Econ Exam Part 2 Flashcards

Questions and Answers

Which of the following is true when an economy is operating at its full employment rate of output?

The rate of unemployment will be zero.

The economy's potential rate of output will exceed actual GDP.

The actual rate of unemployment will equal the natural rate. (correct)

Output will exceed the economy's maximum sustainable rate.

When full employment is present, which statement is true?

The actual rate of unemployment will be less than the actual rate.

The actual rate of unemployment will equal the natural rate. (correct)

Everyone who would like to have a job will be employed.

The actual rate of unemployment will exceed the natural rate.

When is the economy considered to be at full employment?

When the leading economic indicators are unchanged for two consecutive quarters.

When structural unemployment is zero.

When the actual rate of unemployment is less than the natural rate.

When frictional plus structural unemployment is less than the natural rate.

When the rate of cyclical unemployment is zero. (correct)

If nominal GDP increased 2 percent during a year, while real GDP increased 4 percent, what can be inferred?

The price level must have decreased approximately 2 percent compared to the prior year. Signup and view all the answers

Which of the following statements about real GDP per person is true?

Real GDP per person provides more meaningful comparisons across time and countries than real GDP. Signup and view all the answers

A professor of economics gets a $100 a month raise. Given her scenario, which statement is true?

Her real salary has fallen and her nominal salary has risen. Signup and view all the answers

If an economy operates at a short-run equilibrium output that exceeds its long-run capacity, which of the following is most likely?

Resource prices will increase, causing the SRAS curve to shift to the left. Signup and view all the answers

The stability of consumption over the business cycle indicates that?

A market economy has a self-correcting mechanism that will help guide it toward full employment. Signup and view all the answers

How will increased usage of the Internet by employers and employees influence the job search process?

It will make job-related information less costly and, therefore, tend to reduce the rate of unemployment. Signup and view all the answers

Suppose, over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. What can be inferred?

The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent. Signup and view all the answers

Sally is on a temporary layoff from her factory job. If Sally participates in the BLS survey, how will she be classified?

Unemployed and in the labor force. Signup and view all the answers

Tom loses his job and immediately begins looking for another. What happens to the unemployment rate?

Increases, and the labor-force participation rate is unaffected. Signup and view all the answers

Over time, people have come to rely on market-produced goods rather than self-produced goods. By itself, what has this change caused?

Caused GDP to rise. Signup and view all the answers

If the nominal interest rate was 12 percent and the inflation rate was 10 percent in 1980, and the nominal interest rate was 7 percent and the inflation rate was 2 percent in 2009, what can be concluded?

Real rates were higher in 2009. Signup and view all the answers

Which of the following will most likely accompany an unanticipated increase in short-run aggregate supply?

An increase in real GDP. Signup and view all the answers

When the economy is operating at an output rate below its full-employment level, what occurs?

Actual level of unemployment will exceed the natural rate of unemployment. Signup and view all the answers

Which of the following would cause prices and real GDP to rise in the short run?

Aggregate demand shifts right. Signup and view all the answers

Which of the following will most likely occur in the United States as a result of an unexpected rapid growth in real income in Canada and Mexico?

An increase in aggregate demand and output in the short run. Signup and view all the answers

As the dollar appreciates, which of the following is most likely to occur?

More Americans will travel abroad. Signup and view all the answers

Imagine that there are only two nations in the world, the United States and Mexico. What happens if Americans buy more goods made in Mexico?

U.S. demand curve for Mexican pesos will shift rightward. Signup and view all the answers

If net exports are positive, then:

There will be net capital outflow, so foreign assets bought by Americans are greater than American assets bought by foreigners. Signup and view all the answers

The actual rate of unemployment will be greater than the natural rate of unemployment when?

The actual output is less than the economy's potential output. Signup and view all the answers

Which of the following is true if the actual price level is lower than the expected price level reflected in long-term contracts?

The actual rate of unemployment will exceed the natural rate of unemployment. Signup and view all the answers

When an economy is in long run equilibrium, which statement is true?

The actual and natural rates of unemployment will be equal. Signup and view all the answers

What is the effect on GDP if a used car dealer purchases a used car for $3,000, refurbishes it, and sells it for $8,000?

The dealer contributes value added equal to $5,000, and consequently $5,000 is added to GDP. Signup and view all the answers

Study Notes

Full Employment and Unemployment Rates

Full employment does not imply zero unemployment; the actual rate equals the natural rate.
Full employment occurs when the actual rate of unemployment matches the natural rate.
Cyclical unemployment must be zero for the economy to be considered at full employment.

GDP Concepts

A nominal GDP increase of 2% alongside a real GDP increase of 4% suggests a decrease in the price level.
Real GDP per person allows better comparison across time and countries compared to nominal GDP.
GDP can rise when reliance on market-produced goods increases, reflecting greater economic activity.

Real vs. Nominal Salary

A nominal salary increase may not reflect an increase in real purchasing power if inflation is higher than the nominal increase, indicating a decline in real salary.

Aggregate Supply and Demand

When short-run equilibrium output exceeds long-run capacity, resource prices will likely increase, shifting the short-run aggregate supply curve left.
An unexpected increase in short-run aggregate supply typically results in higher real GDP.

Interest Rates and Savings

The dollar value of savings can increase while the value measured in goods may rise less or even fall, depending on real and inflation rates.

Unemployment Classifications

Individuals on temporary layoffs are classified as unemployed and part of the labor force.
An individual losing their job and seeking new employment increases the unemployment rate but does not affect the labor-force participation rate.

Exchange Rates and Market Dynamics

An appreciation of the dollar usually leads to increased travel abroad by Americans.
Increased American purchases of Mexican goods will shift the U.S. demand curve for pesos rightward.

Net Exports and Capital Flow

Positive net exports indicate that American assets bought by foreigners exceed the foreign assets bought by Americans, resulting in capital outflow.

Price Levels and Unemployment Rates

If actual prices fall below expected levels, unemployment will typically exceed the natural rate.
Long-run equilibrium occurs when actual and natural unemployment rates align, suggesting sustainability in economic output.

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Test your knowledge with these flashcards focused on key concepts related to full employment and economic output. Each card presents a question designed to help you understand the dynamics of unemployment and GDP. Perfect for reviewing essential economic principles just before your exam.