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Questions and Answers
Which individuals are considered unemployed using the official U-3 unemployment rate?
Which individuals are considered unemployed using the official U-3 unemployment rate?
- A, B, and C (correct)
- A, C, and D
- B, C, and D
- C and D
In an economy with 40 million people employed, 2 million unemployed, and 8 million not in the labor force, what is the labor force participation rate?
In an economy with 40 million people employed, 2 million unemployed, and 8 million not in the labor force, what is the labor force participation rate?
- 80 percent
- 83 percent
- 87.5 percent
- 84 percent (correct)
The labor force according to the above table is ______________ million.
The labor force according to the above table is ______________ million.
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During a recession, which of the following is true?
During a recession, which of the following is true?
Frictional unemployment is associated with normal labor turnover.
Frictional unemployment is associated with normal labor turnover.
What is the best example of a frictionally unemployed individual?
What is the best example of a frictionally unemployed individual?
Which of the following means that the CPI overstates the actual inflation rate?
Which of the following means that the CPI overstates the actual inflation rate?
Substitution bias in the CPI refers to the fact that the CPI
Substitution bias in the CPI refers to the fact that the CPI
The type of unemployment described in the story is ____ unemployment.
The type of unemployment described in the story is ____ unemployment.
Reflecting the state of the economy in 2008, the lawyers that were fired are an example of ____ unemployment.
Reflecting the state of the economy in 2008, the lawyers that were fired are an example of ____ unemployment.
The economic growth rate is measured as the
The economic growth rate is measured as the
Real GDP is $9 trillion in the current year and $8.6 trillion in the previous year. The economic growth rate between these years has been
Real GDP is $9 trillion in the current year and $8.6 trillion in the previous year. The economic growth rate between these years has been
Which of the following events will increase short-run aggregate supply?
Which of the following events will increase short-run aggregate supply?
If the full-employment quantity of labor increases, then the
If the full-employment quantity of labor increases, then the
The aggregate demand curve shows
The aggregate demand curve shows
Gross domestic product measures the value of the aggregate production of goods and services in a country during a given time period.
Gross domestic product measures the value of the aggregate production of goods and services in a country during a given time period.
If Nike, an American corporation, produces sneakers in Thailand, this would add to Thailand's GDP but not to U.S. GDP.
If Nike, an American corporation, produces sneakers in Thailand, this would add to Thailand's GDP but not to U.S. GDP.
Which of the following is a final good? Flour purchased at the store to bake cookies.
Which of the following is a final good? Flour purchased at the store to bake cookies.
In 2013, Ozzie purchased a 2010 Ford Escort from his neighbor for his son and bought a 2013 new Ford for himself. Which, if any, of these transactions will be included in GDP in 2013?
In 2013, Ozzie purchased a 2010 Ford Escort from his neighbor for his son and bought a 2013 new Ford for himself. Which, if any, of these transactions will be included in GDP in 2013?
Intermediate goods are excluded from GDP because their inclusion would involve double counting.
Intermediate goods are excluded from GDP because their inclusion would involve double counting.
If we compare the four sources of spending in the economy, we see that household consumption is the largest.
If we compare the four sources of spending in the economy, we see that household consumption is the largest.
Compared to the other sources of spending, net exports is small and negative.
Compared to the other sources of spending, net exports is small and negative.
Which of the following are equal to one another? Aggregate production, aggregate expenditure, aggregate income.
Which of the following are equal to one another? Aggregate production, aggregate expenditure, aggregate income.
GDP equals C + I + G + (X - M).
GDP equals C + I + G + (X - M).
Depreciation is defined as the decrease in the stock of capital due to wear and tear.
Depreciation is defined as the decrease in the stock of capital due to wear and tear.
A recessionary gap means that short-run macroeconomic equilibrium GDP is _____.
A recessionary gap means that short-run macroeconomic equilibrium GDP is _____.
If real GDP is less than potential GDP, then the economy is in ____ equilibrium.
If real GDP is less than potential GDP, then the economy is in ____ equilibrium.
The short-run macroeconomic equilibrium is a price level of _____ and a real GDP of _____.
The short-run macroeconomic equilibrium is a price level of _____ and a real GDP of _____.
In short-run equilibrium, there is _____.
In short-run equilibrium, there is _____.
In the long run, if aggregate demand does not change, Lotus Land will return to full-employment as _____.
In the long run, if aggregate demand does not change, Lotus Land will return to full-employment as _____.
In the given figure, the inflationary gap when AD2 is the aggregate demand curve equals _____
In the given figure, the inflationary gap when AD2 is the aggregate demand curve equals _____
If the economy is at point A in the figure, which of the following is true?
If the economy is at point A in the figure, which of the following is true?
The long-run aggregate supply curve is vertical at $12 trillion but the short-run aggregate supply curve intersects the aggregate demand curve at $13 trillion. We know that _____.
The long-run aggregate supply curve is vertical at $12 trillion but the short-run aggregate supply curve intersects the aggregate demand curve at $13 trillion. We know that _____.
A decrease in short-run aggregate supply _____ the equilibrium price level and _____ the equilibrium quantity of real GDP.
A decrease in short-run aggregate supply _____ the equilibrium price level and _____ the equilibrium quantity of real GDP.
Assuming the economy is at long run equilibrium and oil prices rise. As a result, the _____ shifts _____.
Assuming the economy is at long run equilibrium and oil prices rise. As a result, the _____ shifts _____.
Stagflation is the combination of _____.
Stagflation is the combination of _____.
_____ economists believe that the economy is self-regulating and always at full employment.
_____ economists believe that the economy is self-regulating and always at full employment.
Which of the following statements is INCORRECT?
Which of the following statements is INCORRECT?
A Keynesian economist believes that _____.
A Keynesian economist believes that _____.
_____ economists believe that the economy is self-regulating and will be at full employment as long as monetary policy is not erratic.
_____ economists believe that the economy is self-regulating and will be at full employment as long as monetary policy is not erratic.
Which of the following is not a phase or turning point of the business cycle?
Which of the following is not a phase or turning point of the business cycle?
The four parts of the business cycle occur in the following order:
The four parts of the business cycle occur in the following order:
An economic expansion rather than a recession occurs when:
An economic expansion rather than a recession occurs when:
The use of purchasing power parity prices decreases the real GDP per person statistics published by the International Monetary Fund.
The use of purchasing power parity prices decreases the real GDP per person statistics published by the International Monetary Fund.
Real GDP does not show the state of economic welfare in a country in part because GDP omits household production, leisure time available, and the quality of the environment.
Real GDP does not show the state of economic welfare in a country in part because GDP omits household production, leisure time available, and the quality of the environment.
In calculating GDP, household production is not included because there is no market transaction.
In calculating GDP, household production is not included because there is no market transaction.
Which of the following is not included in real GDP?
Which of the following is not included in real GDP?
Pollution is a by-product of some production processes, so on this count real GDP as measured tends to overstate economic welfare.
Pollution is a by-product of some production processes, so on this count real GDP as measured tends to overstate economic welfare.
Real GDP overvalues household production.
Real GDP overvalues household production.
What was the value of net exports of goods and services in 1999?
What was the value of net exports of goods and services in 1999?
What was (nominal) GDP equal to in 1999?
What was (nominal) GDP equal to in 1999?
To see how variables evolve over time we use
To see how variables evolve over time we use
Which of the following is not a phase or turning point of the business cycle?
Which of the following is not a phase or turning point of the business cycle?
The four parts of the business cycle occur in the following order:
The four parts of the business cycle occur in the following order:
A recession is commonly defined as occurring when:
A recession is commonly defined as occurring when:
An expansion ends when the economy:
An expansion ends when the economy:
An economic expansion rather than a recession occurs when:
An economic expansion rather than a recession occurs when:
In the above figure, which point represents the under use of resources?
In the above figure, which point represents the under use of resources?
In the above figure, which point represents a situation with significant shortages of labor, capital, and other resources?
In the above figure, which point represents a situation with significant shortages of labor, capital, and other resources?
In the above figure, which point represents an economy which is at the peak part of a business cycle?
In the above figure, which point represents an economy which is at the peak part of a business cycle?
The use of purchasing power parity prices results in:
The use of purchasing power parity prices results in:
The aggregate demand curve shows that, if other factors are held constant, a higher price level results in a decrease in the quantity of real GDP demanded.
The aggregate demand curve shows that, if other factors are held constant, a higher price level results in a decrease in the quantity of real GDP demanded.
The AD curve slopes downward due to the wealth and substitution effects.
The AD curve slopes downward due to the wealth and substitution effects.
Your real wealth is measured as the amount of goods and services your wealth will buy.
Your real wealth is measured as the amount of goods and services your wealth will buy.
As the price level falls and other things remain the same, real wealth ___ and ___.
As the price level falls and other things remain the same, real wealth ___ and ___.
According to the wealth effect, if real wealth decreases then people
According to the wealth effect, if real wealth decreases then people
The intertemporal substitution effect refers to substitution of
The intertemporal substitution effect refers to substitution of
One reason that the aggregate demand curve has a negative slope is because
One reason that the aggregate demand curve has a negative slope is because
In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help
In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help
Which of the following does NOT shift the aggregate demand curve?
Which of the following does NOT shift the aggregate demand curve?
Which of the following shifts the aggregate demand curve rightward?
Which of the following shifts the aggregate demand curve rightward?
If the expected future inflation rate decreases, then
If the expected future inflation rate decreases, then
People expect their incomes will decrease next year. As a result, the ___ will shift ___.
People expect their incomes will decrease next year. As a result, the ___ will shift ___.
A decrease in government transfer payments
A decrease in government transfer payments
The aggregate demand curve shifts rightward when
The aggregate demand curve shifts rightward when
Which of the following shifts the aggregate demand curve rightward?
Which of the following shifts the aggregate demand curve rightward?
The aggregate demand curve shows that, if other factors are held constant,
The aggregate demand curve shows that, if other factors are held constant,
The AD curve slopes
The AD curve slopes
Your real wealth is measured as the
Your real wealth is measured as the
As the price level falls and other things remain the same, real wealth __ and __.
As the price level falls and other things remain the same, real wealth __ and __.
According to the wealth effect, if real wealth decreases then people
According to the wealth effect, if real wealth decreases then people
The intertemporal substitution effect refers to substitution of
The intertemporal substitution effect refers to substitution of
One reason that the aggregate demand curve has a negative slope is because
One reason that the aggregate demand curve has a negative slope is because
In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help
In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help
Which of the following does NOT shift the aggregate demand curve?
Which of the following does NOT shift the aggregate demand curve?
Study Notes
Measuring National Income and Output
Gross Domestic Product (GDP)
- Measures the value of aggregate production of goods and services in a country during a given time period
- Includes all goods and services produced within a country's borders, regardless of the nationality of the producer
- Excludes intermediate goods and services
- Can be calculated using the expenditure approach: GDP = C + I + G + (X - M)
Expenditure Approach
- Consumption (C): household expenditures on goods and services
- Investment (I): expenditures on capital goods, inventories, and business expenditures
- Government Expenditure on Goods and Services (G): government expenditures on goods and services
- Net Exports (X - M): exports minus imports of goods and services
Income Approach
- Compensations of employees: wages, salaries, and benefits
- Rent and royalty income: income from owned resources
- Corporate profits: profits earned by corporations
- Proprietor's income: income of self-employed individuals
Nominal GDP vs. Real GDP
- Nominal GDP: value of GDP at current prices
- Real GDP: value of GDP at constant prices (adjusted for inflation)
- Real GDP is a better indicator of economic growth and welfare
Business Cycle
- Fluctuations in the level of real GDP around potential GDP
- Phases of the business cycle: expansion, peak, recession, trough
- Recession: a period of at least two consecutive quarters of negative economic growth
- Expansion: a period of economic growth
Limitations of GDP as a Measure of Welfare
- Omits household production: value of goods and services produced within households
- Omits leisure time: value of time spent on leisure activities
- Omits environmental degradation: negative externalities from production
- Omits underground economy: illegal or unreported economic activitiesHere are the study notes for the provided text:
Labor Force and Unemployment
- The labor force is equal to the number of people employed plus the number of people unemployed.
- The official U-3 unemployment rate includes persons without a job who have made efforts in the last week to find a job.
- Full-time students and prisoners are not in the labor force.
- To calculate the unemployment rate, we need to know the number of unemployed persons and the labor force.
- The employment-to-population ratio is the number of employed people as a percentage of the working-age population.
Unemployment Types
- Frictional unemployment is associated with normal labor turnover.
- Structural unemployment occurs when workers' skills do not match the available jobs.
- Cyclical unemployment fluctuates over the business cycle.
- Marginally attached workers are not actively searching for work but are available for work.
Business Cycle
- Cyclical unemployment increases during recessions and decreases during expansions.
- The natural unemployment rate occurs when only frictional unemployment is present.
- The natural unemployment rate is the unemployment rate when the economy is at potential GDP.
Inflation
- Inflation is an increase in the general price level of goods and services in an economy over time.
- Hyperinflation is very high inflation rates.
- The cost of inflation to society includes unpredictable changes in the value of money.
- The Consumer Price Index (CPI) is a measure of inflation.
Economic Growth
- The economic growth rate is measured as the annual percentage change of real GDP.
- Real GDP per person is a measure of the standard of living.
- If the population growth rate is greater than the growth rate of real GDP, then real GDP per person falls.
Aggregate Supply
- The supply of real GDP is a function of the quantities of labor, capital, and the state of technology.
- The aggregate supply curve depicts the relationship between the price level and the aggregate quantity supplied.
- In the macroeconomic short run, actual real GDP may be less than or more than potential GDP.### Aggregate Supply and Demand
- The long-run aggregate supply curve is vertical because along it, as prices rise, the money wage rate stays constant.
- The short-run aggregate supply curve is upward sloping because a lower price level creates a wealth effect, and lower taxes motivate people to work more.
- The short-run aggregate supply curve shifts when the money wage rate or other resource prices change.
- The long-run aggregate supply curve shifts when there is a change in the quantity of capital or labor, a technological advancement, or a change in institutions.
Shifts in Aggregate Demand
- The aggregate demand curve slopes downward because of the wealth effect and the substitution effect.
- The aggregate demand curve shifts when there is a change in consumer confidence, government expenditures, or net exports.
Short-Run Equilibrium
- Short-run equilibrium occurs at the intersection of the short-run aggregate supply curve and the aggregate demand curve.
- In the short run, real GDP can be greater than or less than potential GDP because the money wage rate is fixed.
Economic Growth
- Economic growth is an increase in potential GDP as the long-run aggregate supply curve shifts rightward.
- If aggregate demand grows only slightly faster than potential GDP, then the economy will experience economic growth with low inflation.
Full-Employment Equilibrium
- Full-employment equilibrium is achieved when real GDP equals potential GDP.
- An inflationary gap occurs when real GDP exceeds potential GDP.
- A recessionary gap occurs when real GDP is less than potential GDP.
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Description
Multiple choice questions about Gross Domestic Product (GDP) and its definition. Learn about the value of aggregate production of goods and services in a country.
