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Econ 2002 > Unit 3 > Flashcards

Unit 3 Flashcards

1
Q

George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.

What type of unemployment is this?

A

Cyclical

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2
Q

Employees at the university have negotiated a 5% increase in wages for the next year, based on their inflation expectations. If inflation is actually 6% over the next year, which of the following will occur?

A. Unemployment of university employees will rise

B. Real wages for university employees will fall

C. Inflation will be 5% the following year

D. The increase in inflation is expected

E. None of the above

A

B

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3
Q

The labor force equals the number of people who

A. are 16-65 years old and can work

B. have jobs

C. have jobs and are looking for another job

D. have jobs or do not have jobs but are seeking for jobs

E. do not have jobs and are not interested in having jobs

A

D

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4
Q

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is

A

5%

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5
Q

What are the three main kinds of unemployment?

A

Structural, frictional, cyclical

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6
Q

Suppose that price level increased by 1.2% last year while nominal GDP grew by 3.2% and unemployment was at 1.5%, then real GDP grew by

A

2%

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7
Q

GDP deflator includes ___, CPI includes ___, and PPI includes ___.

A. prices of all domestically produced goods and services; price of all domestic and foreign goods and services; prices of intermediate goods and services

B. prices of all domestically produced goods and services; price of some domestic and foreign goods and services; prices of intermediate goods and services

C. prices of some domestically produced goods and services; price of some domestic but not foreign goods and services; prices of intermediate goods and services

D. prices of some domestically produced goods and services; price of some domestic and foreign goods and services; prices of intermediate goods and services

E. There is no difference between 3 measures of inflation

A

B

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8
Q

If wages are not as flexible as prices in the AD-AS model, an increase in money growth will lead to:

A. An increase in inflation and a rise in real long-run GDP growth

B. An increase in inflation, but no rise in real short-run GDP growth

C. An increase in inflation and in the profits of firms
D. No change in inflation, but a fall in the profits of firms

E. None of the above

A

C

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9
Q

In the basic model with AD and LRAS curves only, if spending growth is 10% and the Solow growth rate falls from 5% to 3%, then inflation will:

A

increase from 5% to 7%

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10
Q

As a result of a positive shock to C:

A. Inflation and output growth increase in the short run, but in the long run they return to the rates before the shock

B. Inflation and output growth decrease in the short run, but in the long run they return to the rates before the shock.

C. Inflation increases and output growth decreases in the short run, but in the long run they return to the rates before the shock

D. Inflation and output growth increase in both the short run and the long run

E. None of the above

A

A

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11
Q

Changes in v tend to be ___, and changes in M tend to be ___.

A

temporary; permanent

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12
Q

A bank lends money for a year at an interest rate of 7%, and the inflation rate for that year turns out to be 5%. What is the bank’s real rate of return for that year?

A

2%

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13
Q

When economists state that “money is neutral,” they mean that the:

A. Overall price level has no effect on consumers; only relative prices do

B. Overall price level has no effect on people’s inflation expectations

C. Money supply does not affect inflation or nominal GDP

D. Money supply does not affect real GDP or unemployment.

E. Both a and c

A

D

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14
Q

In a small economy, the rate of money growth for the current year is 2%. Velocity of money circulation is stable. Inflation is expected to be about 1.5% over the current year. What is the short-run economic growth rate?

A

0.5%

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15
Q

Money illusion occurs when people:

A. Become irrational about money use

B. Become rationally ignorant about money

C. Mistake changes in price for changes in quality

D. Mistake changes in nominal prices for changes in real prices

E. None of the above

A

D

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16
Q

Which of the following is a problem with deflation?

A. It raises the real cost of debt payment

B. Stopping it will cause a recession

C. It causes people to pay more taxes

D. There is no problem with deflation; falling prices are good for the economy

A

A

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17
Q

The AD-AS model consists of the:

A. aggregate demand (AD) curve only

B. short-run aggregate supply (SRAS) curve only

C. long-run aggregate supply (LRAS) curve only

D. AD, SRAS, and LRAS curves

E. AD and SRAS

A

D

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18
Q

What agency is in charge of calculating/reporting the US GDP?

A

Bureau of Economic Analysis

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19
Q

What is the difference between nominal and real GDP?

A

Nominal GDP is affected by price changes while real GDP is not

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20
Q

If the general price level of new goods and services increases from year 1 to year 2 while the quantity of goods and services produced remains the same, what happens to nominal and real GDP?

A

nominal will rise; real will remain the same

21
Q

Mr. Smith buys a new American-made widget for his house. How does this transaction affect U.S. GDP?

A. Through the consumption component

B. Through the investment component

C. Through the government component

D. Through the net exports component

E. This transaction would not affect US GDP

A

A

22
Q

Mr. Smith buys a new American-made widget for his business. How does this transaction affect U.S. GDP?

A. Through the consumption component

B. Through the investment component

C. Through the government component

D. Through the net exports component

E. This transaction would not affect US GDP

A

B

23
Q

Which government organization is in charge of calculating and reporting the consumer price index?

A

Bureau of Labor Statistics

24
Q

Hooray! You just landed a job earning $30,000. You spend all your money on comic books, which cost $5 each. What is your money (nominal) wage? What is your real wage?

A

Money wage is $30,000; real wage is $6,000

25
Q

Suppose that the inflation rate, as calculated by the CPI, is reported to be 5% from year 1 to year 2. In theory, what does this information mean?

A. The price of all goods produced domestically increased by 5%

B. The price of all goods purchased by consumers has increased by 5%

C. The price of used goods and imports has increased by 5%

D. The purchasing power of the dollar has fallen by 5%

E. Real GDP rose by 5%

A

D

26
Q

It is generally agreed that because of the way that the CPI is constructed, it may “overstate” the true effects of inflation. What does this mean?

A. In acuality, the purchasing power of the dollar probably fell by slightly less than x%

B. In actuality, the purchasing power of the dollar probably fell by slightly more than x%

C. In actuality, the price of all goods purchased by consumers has risen by slightly more than x%

D. In actuality, the price of all goods produced domestically has risen by slightly more than x%

E. In actuality, real GDP rose by slightly less than x%

A

A

27
Q

When policy-makers and the news reports that “the economy contracted,” this means that during the last period ___

A. real GDP increased slower than the potential rate or decreased

B. real GDP decreased

C. nominal GDP decreased

D. nominal GDP per person decreased

E. inflation decreased

A

B

28
Q

What are the stages of the business cycle in the correct order?

A

peak, contraction, trough, expansion

29
Q

What category are children under 16 placed in by the BLS when calculating the unemployment figures?

A. employed, as long as they are working somewhere part-time

B. unemployed

C. not in the labor force

D. they aren’t counted at all

E. underemployed

A

D

30
Q

When someone is unemployed because they haven’t found the job that best matches their skills, then we say in general that the person is ___

A

frictionally unemployed

31
Q

When someone becomes unemployed because their current set of skills are no longer in demand by society, then we say that the person is ___

A

structurally unemployed

32
Q

Suppose that John Doe quits his job and becomes unemployed while he looks for a job more to his liking. This is an example of

A

frictional unemployment

33
Q

When someone wants a full-time job, but can only find part-time work, we say the person is

A

under-employed

34
Q

The natural rate of unemployment is equal to ___

A

frictional + structural unemployment

35
Q

What does the term “full-employment” mean?

A. It means that everyone in the country has a job and is working

B. It means that all adults in the country have a job and are working

C. It means that cyclical unemployment is 0, but we still have frictional and structural

D. It means that the country is currently producing as many goods and services as it sustainably can

E. Both c and d are true

A

C

36
Q

Which of the following is NOT a component of aggregate demand?

A. Consumer expenditure

B. Investment expenditure

C. Stocks and bonds

D. Government expenditure

E. Net exports

A

C

37
Q

___ reduce the quantity of labor demanded.

A. Minimum wages only

B. Union wages only

C. Both minimum wages and union wages

D. Neither minimum wages nor union wages

A

C

38
Q

Nobel Prize-winning economist Milton Friedman said, “Inflation is always and everywhere a ___.”

A

monetary phenomenon

39
Q

When economists state that “money is neutral,” they mean that the:

A. overall price level has no effect on consumers; only relative prices do

B. overally price level has no effect on people’s inflation expectations

C. money supply does not affect inflation or nominal GDP

D. money supply does not affect real GDP or unemployment

A

D

40
Q

When the expected rate of inflation is higher than the actual rate of inflation, wealth is:

A. redistributed at random

B. not redistributed at all

C. redistributed from borrowers to lenders

D. redistributed from lenders to borrowers

A

C

41
Q

What is the Fisher effect?

A. The tendency of nominal interest rates to fall with higher expected inflation rates

B. The tendency of nominal interest rates to rise with higher expected inflation rates

C. The tendency of real interest rates to fall with higher expected inflation rates

D. The tendency of real interest rates to rise with higher expected inflation rates

A

B

42
Q

The term business fluctuations refers to:

A. the different stages of a product cycle

B. changes in the prices of goods and services over time

C. movement in real GDP around its long-term trend

D. the trend in real GDP over a long period of time

A

C

43
Q

If the growth rate of money is 3% and the growth rate of velocity is 1%, the growth rate of nominal GDP is:

A

4%

44
Q

A real shock causes:

A. a shift of the aggregate demand curve

B. a shift of both the long-run aggregate supply curve and the aggregate demand curve

C. a shift of the long-run aggregate supply curve

D. a movement along the long-run aggregate supply curve

A

C

45
Q

Which of the following is NOT consistent with points along the long-run aggregate supply curve?

A. Real GDP is growing at its long-run potential growth rate

B. All prices are fully flexible

C. All real factors of production are being fully utilized

D. Real output growth is negatively related to inflation

A

D

46
Q

If wages are not as flexible as prices in the AD-AS model, an increase in money growth will lead to:

A. an increase in inflation and a rise in real long-run GDP growth

B. an increase in inflation, but no rise in real short-run GDP growth

C. an increase in inflation and in the profits of firms

D. no change in inflation, but a fall in the profits of firms

A

C

47
Q

Sticky wages and prices:

A. reduce the impact of negative shocks

B. increase the impact of positive shocks

C. have no effect on the impact of negative shocks

D. offset the impact of positive shocks

A

B

48
Q

If π > E(π):

A. firms’ profits will increase

B. money growth will cause the short-run aggregate supply curve to shift

C. firms’ profits will decrease

D. there will be no change in real GDP growth, because it is determined by real factors

A

A

Econ 2002 (4 decks)

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