Exam 1

If prices are rising over time, __1__ interest rate exceeds __2__ interest rate

1. Nominal
2. Real

If an economy's GDP rises, then it must be the case that the economy's income and expenditure both fall or rise?

Rise

To compute GDP we

add up the market values of all final goods and services

One of the widely acknowledged problems with using the CPI as a measure of the cost of living is that CPI

fails to measure all changes in the quality of goods

True or False?
The amount of unemployment that a country typically experiences is a determinant of that country's standard of living, and some degree of unemployment is inevitable in a complex economy

True

Suppose the government eliminates all environmental regulations and, as a result, the production of goods and services increase, but there is considerably more pollution.
GDP would definitely ____ because GDP ____ environmental quality

increase
excludes

Firms purchases of capital equipment, net additions to firms inventories, and households purchases of newly constructed homes are all investment components of ____

GDP

Larger GDP per person is associated with

longer life expectancy and a higher percentage of the population is literate

More generous unemployment insurance would raise _____ unemployment

frictional

A large number of men who used to work or seek work now no longer do either. Other things the same, this makes both the number of people ____ and the _____ force fall

unemployed
labor

The primary determinant of a country's standard of living is

the country's ability to produce goods and services

If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is ____, and this indicates that the price level has increased by ___ percent since the base year

125
25%

Ms. Take borrowed $1,000 from her bank for one year at an interest rate of 10 percent.
Ms. Takes repayment will give the bank less, greater, or the same purchasing power than it originally loaned her

less

After 9/11, governments within the US raised expenditures to increase security at airports. Are these expenditures included in GDP?

Yes

Jai Li lost her job and she hasnt yet started looking for a new one. Would she be considered in the labor force or unemployed?

Neither

One bag of flour is sold for $1. to a bakery, which uses the flour to bake bread sold for $3 to consumers.
A second bag of flour is sold to a consumer in a grocery store for $2.
How much does GDP increase?

$5

The government sends your grandfather his SS check. This represents what time of payment?

Transfer Payment

Purchase of natural gas by US households would be included in what component of US GDP?

Consumption Component

When the consumer price index rises, the typical family has to spend more or less $ to maintain the same standard of living?

more

The local car dealership has increased inventory of 25 cars in 2006. In 2007, it sells all 25 cars.
TRUE OR FALSE
The value of the cars in inventory will be counted as part of 2006 GDP, and the value of the cars sold in 2007 will increase 2007 GDP

False
The value of the cars in inventory will be counted as part of 2006 GDP, and the value of the cars sold in 2007 will NOT increase 2007 GDP

Changes in the GDP deflator reflect

only changes in prices

Over the past several decades, the difference between the labor-force participation rates of men and women in the US has
gradually increased or decreased?

decreased

______ models can be useful, even if they are not particularly realistic

Economic

In economics, items that are used to produce goods and services are known as ___

resources

What is the difference between positive and normative economic statements?

Positive is what happens while normative is what should happen
Fact vs opinion

TRUE OR FALSE
Both rich and poor people face the problem of scarcity
Scarcity exists only when supply is insufficient to meet demand

True
True

In the production of goods and services, trade-offs exist because

society has only a limited amount of productive resources

Entrepreneurs are important to market economies because

they engage in risk taking and innovation

An irrigation system is installed on a farm in North Dakota. This is an example of which factor of production?

Physical Capital

Whenever productive resources are used to make capital goods society is ____ __current consumption

giving up

A change in the outputs of two goods that a society chooses to produce will do what on a PPC?

Result in movement

The President promised that the nations economy will simultaneously produce more defense goods without any decrease in the production of other goods.
How could a promise like this be valid?

If the nation were producing inside its production possibilities curve

TRUE OR FALSE
A decline in the unemployment rate would cause the PPC to shift outward

False

Specialization in the division labor typically result in increased or decreased output?

increased

Jack, who has become discouraged about ever finding a job has stopped looking. Would he be counted as unemployed ?

No

Is GDP a perfect measure of well being?

No. GDP fails to account for the quality of the environment

The city of Ann Arbor Michigan buys a police car manufactured in Germany. In the GDP accounts this transaction is included in
government expenditures and imports or exports?

imports

When one converts nominal GDP to real GDP, should they take into accounting changes in population, changes in the quality of goods, or changes in the distribution of income?

None!

TRUE OR FALSE
Increases in the price level contributes to economic growth

False

A higher rate of saving should lead to
A. More investment, higher capital growth, and more future consumption
or
B. a higher price level and reduced future consumption

A. More investment, higher capital growth, and more future consumption

TRUE OR FALSE
Urban congestion can be considered a cost of economic growth

True

Economic growth tends to be high in a country that
A. has an underdeveloped system of property rights
B. has an open economy that encourages the rapid spread of technology

B. has an open economy that encourages the rapid spread of technology

Regarding open economies, economists tend to find evidence that
A. the more closed an economy is, the higher the rate of growth the economy will experience
B. Free Trade encourages a more rapid spread of technology, and hence increases economic growth

B. Free Trade encourages a more rapid spread of technology, and hence increases economic growth

The transformation of an invention into something that is useful to humans is called ___

innovation