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Econ Test #4 Review

Products that would be used in calculating US GDP in 2014 would include…
Cars manufactured in Tennessee in 2014 at a factory owned by a Japanese automobile company and sold in 2015 in Canada
What is the general impact of a growing economy/increasing GDP?
More jobs
In a typical business cycle, what stage immediately follows a peak?
Contraction
Which of the following is an example of a final good or service?
A cake purchased from a bakery by you for your birthday party
or
A cake purchased from a bakery for a wedding
A recession is a contraction of ________ but a contraction is a decrease in _________
GDP, the rate of growth of GDP
GDP expressed in constant, or unchanging, prices is called
Real GDP
What is the four part definition of GDP?
1) Dollar Value
2) Produced in the country
3) Final Goods and Services
4) Amount of Time (quarterly)
Explain why final goods and services are included in the calculation of GDP and intermediate goods are not.
Only final goods and services are counted to avoid the double-counting of goods and services in GDP.
What is the impact on GDP of a decrease in exports?
It is bad for GDP because we want to have more exports because that means it is made in the country, which equals more jobs
In Naked Economics Chapter 9 Keeping Score: Is my economy bigger than your economy?, the author uses two nations to demonstrate that GDP per capita is a better way to measure a nation’s standard of living. Name the two countries
1) Israel
2) India
According to Naked Economics Chapter 9 Keeping Score: Is my economy bigger than your economy?, what is a flaw in using GDP as a measurement?
GDP doesn’t account for things that have to do with nature or deforestation.
1) environmental degregation
2) ignores black market transaction
> illegal. >stay at home parent. >babysitting
3) intermediate goods
a system that collects macroeconomic statistics on production, income, investment, and savings
National Income accounting
the dollar value of all final goods and services produced within a country’s borders in a given year
Gross domestic product (GDP)
consumer goods that last for a long time
Durable goods
loss of the value of capital equipment that results from normal wear and tear
depreciation
the average of all prices in the economy
price level
What are intermediate goods?
Goods used in the production of other goods
How does an economist calculate GDP for one year using the expenditure approach?
add together all the amounts spent on final goods and services
What is the underground economy?
the products and income that are not reported as income to the government
Which of the following is a nondurable good
gasoline
What is the difference between real GDP and nominal GDP?
Real GDP is based on constant prices; nominal GDP is based on the current year’s prices
a period of macroeconomic expansion followed by a period of contraction
Business cycle
a steady, long-term increase in real GDP
Economic growth
the lowest point in an economic contraction
trough
The highest point of an economic expansion
peak
a prolonged contraction of GDP
recession
What happens to consumer and business spending when the interest rates go up?
both types of spending decrease
What are the leading economic indicators supposed to predict?
business cycles
Which of the following finally brought the U.S. economy out of the Great Depression?
World War II
Which of the following was a lasting effect of the OPEC embargo in the 1970s on the U.S. economy?
reduced use of petroleum
What was the major change in the U.S. economy in the 1990s?
higher impact of international trade (and/or) heavier reliance on services
Products that would be used in calculating GDP include
cars manufactured in Tennessee at a factory owned by a Japanese automobile company
or
toys manufactured in Alabama at a factory owned by a U.S. company
An example of capital deepening would be
paying for an employee to take college courses
or
an individual taking an online course
What is the difference between seasonal unemployment and structural unemployment?
Seasonal unemployment occurs because of seasons, whereas structural occurs because people lack needed skills
According to the demand-pull theory, what is responsible for inflation?
demand for goods and services exceeds existing supply
Which of the following is correct? The unemployment rate is
unemployed/labor force
When Alison, a college math professor, leaves her job at a small rural college and starts looking for a job at large urban university, she is
frictionally unemployed
The “market basket” that is used by the Bureau of Labor Statistics to calculate prices is made up of which of the following?
typical goods and services for a household
If the number of people classified as unemployed is 50,000 and the number of people classified as employed is 200,000, what is the unemployment rate?
20%
A shortcoming of using GDP as a measurement is that
All of these:
1) it ignores negative externalities
2) it includes black market transactions
3) it includes quality of life measurements
The period of time when the rate of GDP growth is increasing is called
an expansion
How is nominal GDP converted into real GDP?
through eliminating the effects of price increases on GDP growth
An economy that experiences 2% growth in real GDP and 6% inflation is said to suffer from
stagflation
When the economy is at full employment, what is the unemployment rate?
4 to 6 percent
How has the distribution of income in the United States changed over the last 20 years?
It has become less equal
if the number of people employed is 200,000 and the labor force is 220,000 the unemployment rate is
10%
Economists look to which of the following explanations for inflation?
all of the above:
1) producers raise prices in order to meet increased costs
2) too much money in the economy
3) demand for goods exceeds supply, as in wartime
If Bob loses his job at the GM plant because car manufacturing is slow due to a downturn in the economy, you can conclude that he is
cyclically unemployed
Approximately, what is the current unemployment rate?
6%
Who generally bears most of a sales tax when the demand for the good taxed is inelastic?
the consumer
Which is an example of discretionary spending?
education
Mandatory spending represents approximately what percent of the federal budget?
67%
The largest expense for the federal government is
social security
Suppose your total taxable income this year is $75,000. You are taxed at a rate of 10% on the first $25,000, 20% on the next $25,000, and 30% on the final $25,000. What type of tax structure is this? What is your total income tax?
Progressive, $15,000
An example of expansionary fiscal policy would be
cutting taxes
Keynesian economics
is the basis for fiscal policy
The purpose of expansionary fiscal policy is to
increase GDP and employment
or
increase output
An example of an automatic stabilizer is
decreased tax revenue in a recession
Why does the Federal Reserve alter monetary policy?
to maintain price stability and promote economic growth
How many Federal Reserve Districts are there?
12
What does “lender of last resort” mean with respect to the Federal Reserve?
it will lend money to a bank in a financial emergency
What type of policy does the Federal Reserve use to counteract an expansion that is causing high interest rates?
Tight money policy
What is one possible effect of an easy money policy?
increasing inflation
Which of the following tools is NOT used by the Federal Reserve to effect the economy?
government spending
Which of these situations is most likely to cause the Fed to introduce a tight money supply?
The economy is expanding quickly and inflation is a concern
Which of these tools in an example of monetary policy?
changing interest rates
Which of these is an example of a lag in monetary policy?
Borrowers do not immediately borrow addition money when interest rates decrease
The best way but boat a perfect way to measure a nation’s economic well being is:
Real GDP per capita
The Federal Reserve was established in ______ and it’s power has ________ over time.
1913, decreased
The Federal debt is approximately $_________ and the federal deficit is approximately $__________. The federal debt represents approximately what percent of GDP? ______
18 Trillion, 500 billion, 100%
Explain why the FOMC buying bonds is likely to increase GDP
The FOMC buying bonds increases money into the banks, more loans to consumers, and more consumption which equals GDP goes up
What is one shortcoming or flaw in using GDP as a sole measurement of the economy?
It does not account for environment degradation
The current Fed Chairman is
Janet Yellen
In three words, explain what is happening in the following headline… “Fed Raises Interest Rates in response to Inflation.”
Contractionary Monetary Policy
The calculation of US GDP for 2012 would include
the purchase of a Ford built in Detroit in 2012 but sold in 2013
How do fears of future economic problems affect GDP?
consumers will spend less an save money in case future economic problems affect them; GDP will be reduced
Which of the following would cause the aggregate demand curve to shift to the left?
decreases in taxes
An economy that experiences decreasing real GDP and increasing prices is said to suffer from
stagflation
How has the distribution of income (income equality) in the U.S. changed over the last 20 years?
It has become less equal
If the number of people employed is 90,000 and the number unemployed 10,000, the unemployment rate is
10.00%
Poverty is measured as which of the following?
the percentage of the population that earns too little to sustain themselves
The Gini Index measures_________ and 1 is total _______
Economic Equality, inequality
The following economist developed the theories that support fiscal policy?
John Maynard Keynes
When revenues exceed expenditures,
there is a budget surplus
The Laffer curve predicts the effects of changes in the tax rate on
tax revenues
Which of these is a contractionary fiscal policy?
The President and Congress pass a new two-cent-per-gallon gasoline tax
The current budget deficit is________and getting_____
500 billion, bigger
All other things equal, the impact of large budget deficits is as follows:
higher interest rates and slower GDP growth
The federal government spends the largest amount of its budget on which item?
social security
We learned that there are several shortcomings or flaws to using GDP as a measurement of economic well being. Name one.
Nonmarket Activities/ Underground Economy
What is monetary policy?
Monetary policy is run by the Federal Reserve Bank, specifically Fed chairman women Janet Yellen, to control inflation, manage GDP growth, and manage jobs (in that order). Its goals deal with money supply, interest rates, and the FOMC.
—>Expansion: (increases) money supply, (decreases) interest rates, FOMC buys bonds
—>Contraction: (decreases) money supply, (increases) interest rates, FOMC sells bonds
Currently, the unemployment rate in the U.S. is approximately __________ while GDP growth is approximately _________
6%, 2(1?)%

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