Final Exam Review

Question 1

The two major reasons for the tremendous growth in the output of the US economy over the last 125 years are

Answer 1

population growth and increased productivity

Question 2

The man reason that the US has such a high standard of living is

Answer 2

high average labor productivity

Question 3

In analyzing macroeconomic data during the past year, you have discovered that average labor productivity fell, but total output increased. What was most likely to have caused this?

Answer 3

There was an increase in labor input.

Question 4

In which of the following periods did average labor productivity in the US grow the fastest?

Answer 4

1949 to 1973

Question 5

The most direct effect of an increase in the growth rate of average labor productivity would be an increase in

Answer 5

the long-run economic growth rate

Question 6

Short-run contractions and expansions in economic activity are called

Answer 6

the business cycle

Question 7

When national output rises, the economy is said to be in

Answer 7

an expansion

Question 8

Which of the following best describes a typical business cycle?

Answer 8

Economic expansions are followed by economic contractions

Question 9

Average labor productivity is the

Answer 9

amount of output per worker

Question 10

During recessions, the underemployment rate ______ and output ______.

Answer 10

rises; falls

Question 11

The number of unemployed divided by the labor force equals

Answer 11

the unemployment rate

Question 12

The unemployment rate is the

Answer 12

number of unemployed divided by the labor force

Question 13

The highest and most prolonged period of unemployment int he US occurred during

Answer 13

the Great Depression

Question 14

During the Great Depression, the unemployment rate for the US peaked at approximately

Answer 14

25%

Question 15

A country is said to be experiencing inflation when

Answer 15

prices of most goods and services are rising over time

Question 16

From 1800 to 1940, the price level int he US

Answer 16

trended neither upward nor downward

Question 17

Before WWII, the average level of prices in the US usually

Answer 17

rose during wartime and fell during peacetime

Question 18

The inflation rate is the

Answer 18

percentage increase in the average level of prices over a year

Question 19

If the price level was 100 in 1999 and 102 in 2000, the inflation rate was

Answer 19

2%

Question 20

A closed economy is a national economy that

Answer 20

doesn’t interact economically with the rest of the world

Question 21

A country is said to be experiencing deflation when

Answer 21

prices of most goods and services are falling over time

Question 22

An open economy is a national economy that

Answer 22

has extensive trading and financial relationships with other national economies

Question 23

An economy that doesn’t interact economically with the rest of the world is called _____ economy.

Answer 23

a closed

Question 24

US imports are goods and services

Answer 24

produced abroad and sold to Americans

Question 25

Following WWI and WWII, the US had a

Answer 25

large trade surplus

Question 26

In the 1980s and 1990s, the US has had a

Answer 26

large trade deficit

Question 27

A country has a trade surplus when

Answer 27

exports exceed imports

Question 28

A country has a trade deficit when

Answer 28

imports exceed exports

Question 29

Data on exports and imports for the US over the period from 1890 to 2005 show that

Answer 29

a higher percentage of US goods was exported in recent years than in earlier years

Question 30

A central bank is an institution that

Answer 30

controls a nation's monetary policy

Question 31

The accounting framework used in measuring current economic activity is called

Answer 31

the national income accounts

Question 32

The three approaches to measuring economic activity are the

Answer 32

product, income, and expenditure approach

Question 33

The value of a producer's output minus the value of the inputs it purchases from other producers is called

Answer 33

value added

Question 34

Sam's semiconductors produces computer chips. which it sells for $10 mil to Carl's Computer Co. Carl's computers are sold for a total of $16 mil. what is the value added of Carl's?

Answer 34

$6 mil

Question 35

Total production = total income = total expenditures is called

Answer 35

fundamental identity of national income accounting

Question 36

To ensure that the fundamental identity of national income accounting holds, changes in inventories are

Answer 36

treated as part of expenditures

Question 37

To what extent are homemaking and child-rearing accounted for in GDP?

Answer 37

only to the extent that they are provided for pay

Question 38

The measurement of GDP includes

Answer 38

estimated values of activity in the underground economy

Question 39

Which of the following is included in US GDP?

Answer 39

a newly constructed house

Question 40

Government statisticians adjust GDP figures to include estimates of

Answer 40

the underground economy

Question 41

Because government services are not sold in markets

Answer 41

they are valued at their cost of production

Question 42

Intermediate goods are

Answer 42

goods that are used up in the production of other goods in the same period that they were produced

Question 43

Capital goods are

Answer 43

final goods, because they are not used up during a given year

Question 44

Marin's Metal Company produces screws that it sells to Ford, which uses the screws as a component of its cars. The screws are an

Answer 44

intermediate good

Question 45

Larry's Lathe-makers Limited produces lathes, which are purchased by furniture manufacturers all over the world. The standard lathe depreciates over a twenty-five year period. In the national income accounts, the lathes are classified as

Answer 45

capital goods

Question 46

Fred the farmer purchased 5 new tractors for $20,000 each. Fred sold his old tractors for $50,000. The net increase in GDP is?

Answer 46

$100,000

Question 47

Inventories include each of the following EXCEPT

Answer 47

raw materials held by firms

Question 48

GDP differs from GNP because

Answer 48

GDP = GNP - net factor payments from abroad

Question 49

If an American construction company built a road in Kuwait, this activity would be

Answer 49

included in US GNP only for that portion that was attributable to American capital and labor

Question 50

Nations such as Egypt and Turkey may have wide differences between GNP and GDP because both countries

Answer 50

have a large number of citizens working abroad

Question 51

If C=$500, I=$150, G=$100, NX=$40, and GNP=$800, how much is NFP?

Answer 51

$10

Question 52

The income expenditure identity says that

Answer 52

Y=C+I+G+NX

Question 53

Which of the following is NOT a category of consumption spending int he national income accounts?

Answer 53

Housing purchases

Question 54

Consumer spending is spending by ______ households on final goods and services produced ______.

Answer 54

domestic: domestically and abroad

Question 55

In the expenditure approach to GDP, which of the following would be excluded from measurements of GDP?

Answer 55

Government payments for welfare

Question 56

Net national product equals

Answer 56

gross national product minus depreciation

Question 57

Monica grows coconuts and catches fish. Last year she harvested 1500 coconuts and 600 fish. She values one fish as having a worth of three coconuts. She gave Rachel 300 coconuts and 100 fish for helping her to harvest coconuts and catch fish, all of which were consumed by Rachel. In terms of fish, Monica's income would equal

Answer 57

``` Monica = 900 fish Both = 1100 fish ```

Question 58

Private disposable income equals

Answer 58

GNP - taxes + transfers + interest

Question 59

A mathematical expression relating the amount of output produced to quantities of capital and labor utilized is the

Answer 59

production function

Question 60

In the production function Y+AF(K,N), A is ____, K is _______, and N is______.

Answer 60

``` A = total factor productivity K = the capital stock N = the number of workers employed ```

Question 61

Suppose the economy's production function......K and N both rise by 20%.....how much does Y increase?

Answer 61

20%

Question 62

In the production function equation, what happens if K doubles and N doubles?

Answer 62

Y doubles

Question 63

Suppose the economy's production function is Y = AK0.3N0.7. When K = 1000, N = 50, and A = 15, what is Y?

Answer 63

1842

Question 64

The two main characteristics of the production function are

Answer 64

it slopes upward from left to right, and the slope becomes flatter as the input increases

Question 65

If the marginal product of capital doesn't change as the amount of capital increases, a figure showing the relationship between output and capital

Answer 65

is a straight line with constant upward slope

Question 66

The marginal product of capital is the increase in

Answer 66

output from one-unit increase in capital

Question 67

Suppose the economy's production function is Y = AK0.3N0.7. Suppose K = 200, N = 2000, and A = 1. Calculate the marginal product of capital

Answer 67

1.5

Question 68

The fact that the production function relating output to capital becomes flatter as we move from left to right means that

Answer 68

there is diminishing marginal productivity of capital

Question 69

The marginal product of labor

Answer 69

decreases as the number of workers already employed increases

Question 70

The fact that the production function relating labor to capital becomes flatter as we move from left to right means that

Answer 70

there is diminishing marginal productivity of labor

Question 71

An adverse supply shock would

Answer 71

shift the production function down and decrease marginal products at every level of employment

Question 72

An invention that speeds up the Internet is an example of

Answer 72

a supply shock

Question 73

A supply shock that reduces total factor productivity directly affects which term in the production function Y = AF(K, N)?

Answer 73

A

Question 74

Economists often treat the economy's capital stock as fixed because

Answer 74

it takes a long time for new investment and the scrapping of old capital to affect the overall quantity of capital

Question 75

Changes in the capital stock occur ______, and changes in the amount of labor that firms employ occur _____.

Answer 75

slowly; quickly

Question 76

An increase in the real wage will cause

Answer 76

a movement along the labor demand curve

Question 77

A decrease in the real wage would result in a

Answer 77

movement along the labor demand curve, causing an increase in the number of workers hired by the firm.

Question 78

An increase in the number of workers hired by a firm could result from

Answer 78

a decrease in the real wage

Question 79

A decrease in the number of workers hired by a firms could result from

Answer 79

an increase in the real wage

Question 80

What two factors should you equate in deciding how many workers to employ?

Answer 80

the marginal product of labor and the real wage rate

Question 81

One reason that firms hire labor at the point where w = MPN is

Answer 81

if w > MPN, the cost (w) of hiring additional workers exceeds the benefits (MPN) of hiring them, so they should hire fewer workers.

Question 82

Firms hire labor at the point where the

Answer 82

nominal wage rate equals the marginal revenue product of labor

Question 83

Your boss wants to know if you should lay off any workers. You answer that you should lay off workers if the

Answer 83

marginal product of labor is less than the real wage rate

Question 84

An adverse supply shock, such as a reduced supply of raw materials, would

Answer 84

decrease the marginal product of labor

Question 85

Which of the following events would lead to an increase in the marginal product of labor for every quantity of labor?

Answer 85

a favorable supply shock such as a fall in the price of oil

Question 86

A winter ice storm has paralyzed the entire east coast, reducing productivity sharply. This supply shock shifts the marginal product of labor curve

Answer 86

down and to the left, reducing the quantity of labor demanded at any given real wage.

Question 87

The aggregate supply of labor is the

Answer 87

sum of the labor supplied by everyone in the economy

Question 88

The tendency of workers to supply more labor in response to a larger reward for working is called the ________ of a higher real wage on the quantity of labor supplied.

Answer 88

substitution effect

Question 89

The income effect of higher real wage on the quantity of labor supply is the

Answer 89

tendency of workers to supply less labor in response to becoming wealthier

Question 90

If Jeff's wage rate rises, he decides to work fewer hours. From this, we can infer that

Answer 90

for Jeff, the substitution effect is less than the income effect

Question 91

A person is more likely to increase labor supply in response to an increase in the real wage, the ________ is the income effect and the ________ is the substitution effect.

Answer 91

smaller; larger

Question 92

A permanent increase in the real wage rate has a ________ income effect on labor supply than a temporary increase in the real wage, so labor supply is ________ with a permanent wage increase than for a temporary wage increase.

Answer 92

larger; less

Question 93

Research on labor supply generally shows that

Answer 93

labor supply rises in response to a temporary increase in the real wage, but falls in response to a permanent increase in the real wage.