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The unemployment rate measures:
unemployed workers as a percentage of the labor force.
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Kathryn chooses to go to college full-time rather than to work. Kathryn:
is not part of the workforce.
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Inflation exists whenever:
the overall price level is rising
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If the nominal interest rate is 6% and the inflation rate is 3%, the real interest rate is
3%
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The official unemployment rate may not reflect the true state of unemployment because:
- Part-time employees who want to work more hours are treated the same statistically as those who hold full-time jobs.
- Some individuals who want to work may become discouraged and cease actively looking for work.
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Billy 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:
unemployed
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Structural unemployment occurs when:
automation reduces the need for welders in Detroit
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When unemployment rises above the natural rate it reflects the existence of _______ unemployment.
cyclical
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If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor:
the quantity of unskilled labor supplied will exceed the quantity of unskilled labor demanded.
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Why are creditors harmed by unexpected inflation?
Creditors are paid back money with less spending power than they expected when the money was loaned out.
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IF the nominal interest rate is 6% and the inflation rate is 3%, the real interest rate is
3%
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Which of the following would not be counted as a final good for inclusion in GDP?
A. a pieve of glass bought by a consumer to fix a broken window
B. a sheet of glass purchased by General Motors fo rthe side window of a car
C. a sheet of glass produced this year and ending up in the inventory of a retail hardware store
D. all of the above are counted
B
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Residental construction is generally included in which category of GDP
investment
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If real GDP decresed by 1% and nominal GDP increaded by 2%, then output:
decreased and the price level increased
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If nominal GDP increased from $4,500 billion in 2010 to $5,000 billion in 2011 and the GDP deflator increased from 100 to 105 over the same time period what would the 2011 real GDP equal expressed in terms of 2010 dollars?
$4,762 billion
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An increase in the stock capital:
causes an economy's production possibilities curve to shift outward over time
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A country will roughly double its GDP in 20 years if its annual growth rate is
3.5 %
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Which of the following factors contribute to economic growth?
A. growth in physical capital
B. technological advances
C. an increase in the productivity of labor
D. all of the above
D
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As more capital per worker is added, a per worker production function generally becomes:
flatter because capital is subject to diminishing marginal returns
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In the 1700s, Reverent Thomas Malthus predicted that:
per capita economic growth would eventually become negative since population growth would tend to outstrip production
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GDP is:
the value of all final goods and services produced domestically within a given period of time.
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The formula from the expenditure method indicated that GDP is equal to:
C+I+G+X-M
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Which of the following is an example of an intermediate good?
A. a pair of jeans sold by a clothing retailer
B. cloth sold to a suit manufacturer
C. a share of Wal-Mart stock
D. a used Ford Mustand sold from one neighbor to another
B
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Residential construction is generally included in which category of GDP?
Investment
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Why has nominal GDP increased historically more rapidly than real GDP in th eUnited States?
because of inflation
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Labor force=
Employed+Unemployed
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Problems with measuring Unemployment rate
Discouraged workers, Part timers, Underground Economy
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Why Unemployed?
- Job Leavers,
- Re-entrants,
- New Entrants
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Reasons for Unemployment (factors that increase the Unemployment)
- Minimum wages,
- Unions,
- Efficiency wage,
- Unemployment insurance
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Problems with the CPI (Consumer Price Index)
overestimates true price level about 0.5% per year
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GDP=
value of all final goods and services produced domestically (in one year)
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Income Approach
GDP= income received by the factors of production (+ indirect sales tax + depreciation)
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Nominal GDP
in current or "market" prices
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Real GDP
in base year prices-> ex., holding prices fixed to base year to remove effect of inflation
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Productivity of Labor=
real GDP/# hours of labor
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Determinants of Economic Growth
- Increase labor (includes increase "human capital")
- Increase land (or increase natural resources)
- Increase physical capital
- Increase technology
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Society's major economic goals
- maintaining employment at high levels
- maintaining prices at a stable level
- maintaining a high rate of economic growth
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The 3 major macroeconomic goals of nearly every society are
maintaining stable prices, maintaining high levels of employment, and acheiving high rates of economic growth
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Economic growth is measured by changes in
real GDP per capita
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High rates of unemployment
- can lead to increased tensions and despair
- result in the loss of some potential output in society
- represent a loss of efficiency in society
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The unemployment rate is the number of people officially unemployed divided by
the civilian labor force
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The labor force consist of
all persons over the age of 16 who are working or actively seeking work
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Discouraged workers are consided
not in the labor force
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Which of these groups tends to hae the lowest unemployment rate?
college graduates
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The largest fraction of those counted as unemployed is due to
job losers
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The offical unemployemtn rate may overstate the extent of unemployment because
- it does not count those with jobs in the underground economy as employed
- it includes those who claim to be looking for work as unemployed, even if they are just going through the motions in order to get government benefits
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If unemployment benefits increase and encourages more people to claim they are looking for work when they really are not, then the measured employment rate will
rise
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After looking for a job for more than 8 months, Kyle became frusturated and stopped looking. Economists view kyle as
discouraged worker
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Frictional unemployment is
unemployment that is due to normal turnover in the labor market
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Unemployment caused by a contraction in the economy is called
cyclical unemployment
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A federal program aimed at retraining the unemployed workers of the decling auto and steel industries is designed to reduce which type of unemployment
structural
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When unemployment rises above the natural rate, it reflects the existence of _________ unemployment.
cyclical
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When an economy is operating at full employment,
cyclical unemployment will equal zero
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The natural rate of unemployment would increase when which of the following increases?
either frictional or structural
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If action's labor force receives a significant influx of young workers,
the natural rate of unemployment is likely to increase
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Which of the following reasons why wages may fail to bring the quantity of labor demanded into balance with the quantity of labor supplied?
the minimum wage, unions, efficiency wage theory
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At minimum wage, the quanity of labor supplied _____ because more people are willing to work at a higher wage.
grows
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At minimum wage, the quantity of labor demanded ______ because some employers wold find it unprofitable to hir low-skilled workers at the higher wage
falls
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Efficiency wages
- can lead to greater unemployment if th equantity of labor supplied is greater than the quantity of labor demanded
- may attract the most productive workers
- may lead to less turnover
- may reduce morale problems
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Unemployment insurance
may reduce the drive for workers to find jobs and thereby prolong unemployment
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If unions are able to increase wages through collectvie bargaining, the
- some union workers will become unemployed
- some union workers will be better off
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When would consumers and producers experience increased difficulty in coordinating their plans and decisions?
in a period of either inflation or deflation
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Teh CPI is a measure of
the overall cost of buying a market basket of goods and services purchased by a typical consumer
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If the consumer price index was 100 in the base year and 110 in the following year, the inflation rate was
10 percent
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The CPI overestimates changes in the cost of living because
- the growth of the discount stores where consumers can obtain goods at discount prices has not been adequately represented in the construction of the CPI
- the CPI does not adequately deal with changes in the quality of products over time
- the CPI deals with a fixed market basket and doesnt capture the savings households enjoy when they substitute cheaper alternatives in response to a price change
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Which measures of inflation tend to overstate it?
both the GDP deflator and the CPI
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Inflation can harm
- retirees on fixed pensions
- borrowers who have long-term fixed interest rate loans
- wage earners whose incomes grow slower than inflation
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Inflation will be least harmful if
it is correctly anticipated and interest rates adjust accordingly
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Unexpected inflation generall benefits
borrowers
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The costs of inflation include
- menu costs
- shoe-leather cost
- a distortion of price signals
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If the nominal interest rate is 9% and the inflation rate is 3%, the real interest rate is
6%
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A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle in order are
expansion, peak, contraction, trough
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The contractionary phase of the business cycle is characterized by
reduced output and increased unemployment
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A _______ is a period of falling real output and is usually accompanied by rising unemployment and decling business and consumer confidence
contraction
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GDP is defined as the
value of all final goods and services produced in a country in a period of time
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An example of an intermediate product is
- the purchase of tires by Ford Motor company to put on its Ford Explorers
- the purchase of wood by a home construction firm
- the purchase of leather by a shoe manufacturer
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The expenditure measure of GDP accountning is the total of
consumption, investment , government purchases, and net exports
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Investments include
fixed investment plus additions to business inventories
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Government purchases include government purchases of
- investment goods
- government spending on services
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A negative amount of net exports in the GDP expenditures accountin gmeans
exports are less than imports
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The largest category of GDP is __________, and the most unstable category of GDP is _________
consumption, investment
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In the income approach to measuring GDP, factor payments include
- wages and salaries for the use of labor services
- rent for land
- interest payments for the use of capital goods
- profits for entrepreneurs
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Examples of factor payments are
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What is subtracted from GDP to get national income
- the net income of foreigners
- depreciation
- indirect business taxes
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Disposable income is
a measure of th eincome households have to spend after paying taxes
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Disposable personal income will increase when
taxes fall and transfer payments rise
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Nominal GDP is
the current year market value of all final goods and services produced domestically during a given period
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Nominal GDP differs from the real GDP in that
nominal GDP meausured in current year prices, while real GDP is measured in base year prices
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Real GDP in base year dollars equals
nominal GDP divided by the price index, time 100
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If real GDP increases and population increases, then real GDP per capita
could either rise, fall, or remain unchanged
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Important factors that are excluded form GDP measurements include
- leisure
- the underground economy
- nonmarket transactions
- the value of changes in the environoment
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If country A has a bigger underground economy than country B, and country A's citizens work fewer hours per week than the citizens of country B, other things being equal, then
GDP comparisons between the countries would understate the economic welfare of country A compared to B
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In __________ countries, where significant amount of food and cloting output is produced in the home, the failure to inlcude non-market economic activity in GDP is a serious deficiency
less-developed
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Economic growth refers to an ______ in the output of goods and serices in an economy. The greater the economic growth, the _____ goods citizens and their descendants will have to consume.
increase; more
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Economic growth is usually measured by the annual percent change in
real GDP per capita
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How much the economy can produce at its natural rate of output depends on
- technology
- the quantity of available natural resources
- the productivity of labor
- the stock of available capital
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An economy's production possibilities curve will shift outward over time if
- technological progress occurs or
- the productivity of labor increases
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According to the Rule of 70, if a nation grows at a rate of 5 percent per year, it will take roughly ______ for national income to double
14 years
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What will lead to economic growth?
- technology
- natural resources
- physical capital
- human capital
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In the long run, the most important determinant at a nation's standard of living is
its rate of productivity growth
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According to Paul Romer, a new growth economist
- economic growth can continue unimpeded, as long as we keep coming up with new ideas
- while the market is a great engine for economic growth, it can be "turbocharged" with strong institutional support for education and science
- economic growth comes from increses in value -- rearranging fixed amounts of matter and making new combinations that are more valuable
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If a country increased its saving rate,
- its current consuption would have to fall
- its future consumption possibilities will rise
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High rates of saving and investment in a country
- tend to increase economic growth but do not guarantee it
- will result in greater economic growth if they are accompanied by advances in technology than if they are not
- will result in greater economic growth if they are acompanied by more investment in human capital than if they are not
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Economic growth tends to be greater in countries where
- the government effectively protects property rights
- more resources are devated to research and development
- there is greater freedom to trade freely
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In a country that has an unstable government or judiciary, would you expect to see more or less entrepreneurial activity?
more, because of less taxation of comercial and research activities
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Thomas Malthus's model assumed that
- the economy was agricultural, using land and labor
- the supply of land was fixed
- sexual desire worked to increase population
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Malthus
- predicted that per capita economic growth would eventually become negative
- predicted that wages would ultimately reach equilibrium at a subsistence level
- relied heavily on the law of diminishing returns
- ignored the potential for technological advances
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