Exam 3

Question 1

During a business cycle expansion, total production ________ and total employment ________

Answer 1

increases; increases

Question 2

Macroeconomics, as opposed to microeconomics, includes the study of what determines the level of

Answer 2

employment in the economy

Question 3

Macroeconomics, as opposed to microeconomics, includes the study of what determines the

Answer 3

average price levels of goods and services in the economy

Question 4

Macroeconomics seeks to understand

Answer 4

economic growth, business cycles, and inflation

Question 5

Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?

Answer 5

Real GDP grows by 2.3% in the second quarter

Question 6

Which of the following is not directly counted in GDP?

Answer 6

intermediate goods

Question 7

Value added equals the market price of the firm’s product minus

Answer 7

the price of intermediate goods

Question 8

In the circular flow model, the value of total income for an economy ________ the value of total production

Answer 8

equals

Question 9

In the circular flow model, the value of total production for an economy ________ the value of total expenditures on final goods and services

Answer 9

equals

Question 10

The purchase of a new automobile is included in

Answer 10

consumption expenditures on durable goods

Question 11

Which of the following is not a durable good?

Answer 11

clothing

Question 12

To calculate GDP by the expenditure method, one must add

Answer 12

consumption spending, investment spending, government purchases, and net exports

Question 13

The sum of the value added of every firm involved in producing all final goods and services ________ gross domestic product.

Answer 13

equals

Question 14

Consider the table above showing three stages of production of an automobile. Refer to Table 19-5. The value of each automobile in gross domestic product equals

Answer 14

$25,000

Question 15

CANOES-R-US makes canoes. It buys the shell of the canoe from another local firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200. Refer to Scenario 19-1. The value added of CANOES-R-US for each canoe equals

Answer 15

$500

Question 16

A final good is one that

Answer 16

is purchased by its final user

Question 17

An example of a final good would be

Answer 17

a soy latte sold by Starbucks to a student

Question 18

Which of the following equations correctly measures GDP in an economy?

Answer 18

GDP = C + I + G + NX

Question 19

To calculate GDP using the value-added method, one would add up

Answer 19

the value added by each firm involved in the production of final goods and services

Question 20

Gross domestic product understates the total production of final goods and services because of the omission of

Answer 20

the underground economy

Question 21

The informal sector can be a significant drag on the economies of developing countries because the firms in the informal sector

Answer 21

do not pay taxes to the government

Question 22

GDP is not a perfect measure of well-being because

Answer 22

GDP is not adjusted for pollution

Question 23

The “underground economy” is also referred to as

Answer 23

the informal sector

Question 24

Nominal GDP is GDP in a given year

Answer 24

valued in the prices of that year

Question 25

If real GDP in 2018 (using 2009 prices) is lower than nominal GDP of 2017, then

Answer 25

prices in 2018 are lower than prices in 2017

Question 26

The GDP deflator is a measure of the

Answer 26

average level of prices of final goods and services in the economy

Question 27

To make the calculation of real GDP more accurate, in 1996 the BEA switched to using

Answer 27

chain-weighted prices

Question 28

When the BEA calculates real GDP using the average of prices in the current year and the year preceding it, and this average changes from year to year, this is called calculating GDP using

Answer 28

chained-weighted prices

Question 29

The GDP deflator is equal to

Answer 29

nominal GDP divided by real GDP, multiplied by 100

Question 30

Gross national product (GNP) of the United States is the market value of all final goods and services

Answer 30

produced by citizens of the United States anywhere in the world

Question 31

National income equals gross domestic product minus

Answer 31

depreciation

Question 32

National income equals gross domestic product

Answer 32

minus the consumption of fixed capital

Question 33

Depreciation is

Answer 33

the value of worn-out equipment, machinery, and buildings

Question 34

The best measure of the income households actually have available to spend is

Answer 34

disposable personal income

Question 35

Disposable personal income equals personal income

Answer 35

minus personal tax payments

Question 36

National income is equal to

Answer 36

GDP minus depreciation

Question 37

U.S. gross national product is defined as

Answer 37

the value of final goods and services produced by residents of the United States even if the production takes place outside of the United States

Question 38

National income is defined as

Answer 38

gross domestic product less the consumption of fixed capital

Question 39

Personal income is defined as

Answer 39

national income less retained earnings plus transfer payments and plus interest on government bonds

Question 40

Disposable personal income is defined as

Answer 40

personal income less personal taxes

Question 41

The natural rate of unemployment is

Answer 41

that rate of unemployment occurring when the economy is at its potential output

Question 42

Part-time workers who want full-time work are counted as

Answer 42

fully employed, and therefore the official unemployment rate may understate the level of unemployment

Question 43

The entry of women into the workforce since the 1960s resulted in

Answer 43

a shift outward in the production possibilities curve of the United States

Question 44

Due to lowering its prices to compete with its rivals, increased competition from Airbus, and cuts to military spending, Boeing announced it would ________ the number of persons it employed in 2017 and this would ________ the total number of persons unemployed in the economy

Answer 44

decrease; increase

Question 45

The unemployment rate is an important economic statistic that can tell us about the health of the economy. If the unemployment rate turns out to be high or higher than anticipated, we would expect

Answer 45

that stock prices are more likely to fall

Question 46

The Bureau of Labor Statistics would categorize a person as ________ if they were temporarily away from their job because they were ill

Answer 46

employed

Question 47

The Bureau of Labor Statistics would categorize a retiree who is not working as

Answer 47

out of the labor force

Question 48

The labor force equals the number of people

Answer 48

employed plus unemployed

Question 49

The unemployment rate equals the number of unemployed divided by the ________, all times 100

Answer 49

labor force

Question 50

Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as

Answer 50

not in the labor force

Question 51

The labor force participation rate equals the

Answer 51

(labor force divided by working-age population) × 100

Question 52

Which of the following labor market statistics best indicates the amount of labor that is available to the economy from a given working-age population?

Answer 52

labor force participation rate

Question 53

Which of the following explains the changes in the U.S. adult male labor force participation rate since 1948?

Answer 53

Younger men are remaining in school longer as compared to the past

Question 54

Since 1948, the labor force participation rate for adult men has ________ and for adult women has ________

Answer 54

decreased; increased

Question 55

Using a broader measure of the unemployment rate where discouraged workers and part-time workers who wished to work full time were counted as unemployed, the BLS estimates the unemployment rate in April 2017 would have ________ compared to the measured unemployment rate

Answer 55

almost doubled

Question 56

An advantage of the establishment survey over the household survey of the labor market is that the establishment survey

Answer 56

is based on actual payrolls, rather than on unverified answers

Question 57

An advantage of the household survey over the establishment survey of the labor market is that the household survey

Answer 57

includes the number of self-employed persons

Question 58

Which of the following statements is true about the U.S. economy?

Answer 58

Each year, many new jobs are created and many existing jobs are destroyed

Question 59

The labor force is the sum of

Answer 59

employed workers and unemployed workers

Question 60

A full-time student who is not working is categorized as

Answer 60

not in the labor force

Question 60

Upon your graduation from college, you find that the economy is in recession and the unemployment rate is relatively high. Nonetheless, most Americans in this situation would continue along their career paths looking for a new job because

Answer 60

high unemployment rates do not usually last for very long

Question 61

Discouraged workers are classified by the BLS as

Answer 61

not in the labor force

Question 62

If you have trouble finding a job because of a slowdown in the overall economy, we would say that you are

Answer 62

cyclically unemployed

Question 63

The short-term unemployment arising from the process of matching workers with jobs is called

Answer 63

frictional unemployment

Question 64

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called

Answer 64

structural unemployment

Question 65

The natural rate of unemployment is made up of

Answer 65

frictional and structural unemployment

Question 66

Which of the following would decrease the unemployment rate?

Answer 66

government aid to retrain unemployed workers

Question 67

An efficiency wage

Answer 67

is higher than the market wage and tends to increase productivity

Question 68

The average price of goods and services in the economy is also known as

Answer 68

the price level

Question 69

Which of the following price indices comes closest to measuring the cost of living of the typical household?

Answer 69

consumer price index

Question 70

The percent increase in the CPI from one year to the next is a measure of the

Answer 70

inflation rate

Question 71

To reduce the bias in the consumer price index, the Bureau of Labor Statistics

Answer 71

updates the market basket every two years, rather than every 10 years

Question 72

The producer price index measures the prices that firms

Answer 72

receive for the goods and services they use at all stages of production

Question 73

The broadest measure of the price level that includes all final goods and services is

Answer 73

the GDP deflator

Question 74

What does the PPI measure?

Answer 74

the average of the prices received by producers of goods and services at all stages of the production process

Question 75

The real wage equals the nominal wage ________ the CPI, all times 100

Answer 75

divided by

Question 76

The real interest rate equals the nominal interest rate ________ the inflation rate

Answer 76

minus

Question 77

The stated interest rate on a loan is the

Answer 77

nominal interest rate

Question 78

Deflation occurs when

Answer 78

there is a decline in the price level

Question 79

The costs to firms of changing prices are called

Answer 79

menu costs