macro test 2

What do changes in real GDP reflect?

Only changes in the amounts being produced.

What happens to GDP when holidays are eliminated and production increases?

GDP would definitely increase because GDP excludes leisure.

How is economic growth measured?

Percentage change in real GDP from one period to another.

Are Social Security recipients harmed by low inflation?

It could be correct if their consumption basket differs from the CPI basket.

What includes spending by federal, state, and local governments?

Government purchases.

What exists if natural unemployment is 4.7% and actual is 5.5%?

Cyclical unemployment of 0.8%.

What are the correct steps for calculating CPI and inflation?

Fix the basket → find prices → compute basket cost → choose base year & compute index → compute inflation rate.

What is the relationship between inflation and interest rates?

To understand interest rates, we must correct for inflation.

Which household expenditure counts as investment?

Purchase of a new house.

Are Social Security payments included in GDP?

No, because they do not reflect production.

What creates unemployment when minimum wages create a surplus of labor?

Structural unemployment.

Who is eligible for unemployment benefits: Violett or Alexandra?

Alexandra but not Violett.

What do studies show about unemployment benefits?

They decrease job search effort.

What is the percentage change in price level called?

Inflation rate.

What is the cost of the basket in Year 2?

$168.

What happens when minimum wage is above equilibrium?

Surplus of labor and shortage of jobs.

What does efficiency wage theory explain?

Firms may pay above-equilibrium wages.

How many are not in the labor force if the population is 140M, and there are 90M employed and 10M unemployed?

40 million are not in the labor force.

Who qualifies for unemployment benefits?

Those laid off because their employer no longer needs their skills.

What happens when someone starts looking for their first job?

Both unemployment rate and labor-force participation rate increase.