Learn: eco 202 prac quesiotns

A farmer sells apples directly to a family to eat. Are the apples a final or intermediate good?

Final good

A farmer sells apples to McDonald's to use in salads. Are the apples a final or intermediate good?

Intermediate good

Why aren't intermediate goods counted separately in GDP?

To avoid double counting

A restaurant buys cheese to make pizzas. Is the cheese a final or intermediate good?

Intermediate good

A family buys a pizza and eats it. Is the pizza a final or intermediate good?

Final good

A U.S. company produces a product in Mexico. Which country's GDP includes the production?

Mexico's GDP

A foreign company produces a product inside the United States. Does it count toward U.S. GDP?

Yes

What are the four components of expenditure GDP?

Consumption, investment, government purchases, and net exports

Households buying clothing is an example of what GDP component?

Consumption

A business buying a new machine is an example of what GDP component?

Investment

A newly built house is an example of what GDP component?

Investment

A company adding unsold goods to inventory is an example of what GDP component?

Investment

The government pays a police officer's salary. Is this a government purchase or transfer payment?

Government purchase

The government sends someone a Social Security check. Is this a government purchase or transfer payment?

Transfer payment

The government pays unemployment benefits. Is this a government purchase or transfer payment?

Transfer payment

A U.S. company sells shoes to a customer in Italy. What GDP component does this transaction affect?

Exports

A U.S. consumer buys a car produced in Japan. What GDP component does this transaction affect?

Imports

Why are imports subtracted when calculating GDP?

Because imports were not produced domestically

If nominal GDP increases, must real GDP increase?

No

If prices increase while production stays the same, what happens to nominal GDP?

Nominal GDP increases

If prices increase while production stays the same, what happens to real GDP?

Real GDP stays the same

If real GDP rises while nominal GDP falls, what happened to average prices?

Prices fell

Which measure is better for determining whether actual production increased: nominal GDP or real GDP?

Real GDP

What does a CPI of 120 mean relative to the base year?

The consumer basket costs 20% more than in the base year

What is the CPI in the base year?

100

What happens to purchasing power when the overall price level increases?

Purchasing power decreases

What happens to purchasing power when the overall price level decreases?

Purchasing power increases

What is the difference between CPI and the GDP deflator?

CPI measures a consumer basket; the GDP deflator measures prices of domestically produced final goods and services

A price increases for a good that is not included in the CPI basket. Does that directly affect CPI?

No

A domestically produced good is not in the CPI basket. Can its price affect the GDP deflator?

Yes

What is inflation?

An increase in the overall price level

What is deflation?

A sustained decrease in the overall price level

If nominal wages increase faster than prices, what happens to real wages?

Real wages increase

If prices increase faster than nominal wages, what happens to real wages?

Real wages decrease

If actual inflation is higher than expected inflation, who benefits from a loan: borrower or lender?

Borrower

If actual inflation is lower than expected inflation, who benefits from a loan: borrower or lender?

Lender

A person has no job but is actively searching for work. Are they unemployed or out of the labor force?

Unemployed

A person has no job and has stopped looking for work. Are they unemployed or out of the labor force?

Out of the labor force

Who is included in the labor force?

Employed and unemployed people

Are discouraged workers counted as unemployed?

No

What happens to the labor force when a discouraged worker stops looking for work?

The labor force decreases

What happens when someone who was out of the labor force begins actively looking for a job?

They enter the labor force and are counted as unemployed

Someone quits a job and searches for a new job. What type of unemployment is this?

Frictional unemployment

Someone moves to a new city and searches for a new job. What type of unemployment is this?

Frictional unemployment

A worker's skills no longer match the jobs available in their industry. What type of unemployment is this?

Structural unemployment

Workers lose their jobs because technology changes the skills employers need. What type of unemployment is this?

Structural unemployment

A worker loses their job because the economy enters a recession. What type of unemployment is this?

Cyclical unemployment

What type of unemployment increases during a recession?

Cyclical unemployment

What types of unemployment remain when the economy is at its natural rate?

Frictional and structural unemployment

What type of unemployment is zero at the natural rate of unemployment?

Cyclical unemployment

Does full employment mean zero unemployment?

No

A student has no job but is not looking for work. Are they unemployed?

No

A retired person who is not looking for work is unemployed. True or false?

False

If an unemployed person gets a job, what happens to the labor force?

It stays the same

If an unemployed person stops looking for work, what happens to the unemployment rate?

It can decrease because the person leaves the labor force

If someone who was out of the labor force starts looking for work but does not find a job, what happens to the unemployment rate?

It can increase because they become unemployed

If frictional unemployment is 1% and structural unemployment is 2.5%, what is the natural rate of unemployment?

3.5%

If actual unemployment is 4% and natural unemployment is 3.5%, what is cyclical unemployment?

0.5%