Macroeconomics Concepts and Measures

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Questions and Answers

Calculate the Unemployment Rate in 2022.

8.00% (correct)

10.75%

6.25%

11.50%

Determine the Employment-to-Population Ratio for 2022.

71.33%

65.71%

62.22% (correct)

50.91%

Identify the statement regarding underemployed workers.

are not; understates

are; understates (correct)

are not; overstates

are; overstates

What was the Real GDP growth rate during 2023?

8.1%; 8.64 Signup and view all the answers

How is Phillip classified in relation to the labor force?

not unemployed; part of; part of Signup and view all the answers

Calculate the cost of the CPI basket for 2022, which includes 3 tablets and 2 pairs of wireless headphones.

$2,240 Signup and view all the answers

What percentage of the population was employed in 2023?

66.67% Signup and view all the answers

What was the number of people not in the labor force in 2023?

50 million Signup and view all the answers

When the government reduces business taxes, what happens to the equilibrium real interest rate and the equilibrium quantity of lending and borrowing?

rises; increases Signup and view all the answers

Which of the following best describes the distinction between GDP and GNP?

GDP measures the value of actual production in the economy, whereas GNP measures the economy’s productive capacity. Signup and view all the answers

The calculation of GDP excludes the value of which of the following?

a family member painting the family home Signup and view all the answers

Kyle lost his job as a cashier at Target due to automation. What type of unemployment does this represent?

structurally unemployed Signup and view all the answers

TRUE OR FALSE: The New Goods Bias arises because new products are not included in the CPI basket of goods until after their price has initially fallen.

True Signup and view all the answers

Allison recently took out a loan with a nominal interest rate of 6% and expects inflation to be 2%. What is her anticipated real interest rate?

3% Signup and view all the answers

Which of the following is NOT one of the problems associated with inflation?

Inflation reduces human capital. Signup and view all the answers

Which statement about GDP is accurate?

GDP accounts for the total value of goods and services produced domestically. Signup and view all the answers

If households expect a decrease in income due to an upcoming recession, how is the equilibrium real interest rate affected?

Falls; decreases Signup and view all the answers

What is the expected movement in wages and the Short Run Aggregate Supply Curve during a recessionary gap?

Fall; leftward Signup and view all the answers

How does an increase in available labor affect Potential GDP and per-worker productivity?

Increase; increase Signup and view all the answers

Why is the lawn mowing activity between Professor Knight and his neighbor excluded from GDP calculations?

Household production Signup and view all the answers

Are changes in the real interest rate limited to affecting aggregate expenditures solely through consumer spending and net exports?

False Signup and view all the answers

What does it indicate when the current value of Real GDP exceeds the equilibrium value of Real GDP?

Shrinking inventories; we expect Real GDP and employment to increase Signup and view all the answers

What happens to an individual’s wealth when the price level rises but their savings account remains the same?

Wealth decreases; consumption falls Signup and view all the answers

Why is the Short Run Aggregate Supply curve considered upward sloping?

Prices of final goods and services take time to adjust, making firms less profitable Signup and view all the answers

What causes the macroeconomic production function to have a positive slope?

Increasing the number of workers increases Potential GDP. Signup and view all the answers

If the marginal propensity to consume (mpc) is 0.8 and business investment increases by $2 billion, what is the multiplier?

2.5 Signup and view all the answers

What is the nominal GDP value in 2022 based on the given table?

$4,100 Signup and view all the answers

What is the Real GDP value in 2022 based on the given table?

$3,275 Signup and view all the answers

What is the Real GDP growth rate for 2022 and how long would it take to double at that growth rate?

5.29%; 13.23 years Signup and view all the answers

Why might an increase in the real wage rate lead to an increase in the number of workers?

Higher wages incentivize workers to seek employment. Signup and view all the answers

In what scenario could an increase in productivity not lead to increased demand for labor?

If technological advancements require less labor. Signup and view all the answers

What is a possible reason for Professor Knight taking a second job?

To purchase concert tickets. Signup and view all the answers

Study Notes

Macroeconomic Concepts

GDP includes the value of newly produced physical capital and does not directly include the value of intermediate goods
GDP measures the value of actual production in the economy, whereas GNP measures the economy's productive capacity
The calculation of GDP excludes the value of household production
GDP calculations exclude household production, which includes services that are not sold in a market, like a family member painting the family home.
Inflation redistributes wealth from lenders to borrowers
Inflation redistributes income from workers to employers
Natural unemployment is the unavoidable minimum level of unemployment in an economy. It reflects a mismatch between available jobs and qualified individuals seeking employment.

Macroeconomic Measures and Rates

The Unemployment Rate is calculated as: (Number of Unemployed / Labor Force) * 100
The Employment-to-Population Ratio is calculated as: (Number of Employed Individuals / Working-Age Population) * 100
Underemployed workers are considered employed, and they contribute to the unemployment rate understating the problem of joblessness in the economy.
The Real GDP growth rate is calculated as: ((Real GDP in Current Year - Real GDP in Previous Year)/Real GDP in Previous Year) * 100

The Market for Loanable Funds

When the government reduces business taxes, the equilibrium real interest rate falls, and the equilibrium quantity of lending and borrowing increases.
If households believe that their incomes will fall in the coming months due to a looming recession, the equilibrium real interest rate rises, and the equilibrium quantity of lending and borrowing decreases.

Aggregate Supply and Aggregate Demand

The Short Run Aggregate Supply curve is upward sloping, because some prices are sticky.
When inflation occurs, the prices of input goods including labor take some time to adjust, making firms more profitable in the short run.
An increase in the amount of available labor leads to an increase in Potential GDP and a reduction in per-worker productivity.
The marginal propensity to consume (mpc) is the fraction of an additional dollar of income that is spent on consumption; the value of the multiplier is 1/(1-mpc).

Macroeconomic Data and Calculations

CPI calculations are prone to the Substitution Bias, which arises because consumers tend to substitute away from relatively more expensive goods to relatively cheaper goods.
Underground economic activity, such as Professor Knight having a second job at Opus Coffee after purchasing Bad Bunny concert tickets, is excluded from GDP calculations.
The New Goods Bias arises, because new products are not included in the CPI basket of goods until after their price has initially fallen.
The value of Real GDP exceeds the equilibrium value of Real GDP; this implies that firms’ inventories are shrinking, and we should expect Real GDP and employment to increase in response.
The value of Nominal GDP is calculated by summing the value of all final goods and services produced in an economy – it is the value of output at current-year prices.

Inflation

The inflation rate is the percentage change in the average level of prices over time.
Unexpected inflation can redistribute wealth from lenders to borrowers (fixed payments in nominal terms can buy less if prices rises faster than anticipated), and it can also make firms more profitable in the short run.

Macroeconomic Measures

Productivity is measured by output per worker; per-worker productivity can rise because of an increasing capital-labor ratio, higher levels of human capital, and technological progress.
The real interest rate adjusts for inflation, while the nominal interest rate does not. Real interest rate is calculated as Nominal Interest Rate - Inflation Rate.
The multiplier is the ratio of the change in equilibrium Real GDP to the initial change in autonomous aggregate expenditures. The value of the multiplier is greater than one, but less than or equal to infinity in the simple Keynesian model.

Macroeconomic Equilibrium

When the economy is in equilibrium, the quantity of Real GDP that households, firms, and the government want to spend on goods and services (aggregate expenditures) exactly equals the quantity of Real GDP produced.
When the economy is in equilibrium, the quantity of Real GDP demanded is exactly equal to the quantity of Real GDP supplied. The level of Real GDP corresponding to equilibrium is also known as the full employment level of Real GDP or Potential GDP.

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Description

Test your understanding of key macroeconomic concepts such as GDP, GNP, and inflation. This quiz covers essential measures and rates, including the unemployment rate and employment-to-population ratio. Perfect for students looking to solidify their knowledge in macroeconomics.