To calculate gdp by the expenditure method one must add

ECON 2105 EXAM 3 CHAPTERS 19, 20, AND 21 FALL 2014

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

A) increases; increases

B) increases; decreases

C) decreases; increases

D) decreases; decreases

2.Macroeconomics seeks to understand

A) economic growth, business cycles, and inflation.

B) industry sales, marketing strategies and corporate growth.

C) product demand, product cost, and profit maximization.

D) public choices, private choices, and consumer maximization.

3.Gross domestic product is calculated by summing up

A) the total quantity of goods and services in the economy.

B) the total quantity of goods and services produced in the economy during a period of time.

C) the total market value of goods and services in the economy.

D) the total market value of final goods and services produced in the economy during a period of time.

4.Which of the following goods is directlycounted in GDP?

A) the lettuce that Subway purchases for its sandwiches

B) the bread that Subway purchases for its sandwiches

C) a 12-inch Subway sandwich purchased by a student

D) the plastic bags that Subway purchases to wrap its sandwiches

5.Which of the following transactions represents the purchase of a final good?

A) Starbucks purchases coffee beans.

B) Delta buys a new European-made jetliner.

C) Apple computer buys computer processors from Intel.

D) Your father buys a new John Deere riding lawn mower.

6.Which of the following is not directly counted in GDP?

A) investment expenditures

B) government purchases

C) intermediate goods

D) consumer goods

Table 19-1

Product

Quantity

Price

Sweatshirts

50

$35.00

Dental examinations

40

75.00

Coffee drinks

1,000

4.00

Coffee beans

2,000

0.50

7.Refer to Table 19-1. Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals

A) 3,090 units.

B) $7,250.

C) $8,750.

D) $9,750.

8.The purchase of a new automobile is included in

A) consumption expenditures on services.

B) consumption expenditures on nondurable goods.

C) consumption expenditures on durable goods.

D) investment expenditures.

9.Which of the following is not a durable good?

A) furniture

B) automobile

C) clothing

D) refrigerator

10.Investment, as defined by economists, would include the purchase of a

A) corporate bond.

B) government bond.

C) share of stock in ExxonMobil.

D) computer by an accounting firm.

11.To calculate GDP by the expenditure method, one must add

A) wages, rents, interest, and profits.

B) consumption spending, investment spending, government spending and net exports.

C) consumption spending, investment spending, government spending and exports.

D) labor, natural resources, entrepreneurship, and capital.

12.Investment, as defined by economists, would not include which of the following? Ford

A) buys a new robotic machine (from a plant in Ohio) to assemble cars.

B) adds 1,000 new cars to inventories.

C) builds another assembly plant in the United States.

D) buys U.S. government bonds.

13.The purchase of a new house is included in

A) consumption expenditures.

B) investment expenditures.

C) government purchases.

D) net exports.

14.The purchase by a household in China of a CD produced in the United States is included in U.S.

A) consumption expenditures.

B) investment expenditures.

C) government purchases.

D) net exports.

15.In 2010, which component of GDP had a negative value?

A) consumption

B) investment

C) government spending

D) net exports

16.What is the largest component of spending in the United States?

A) consumption spending

B) investment spending

C) government spending

D) net investment spending

Table 19-4

Consumption expenditures

$800

Investment expenditures

300

Government purchases

300

Government transfer payments

400

Exports

300

Imports

100

17. Refer to Table 19-4. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals

A) $2,200.

B) $2,100.

C) $1,600.

D) $1,400.

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

A) exports.

B) inflation.

C) intermediate goods.

D) household production.

19.Which of the following is likely to increase measured GDP?

A) A greater number of women decide to stay at home and provide day care for their children under age 5.

B) Marijuana becomes legal to grow and sell.

C) Tax rates increase and more people attempt to underreport their income for tax purposes.

D) More people decide to do their own lawn maintenance and give up using a professional service.

20.Nominal GDP is GDP in a given year

A) adjusted for inflation.

B) adjusted for anticipated inflation.

C) valued in the prices of that year.

D) valued in the prices of the base year.

21.Real GDP is GDP in a given year

A) adjusted only for anticipated inflation.

B) adjusted only for unanticipated inflation.

C) valued in the prices of that year.

D) valued in the prices of the base year.

22.If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is

A) 12.5.

B) 80.

C) 125.

D) 800.

23.Gross national product, GNP, of the United States is the market value of all final goods and services

A) produced within the United States.

B) consumed within the United States.

C) produced by citizens of the United States anywhere in the world.

D) consumed by citizens of the United States anywhere in the world.

24.If an American firm opens a production facility in India, the total value of the production will be included in the

A) gross domestic product of the United States.

B) national income of the United States.

C) gross domestic product of India.

D) national income of India.

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

A) employed

B) unemployed

C) a discouraged worker

D) out of the labor force

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

A) employed.

B) unemployed.

C) a discouraged worker.

D) out of the labor force.

27.The labor force equals the number of people

A) employed.

B) unemployed.

C) employed plus unemployed.

D) in the working-age population.

Table 20-1

Total population

20,000

Working-age population

15,000

Employment

1,000

Unemployment

100

Consider the data above for a simple economy.

28. Refer to Table 20-1. The unemployment rate for this simple economy equals

A) (100/1,000) × 100.

B) (100/1,100) × 100.

C) (100/15,000) × 100.

D) (100/20,000) × 100.

29.Refer to Table 20-1. The labor force participation rate for this simple economy equals

A) (1,000/1,100) × 100.

B) (1,000/15,000) × 100.

C) (1,100/15,000) × 100.

D) (1,100/20,000) × 100.

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

A) number of employed

B) labor force

C) working-age population

D) total population

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

A) employed.

B) unemployed.

C) not in the labor force.

D) not in the working-age population.

32.The average period of unemployment was ________ following the 2007-2009 recession as following any other recession since the end of World War II.

A) three times as low

B) approximately the same

C) twice as high

D) eight times as high

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

A) increased; increased

B) increased; decreased

C) decreased; increased

D) decreased; decreased

34.Frictional unemployment is the result of

A) a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.

B) the search process of matching workers with jobs.

C) the ups and downs in inflation.

D) a slowdown in the economy.

35.Cyclical unemployment is the result of

A) a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.

B) the search process of matching workers with jobs.

C) the ups and downs in inflation.

D) a slowdown in the economy.

36.Structural unemployment is the result of

A) a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.

B) the search process of matching workers with jobs.

C) the ups and downs in inflation.

D) a slowdown in the economy.

37.The advice to "keep searching, there are plenty of jobs around here for which you are qualified", would be most appropriate for which of the following types of unemployment?

A) frictional unemployment

B) structural unemployment

C) cyclical unemployment

D) seasonal unemployment

38.Full employment is not considered to be zero unemployment, because

A) some cyclical unemployment always exists.

B) some people do not want a job.

C) there are not enough jobs for everyone who wants one.

D) people do not find jobs instantaneously.

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

A) frictionally unemployed.

B) structurally unemployed.

C) cyclically unemployed.

D) seasonally unemployed.

40.The advice to "retrain" would be most appropriate for which of the following types of unemployment?

A) frictional unemployment

B) structural unemployment

C) cyclical unemployment

D) core unemployment

41.The consumer price index is the

A) cost of a market basket of goods and services typically consumed in the base year.

B) cost of a market basket of goods and services typically consumed in the current period.

C) average of the prices of the goods and services purchased by a typical urban family of four.

D) average of the prices of new final goods and services produced in the economy over a period of time.

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

A) the price level.

B) the inflation rate.

C) a market basket.

D) the cost of living.

43.Housing is the largest component of the U.S. CPI market basket.

A) TRUE B) FALSE

Table 20-3

PRODUCT QUANTITY BASE YEAR (2006) PRICE 2011 PRICE

Cokes 100 $0.50 $0.75

Hamburgers 200 2.00 2.50

CDs 10 20.00 21.00

44.Refer to Table 20-3. Assume the market basket for the consumer price index has three products - Cokes, hamburgers, and CDs - with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals

A) 75.

B) 93.

C) 108.

D) 121.

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

A) GDP deflator.

B) unemployment rate.

C) real interest rate.

D) inflation rate.

46.Assume the average annual CPI values for 2010 and 2011 were 207.3 and 215.3, respectively. What was the percent increase in the CPI between these two years?

A) 0.96

B) 1.04

C) 3.86

D) 8.0

47.The "new product bias" in the consumer price index refers to the idea that

A) consumers switch to new goods when the prices of old goods increase, and the CPI overestimates the cost to consumers.

B) consumers switch to old goods when the prices of new goods increase, and the CPI underestimates the cost to consumers.

C) consumers prefer new goods, even if they are worse in quality than old goods, and this causes the CPI to underestimate the cost to consumers.

D) new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

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

A) updates the market basket every two years, rather than every 10 years.

B) updates the market basket every 10 years, rather than every two years.

C) incorporates substitutions by consumers when prices of specific products rise rapidly.

D) incorporates substitutions by consumers when prices of specific products fall rapidly.

49.The producer price index measures the prices that firms

A) pay for imported natural resources that go into the production process.

B) receive for the goods and services they export.

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

D) pay for labor, whether or not the labor is foreign or domestic.

Table 20-8

YEAR NOMINAL AVERAGE HOURLY EARNINGS CPI(1982-84)=100

1965 $2.65 32

2010 22.59 219

The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.

50.Refer to Table 20-8. The real average hourly earnings for 1965 in 1982-1984 dollars equal

A) $1.28.

B) $6.49.

C) $8.28.

D) $15.45.

51.Refer to Table 20-8. The real average hourly earnings for 1965 in 2010 dollars equal

A) $3.87.

B) $5.80.

C) $12.10.

D) $18.14.

52.Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2010, then the value of your grandfather's salary in 2010 dollars is approximately

A) $84,775.

B) $63,830.

C) $37,200.

D) $26,280.

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

A) times

B) divided by

C) plus

D) minus

54.If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?

A) -9.5%

B) -3.5%

C) 1.5%

D) 3.5%

E) 9.5%

55.Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

A) 17 percent

B) 10 percent

C) 7 percent

D) 3 percent

56.According to the "Rule of 70", how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%?

A) less than 1 year

B) 5 years

C) 14 years

D) 35 years

57.The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as

A) technology.

B) labor productivity.

C) real GDP.

D) human capital.

58.Which of the following increases labor productivity?

A) an increase in the aggregate hours of work

B) decreases in the availability of computers and factory buildings

C) inventions of new machinery, equipment, or software

D) a decline in the health of the population

59.Technological advances generally result in

A) decreased incomes.

B) increased life expectancy.

C) increased infant mortality rates.

D) increased average number of hours worked per day.

60.A good measure of the standard of living is

A) real GDP per capita.

B) nominal GDP per capita.

C) total real GDP.

D) total nominal GDP.

61. What two factors are the keys to determining labor productivity?

A) the business cycle and the growth rate of real GDP

B) the growth rate of real GDP and the interest rate

C) technology and the quantity of capital per hour worked

D) the average level of education of the workforce and the price level

62. Long-run economic growth requires all of the following except

A) technological change.

B) increases in capital per hour worked.

C) government provision of secure property rights.

D) political instability.

63. Botswanaʹs rapid growth can be explained by

A) protection of private property and avoiding political instability.

B) investment in human capital from 1960 through 2007.

C) the movement of workers from the agricultural sector to the manufacturing sector.

D) an increase in labor force participation.

64. Which of the following does not describe governmental policy actions that are helpful in

supporting growth in an economy? Governmental policies that

A) avoid playing any role in developing communication systems.

B) provide secure rights to private property.

C) establish an independent court system that enforces contracts.

D) facilitate the development of an efficient financial system.

65. Potential GDP refers to

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

B) the level of GDP attained by the country with the highest growth in real GDP in a given

year.

C) the difference between the highest level of real GDP per quarter and the lowest level of

real GDP per quarter within any given year.

D) the extent to which real GDP is above or below nominal GDP.

66. Growth in potential GDP in the United States is estimated to be about

A) 8% per year.

B) 5% per year.

C) 3.3% per year.

D) 2% per year.

67. Liquidity refers to

A) the ease with a stock can be traded for a bond.

B) the ease with which a financial security can be traded for cash.

C) the number of times a dollar changes hands in the creation of GDP in an economy.

D) the number of shares of stock a corporation issues.

68.Financial securities that represent promises to repay a fixed amount of funds are known as

A) bonds.

B) stocks.

C) pension funds.

D) insurance premiums.

69. One difference between stocks and bonds is that

A) stocks are financial securities, while bonds are labor market securities.

B) stocks are usually issued in electronic form, while bonds are usually issued in paper form.

C) stocks represent ownership in companies, while bonds represent ownership in banks.

D) stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a

promise to repay the purchase price of the bond.

70. If Ebenezer Scrooge spends rather than saves his vast wealth he will

A) slow economic growth because he is reducing the amount of funds available for

investment.

B) slow economic growth because he is increasing the amount of funds available for

investment.

C) promote economic growth because he is increasing the amount of funds available for

investment.

D) promote economic growth because he is decreasing the amount of funds available for

investment.

71. Potential GDP is the maximum output a firm is capable of producing.

A) TRUE B) FALSE

72. At the end of an expansion, wages of workers are usually rising faster than prices.

A) TRUE B) FALSE

73. The period between a business cycle trough and a business cycle peak is called

A) expansion.

B) recession.

C) diffusion.

D) recalculation.

74. What is the name of the organization that defines business cycle peaks and troughs in the United States?

A) the Bureau of Labor Statistics

B) the Federal Reserve

C) the National Bureau of Economic Research

D) the National Peak and Trough Committee

75. As the economy nears the end of a recession, which of the following do we typically see?

A) further decreases in consumer spending

B) increased spending on capital goods by firms

C) increasing interest rates

D) all of the above

76. During a recession, spending on ________ tends to fall more dramatically than spending on

________.

A) necessities; luxuries

B) durable goods; nondurable goods

C) nondurable goods; durable goods

D) food; cars

77. Purchases of which of the following goods would be dramatically reduced during a recession?

A) tomatoes

B) ink pens

C) gasoline

D) refrigerators

78. Recessions in the United States have been more severe since the 1950s.

A) TRUE B) FALSE

79. Typically, as an economy begins to emerge from a recessionary phase of the business cycle,

A) unemployment falls immediately.

B) unemployment continues to rise.

C) inflation begins to fall.

D) investment begins to fall.

80.The response of investment spending to an increase in the government budget deficit is called

A) expansionary investment.

B) private dissaving.

C) crowding out.

D) income minus net taxes.