BE202 Exam 2

GDP tends to understate economic welfare because it does not take into account increases in leisure.

True

Most activities in the so-called underground economy are illegal activities, such as drugs or gambling.

False

All activities included in GDP serve to enrich society.

False

Which of the following activities is excluded from GDP, causing GDP to understate a nation's production?

goods and services produced in the underground economy

When businesses have to install antipollution equipment to clean up their wastes, they are adding to GDP.

True

If the working-age population in an economy shrinks, real GDP can still grow if

labor productivity increases rapidly enough.

In 2008, living standards in the United States were nearly ______ times higher than those in Africa.

19

At an annual growth rate of 7 percent, real GDP will double in about

10 years

Suppose total output (real GDP) is $10,000 and worker-hours are 20,000. We can conclude that

labor productivity must be $0.50.

For a nation's real GDP per capita to rise during a year,

real GDP must increase more rapidly than the population.

Okun's law indicates that for

every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated.

Unanticipated inflation tends to harm

people who save money in financial institutions.

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will

rise by about 15 percent

The presence of discouraged workers

may cause the official unemployment rate to understate the true amount of unemployment.

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result,

the official unemployment rate will remain unchanged.

One labor market quirk that helps explain why unemployment goes up so much in a recession is that

wages are flexible upward by “sticky” downward

What are the primary effects of cost-push inflation?

It reduces real output and redistributes a decreased level of real income.

The accompanying list describes the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.

1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer.

2. 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.

3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills.

4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work.

Which individual is cyclically unemployed?

George

If a person's nominal income increases by 5 percent while the price level increases by 2 percent, then that person's real income

increases by 3 percent

Suppose that lenders want to receive a real rate of interest of 5 percent and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of

7 percent