemployment tends to be:
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frictional.
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The official unemployment rate reported by the government may tend to understate the amount of unemployment because it:
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excludes discouraged workers, who are not actively seeking employment.
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Explain what is meant by the paradox of thrift.
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During uncertain economic times, nervous consumers spend less and save more. This thriftiness can actually worsen the economy because it stifles consumption and leads to reduced spending overall.
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Enchanté Inc., a designer clothing company, buys $400 worth of silk from a silk trader and $30 worth of accessories from Accessories R Us to produce each dress. If the value added by Enchanté is equal to $200, then according to the value-added approach, the price of the designer dress should be:
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$630.
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A negative slope of the labor demand curve occurs because:
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employers are willing to hire more people at lower wages.
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Which of the following will not increase the productivity of labor?
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an increase in the size of the labor force.
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If we add up all of the values added at every stage of production for a good, we will get:
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the final value of the good.
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Long-run economic growth is:
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higher in countries with a strong rule of law and political stability.
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