Exam 2 Flashcards
Nominal GDP is the market value of _____.
all final goods and services produced in an economy in a given year
When Judy went to the grocery store yesterday, she bought three pounds of potatoes.
Judy’s purchase of potatoes…?
would be included in GDP as a consumption expenditure
Ford Motor Company buys four tires to put on a new Ford Mustang.
The purchase of the tires...?
would not be included in GDP
he U.S. Air Force purchases two new fighter jets from Boeing.
The purchase of the two fighter jets...?
would be included in GDP as a government purchase
When Joey had his birthday last week, his grandmother sent him a $100 bill that he could spend.
Joey's birthday gift of $100...?
would not be included in GDP
An example of an intermediate good would be _____.
paper and ink bought by a publishing company
The value of corporate stocks and bonds traded in a given year is _____.
excluded from the calculation of GDP because it does not represent new production
Which of the following purchases do national income accountants consider to be investment?
a new house
The following is national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320), imports ($35), exports ($22), personal consumption expenditures ($2,460), and government purchases ($470). What is GDP in this economy?
$3,237 billion
GDP can be calculated by summing _____.
consumption, investment, government purchases, and net exports
The income approach to measuring GDP _____.
uses the payments paid to the four resources used to produce goods and services to estimate GDP
Nominal GDP differs from real GDP because _____.
real GDP results from adjusting for changes in the price level
Sean grows vegetables in his garden to make salads for his family. Mike purchases vegetables at a local farmers’ market to make salads for his family.
Only Mike’s transaction is included in GDP.
Sam volunteers at the local library tutoring students in math. Laura tutors students in math, but instead of receiving money, parents often make her meals or give her small gifts.
Neither Sam nor Laura’s transaction is included in GDP. Correct
Neil sells illegal drugs. Morgan creates copies of music downloads and sells them.
Neither Neil nor Morgan’s transaction is included in GDP.
The phases of the business cycle from points A to D are, respectively
peak, recession, trough, expansion.
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
expansion
Full-time homemakers and retirees are classified in the BLS data as
not in the labor force.
The unemployed are those people who
are not employed but are seeking work.
In calculating the unemployment rate, “discouraged” workers who are not actively seeking employment are
excluded from the labor force.
The natural rate of unemployment
is equal to the total of frictional and structural unemployment.
When inflation occurs
the purchasing power of money decreases.
Melita heard that there had been inflation last month. She laughed and did not believe it. When asked why not, she said that last week she spend less at the grocery store because the cost of food had come down. Which of the following is the correct response?
Melita is wrong, food prices may have fallen, but other prices have risen so the average price of goods is higher.
A person’s real income will increase by 3% if her nominal income increases by
5% while the price index rises by 2%.
Eduardo has recently moved to a new city with his wife who was offered a great job there. He is trying to find a position in the same industry he worked in before relocating.
Frictional unemployment
Derek worked for a large telecommunications firm that went bankrupt last year due to a recent recession. He has since tried to find work with one of the firm’s competitors, but good jobs are currently hard to come by.
Cyclical unemployment Correct
Drew lost his job at a car manufacturer last year. He spent 6 months applying for every job possible before giving up 2 months ago. He now spends his day playing Xbox.
Not unemployed
Paula has 20 years of experience in manufacturing. Her employer, and many other manufacturing firms, recently closed their U.S. plants. She would like to find a similar job but is unable to find anything that utilizes her skills.
Structural unemployment
Katherine works part-time at a small retail store. She would like to work full-time, but her employer is currently unable to extend her hours.
Not unemployed
Tyrell just graduated from college with a business degree. He is currently looking for a job in banking in the major city he just moved to.
Frictional unemployment
Mike is a contractor who has been unable to find work, since most businesses are delaying or canceling their construction plans due to economic uncertainty in the coming year.
Cyclical unemployment
Meg used to own and run her own bookstore. Her sales declined due to competition from online retailers. She has not been able to find any work related to her skills in the diminishing retail industry for books.
Structural unemployment
The functions of money are to serve as a
unit of account, a store of value, and a medium of exchange.
One major advantage of money serving as a medium of exchange is that it allows society to
escape the complications of barter.
Credit card balances are not considered to be money primarily because they
are not part of people’s wealth
Which definition(s) of the money supply include(s) only items that are directly and immediately usable as a medium of exchange?
M1
Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as
no change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits.
The Federal Reserve System is an
independent agency of government.
The Federal Reserve System performs many functions but its most important one is
controlling the money supply.
Fractional reserve banking refers to a system where banks
hold only a fraction of their deposits in their reserves.
A commercial bank has no excess reserves until a depositor places $5,000 in cash at the bank. The commercial bank then lends $4,000 to a borrower. As a consequence of these transactions, the size of the money supply has
increased by $4,000.
Suppose the Federal Reserve increases the amount of reserves by $100 million and the total money supply increases by $500 million.
Instructions: Enter your answers as a whole number.
a. What is the money multiplier?
5
Suppose the Federal Reserve increases the amount of reserves by $100 million and the total money supply increases by $500 million.
b. Using the money multiplier from part a, how much will the money supply change if the Federal Reserve increases reserves by $50 million?
250
Nations specialize in production and engage in international trade in order to
increase consumption and income.
Mexico has a comparative advantage in producing corn
if its opportunity cost of producing corn is lower than the opportunity cost in other countries.
The primary gain from international trade is
more goods than would be attainable through domestic production alone.
When a nation starts opening up to international trade, it will see falling prices for
goods that it imports.
Which of the following statements about trade barriers is true?
The economic costs of trade barriers exceed their economic benefits, creating an efficiency loss for society.
If the United States places a limit on Chinese textile imports, this would be an example of
a quota.
A tax imposed by the U.S. government on imported Chinese frozen shrimp would be an example of
a tariff.
Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect
employment to decrease in the U.S. bicycle industry.
If a nation imposes a tariff on an imported product, then that nation will experience a(n)
decrease in quantity supplied and an increase in the price of the product.
The effects of a “Buy American” campaign, wherein U.S. consumers are encouraged to only buy goods produced domestically would have results similar to a(n)
quota.
U.S. exports create a _____.
supply of foreign currencies and a demand for dollars in the foreign exchange markets
U.S. businesses are demanders of foreign currencies because they need them to _____.
pay for goods and services imported from foreign countries
The demand curve for British pounds (in terms of U.S. dollars) is _____.
downward-sloping because a lower dollar price of pounds means British goods are cheaper to Americans
For American buyers, there is a decrease in the relative prices of Japanese goods when the _____.
dollar appreciates
Assume an exchange rate of $1 = 0.60 British pound. A U.S. product sells in Britain for 18 pounds. By what percentage will dollar revenues change if the dollar price of a pound falls to 0.50 pound?
+20%
The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos. This change will lead to _____.
a decrease in U.S. exports to Mexico
If the dollar-yen exchange rate is $1 for 125 yen, then a Honda CR-V priced at 3,125,000 yen would cost a U.S. importer of such a vehicle _____.
$25,000
If U.S. citizens flock to Canada for summer vacations and buy more Canadian goods and services, _____.
the price of U.S. dollars in Canadian dollars will fall
The balance of trade identity says the current account is equal to _____.
the sum of the capital account and the financial account
When the U.S. dollar decreases in value relative to foreign currencies, the _____.
demand for U.S. exports will increase
