question

Gross Domestic Product (GDP) is

answer

the market value of all final goods and services produced in a country during a period of time.

question

In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income?

answer

Every penny spent on a good or service must end up as someone's income.

question

Which equation best represents the relationship between GDP and the four major expenditure components?

answer

Y=C+I+G+NX

question

What are the four major components of expenditures in GDP?

answer

Consumption, Investment, Government Purchases, and Net Exports.

question

Final good, intermediate good, or neither? Coffee beans purchased by a coffee shop

answer

Intermediate good

question

One share of Google stock

answer

Neither

question

A new pick-up truck purchased by a consumer

answer

Final good

question

A new home purchased by a family

answer

Final good

question

Which of the following is included in the economists's definition of investment?

answer

The purchase of new machines, factories, or houses.

question

In calculating GDP, which levels of government spending are included in government purchases?

answer

Spending by federal, state, and local governments.

question

You purchase a new Ford Escape Hybrid from a Ford dealer.

answer

Consumption Expenditure

question

You purchase a 2011 (preowned) Ford Escape Hybrid from a friend.

answer

Not included in GDP calculation

question

Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana.

answer

Not included in GDP calculation

question

Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China.

answer

Net Export Expenditure

question

Ford purchases new machine tools to use in its Missouri Escape factory.

answer

Investment Expenditure

question

The state of Missouri builds a new highway to help improve access to the Ford Escape plant.

answer

Government Expenditure

question

Suppose a house is built and sold in the year 2006. If the house is resold in the year 2015, is the value of the house included in GDP for 2015?

answer

No. GDP for 2015 includes only production that occurs during 2015.

question

Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2015?

answer

Yes. GDP for 2015 includes the market value of final goods and services. This includes real estate services.

question

According to Dan Sichel, the amount of time a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new machine". Which of the following statements is correct?

answer

Song development time produces songs, similar to investment in a factory that produces physical goods.

question

An underground economy involves all of the following except

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buying and selling of goods and services by obtaining a permit from the government.

question

Some countries have larger underground economies than do other countries, because

answer

of government policies that are retarding economic growth.

question

GDP is an imperfect measure of economic well-being because it fails to measure what types of production?

answer

Household production and the underground economy.

question

Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?

answer

The value of leisure is not included in GDP, GDP is not adjusted for pollution and it does not account for unequal income distribution, and GDP is not adjusted for crime or other social problems.

question

When the number of people working outside the home increased, the measured level of GDP

answer

Increases

question

When there is a sharp decrease in the crime rate, the measured level of GDP

answer

May increase or decrease

question

If higher tax rates cause more people to hide the income they earn, the measured GDP

answer

Decreases

question

What can we predict about total production-whether or not that production is included in the calculation of GDP-in the economy when workers become unemployed?

answer

If the workers had been paying other people to perform the household activities prior to unemployment, then total production will fall.

question

Nominal GDP is

answer

the sum of prices x quantity for that year.

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Real GDP is

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the sum of quantity (in current year) x prices (in base year).

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The annual growth rate of real GDP is calculated by

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Real GDP in current year - Real GDP in previous year / Real GDP in previous year x 100.

question

In an economy with rising prices, compared to the base year,

answer

nominal GDP is larger than real GDP in years after the base year.

question

The employment-population ratio measures the

answer

percentage of the working age population that is employed.

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When an unemployed person drops out of the labor force, the unemployment rate

answer

understates the true degree of joblessness in the economy.

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When an unemployed person drops out of the labor force, it

answer

does not affect the employment-population ratio.

question

Unemployment rate is

answer

number of unemployed/number of people in labor force x 100

question

Employment rate is

answer

number of employed/number of people in labor force x 100

question

The labor force participation rate is

answer

number of people in labor force/number of working-age population x 100

question

Find out the number of unemployed. (Employed=148,739; Unemployment rate=5.3%)

answer

Unemployed/(Employed+Unemployed) = X(148,739+X)=.053

question

Working-age population is calculated by

answer

Labor force/Labor force participation rate

question

Which of the following best describes a current trend in the labor force participation rate?

answer

It is decreasing for men and increasing for women.

question

The extent of job creation and job destruction is

answer

what we would expect in a vibrant market system.

question

The three types of unemployment are

answer

frictional, structural, and cyclical unemployment.

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The type of unemployment most likely to result in hardship for the people who are unemployed is

answer

structural because this type of unemployment requires retraining to acquire new job skills.

question

The natural rate of unemployment is

answer

the sum of structural unemployment and frictional unemployment.

question

When the economy is at full employment, unemployment is equal to

answer

the natural rate of unemployment.

question

"In-between jobs" is what type of unemployment?

answer

Frictional

question

Increases in the minimum wage will

answer

increase unemployment among teenagers.

question

The unemployment rate in the United States is usually _____ than the unemployment rates in most other high-income countries partly because the United States has _____ requirements for the unemployed to receive government payments.

answer

lower; more stringent

question

The price index which is used to measure changed in the cost of living is the

answer

Consumer Price Index (CPI).

question

CPI is calculated by

answer

sum of current year quantity x price / sum of base year quantity x price multiplied by 100

question

Inflation rate is calculated by

answer

CPI current year - CPI last year / CPI last year x 100

question

The average of the prices of the goods and services purchased by a typical family is the

answer

Consumer Price Index (CPI).

question

Which of the following can give an early warning of future increases in the price level?

answer

Producer price index

question

How is the GDP deflator calculated?

answer

Nominal GDP/Real GDP x 100

question

In the years after the base year, nominal GDP is ______ than real GDP.

answer

greater

question

In the base year, nominal GDP is ______ to real GDP.

answer

equal to

question

In the years prior to the base year, nominal GDP is ______ than real GDP.

answer

less

question

The difference between a nominal variable and a real variable is that

answer

nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.

question

Menu costs are

answer

the costs to firms of changing proves.

question

The internet has ______ the size of menu costs.

answer

reduced

question

The real interest rate

answer

is equal to the nominal interest rate minus the inflation rate.

question

When the real interest rate is lower then

answer

the situation will be better for the buyer.

question

The rule of 70

answer

is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double.

question

What two key factors determine labor productivity?

answer

The quantity of capital per hour worked and the level of technology.

question

Potential real GDP is

answer

the level of GDP attained when all firms are producing at capacity. (grows over time)

question

Human capital is

answer

the knowledge and skills workers acquire from education, training, or their life experiences. (ex. a worker gets a college degree)

question

The best measure of the standard of living of the typical person in a country is

answer

real GDP per person.

question

The financial system of a country is important for long-run economic growth because

answer

firms need the financial system to acquire funds from households.

question

_______ is not a "loanable fund"

answer

real estate

question

Households supply loanable funds because of the

answer

interest income received from the borrowers.

question

Businesses demand loanable funds because

answer

firms need to borrow funds for new projects, such as building new factories or carrying out new research projects.

question

Crowding out occurs when

answer

governments must borrow funds which causes interest rates to rise and thus private investment is reduced.

question

The ease with which a financial security can be exchanged for money is referred to as

answer

liquidity.

question

Even though individuals earn interest on financial investments such as bonds, mutual funds, and certificates of deposits, they may still hold wealth in checking accounts because

answer

individuals need money that is available to be spent on goods and services.

question

Ford F-150 trucks, McDonald's Big Macs, Kenmore refrigerators, Huggies diapers, and Caterpillar industrial tractors. Production of this good is likely to fluctuate _________ fluctuations of real GDP during the business cycle

answer

more than; less than; more than; less than; more than

question

What is the general relationship between the business cycle and unemployment and inflation?

answer

During an expansion, unemployment falls and inflation increases.

question

During the expansion/recession phase of the business cycle, production, employment, and income

answer

increases; decreases.

question

When tax revenue exceeds, equals, is less than government spending there is

answer

a budget surplus; a balanced budget; a budget deficit.

question

As the economy nears the end of an expansion,

answer

wages are usually rising faster than prices, interest rates are usually rising, and the profits of firms will be falling.

question

Purchases of which types of goods are business cycles most likely to affect?

answer

Durable goods.

question

Recessions cause the inflation rate to _________, and the employment rate to ________.

answer

decrease; increase

question

The business cycle refers to

answer

alternating periods of economic expansion and economic recession.

question

Long-run economic growth is

answer

the process by which rising productivity increases the standard of living of the typical person.

question

Long-run growth is measured by

answer

increases in real GDP per capita, which depend on increases in labor productivity.

question

Labor productivity is

answer

the quantity of goods and services that can be produced by one worker or by one hour of work.

question

Capital refers to

answer

manufactured goods that are used to produce other goods and services.

question

Economists often discuss economic growth in terms of growth in potential GDP, which is

answer

the level of GDP attained when all firms are producing at capacity.

Principles of Macroeconomics (Ch. 8, 9 ; 10) – Flashcards

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