85 Questions
Which individuals are considered unemployed using the official U-3 unemployment rate?
A, B, and C
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?
84 percent
The labor force according to the above table is ______________ million.
125
During a recession, which of the following is true?
Number of marginally attached workers increases
Frictional unemployment is associated with normal labor turnover.
True
What is the best example of a frictionally unemployed individual?
Mary who quit her job to find work closer to her home.
Which of the following means that the CPI overstates the actual inflation rate?
All of the above cause the CPI to overstate inflation
Substitution bias in the CPI refers to the fact that the CPI
Takes no account of the substitution of goods by consumers when relative prices change.
The type of unemployment described in the story is ____ unemployment.
structural
Reflecting the state of the economy in 2008, the lawyers that were fired are an example of ____ unemployment.
Cyclical
The economic growth rate is measured as the
Annual percentage change of real GDP.
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
4.65 percent.
Which of the following events will increase short-run aggregate supply?
An advance in technology
If the full-employment quantity of labor increases, then the
SAS curve shifts rightward and the LAS curve shifts leftward.
The aggregate demand curve shows
The quantity of real GDP demanded at different price levels.
Gross domestic product measures the value of the aggregate production of goods and services in a country during a given time period.
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.
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.
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?
Only the purchase of the Ford.
Intermediate goods are excluded from GDP because their inclusion would involve double counting.
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.
Household consumption is the largest.
Compared to the other sources of spending, net exports is small and negative.
Small and negative.
Which of the following are equal to one another? Aggregate production, aggregate expenditure, aggregate income.
I equals II equals III.
GDP equals C + I + G + (X - M).
C + I + G + (X - M)
Depreciation is defined as the decrease in the stock of capital due to wear and tear.
Decrease in the stock of capital due to wear and tear.
A recessionary gap means that short-run macroeconomic equilibrium GDP is _____.
is less than full-employment GDP.
If real GDP is less than potential GDP, then the economy is in ____ equilibrium.
below full-employment
The short-run macroeconomic equilibrium is a price level of _____ and a real GDP of _____.
110; $500
In short-run equilibrium, there is _____.
a recessionary gap of $100
In the long run, if aggregate demand does not change, Lotus Land will return to full-employment as _____.
the money wage rate falls
In the given figure, the inflationary gap when AD2 is the aggregate demand curve equals _____
the difference between $13.5 trillion and $13.0 trillion.
If the economy is at point A in the figure, which of the following is true?
The economy might be at point A as a result of a recent cut in the tax rate.
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 _____.
adjustments will occur so that the short-run aggregate supply eventually intersects the aggregate demand curve at $12 trillion.
A decrease in short-run aggregate supply _____ the equilibrium price level and _____ the equilibrium quantity of real GDP.
increases; decreases
Assuming the economy is at long run equilibrium and oil prices rise. As a result, the _____ shifts _____.
SAS; leftward
Stagflation is the combination of _____.
inflation and recession.
_____ economists believe that the economy is self-regulating and always at full employment.
Classical
Which of the following statements is INCORRECT?
A Keynesian believes the business cycle is mainly influenced by changes in people's expectations.
A Keynesian economist believes that _____.
the economy is self-regulating and will normally, though not always, operate at full employment if fiscal 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.
Monetarist
Which of the following is not a phase or turning point of the business cycle?
shutdown
The four parts of the business cycle occur in the following order:
expansion, trough, peak, recession
An economic expansion rather than a recession occurs when:
when growth in real GDP is positive
The use of purchasing power parity prices decreases the real GDP per person statistics published by the International Monetary Fund.
dog
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.
I, II and III
In calculating GDP, household production is not included because there is no market transaction.
True
Which of the following is not included in real GDP?
production that takes place in the underground economy
Pollution is a by-product of some production processes, so on this count real GDP as measured tends to overstate economic welfare.
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?
-$254 billion
What was (nominal) GDP equal to in 1999?
$9,257 billion
To see how variables evolve over time we use
a time-series graph
Which of the following is not a phase or turning point of the business cycle?
Shutdown
The four parts of the business cycle occur in the following order:
Recession, trough, expansion, peak.
A recession is commonly defined as occurring when:
Real GDP decreases for a period of 6 or more months
An expansion ends when the economy:
Hits a peak and then enters a recession.
An economic expansion rather than a recession occurs when:
When growth in real GDP is positive.
In the above figure, which point represents the under use of resources?
G
In the above figure, which point represents a situation with significant shortages of labor, capital, and other resources?
F
In the above figure, which point represents an economy which is at the peak part of a business cycle?
F
The use of purchasing power parity prices results in:
Accounts for differences in the prices of the same goods in different countries when measuring real GDP.
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.
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.
Downward due to the wealth and substitution effects.
Your real wealth is measured as the amount of goods and services your wealth will buy.
Amount of goods and services your wealth will buy.
As the price level falls and other things remain the same, real wealth ___ and ___.
increases; the quantity of real GDP demanded increases
According to the wealth effect, if real wealth decreases then people
Decrease their consumption expenditure.
The intertemporal substitution effect refers to substitution of
Goods and services today for goods and services in the future.
One reason that the aggregate demand curve has a negative slope is because
People buy more foreign goods when the domestic price level rises.
In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help
Move the economy to point A.
Which of the following does NOT shift the aggregate demand curve?
An increase in the price level
Which of the following shifts the aggregate demand curve rightward?
An increase in investment
If the expected future inflation rate decreases, then
Aggregate demand decreases.
People expect their incomes will decrease next year. As a result, the ___ will shift ___.
Aggregate demand curve; leftward
A decrease in government transfer payments
Decreases aggregate demand.
The aggregate demand curve shifts rightward when
Shifts rightward when taxes are decreased.
Which of the following shifts the aggregate demand curve rightward?
An increase in the quantity of money
The aggregate demand curve shows that, if other factors are held constant,
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.
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 __.
increases; the quantity of real GDP demanded increases
According to the wealth effect, if real wealth decreases then people
Decrease their consumption expenditure.
The intertemporal substitution effect refers to substitution of
Goods and services today for goods and services in the future.
One reason that the aggregate demand curve has a negative slope is because
People buy more foreign goods when the domestic price level rises.
In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help
Move the economy to point A.
Which of the following does NOT shift the aggregate demand curve?
An increase in the price level
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.
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.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
