final or whateva

Gross domestic product (GDP) is

the value of all final goods and services produced within an economy in a given year

When policy-makers and news organization talk about “the economy” or “the size of the
economy”, what are they generally referring to?

GDP – Gross Domestic Produc

Which country has the largest economy in the world?

The U.S.

What agency is in charge of calculating/reporting the U.S. GDP?

Bureau of Economic Analysis

How many measures of GDP are there?

Nominal GDP and Real GDP

What is the difference between nominal and real GDP?

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

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?

nominal GDP will rise; real GDP will remain the same

If the general price level of new goods and services falls from year 1 to year 2 while the
quantity of goods and services produced rises, what happens to nominal and real GDP?
a) nominal GDP will rise; real GDP will rise

change in nominal GDP cannot be determined; real GDP will rise

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

through the consumption component

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

This transaction would not affect U.S. GDP.

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

through the investment component

Suppose that at the end of the year, Ken’s Kars has 10 new Ford cars left on the lot that went
unsold. Each car has a price of $15,000. How does this affect GDP, and through which
component?

GDP increases by $150,000; it shows up in the Investment component

Suppose that Domenic Toretto buys 4 used tires for $250 at the tire store for his Dodge
Charger. How does this affect GDP?

It has no effect on GDP because the transaction is not counted.

A U.S. company purchases new cement mixers that were made in the U.S. This purchase
by itself makes

a positive contribution both to investment and to GDP.

An American company operates a coffeehouse in Lisbon, Portugal. Which of the following
statements is accurate?

The value of the goods and services produced by the coffeehouse is included in
Portuguese GDP, but not in U.S. GDP.

If the price of a shirt is five times the price of a pair of socks, then a shirt contributes
a. exactly as much as a pair of socks does to GD

five times the price of a pair of socks does to GDP.

Which of the following items purchased by households are included in investment rather
than consumption?

only the purchases of new houses

The value of a carwash

is included in GDP only if it is sold in the market.

If an economy's income falls, then it must be the case that the economy's

GDP and expenditures both fell.

An economy recently had nominal GDP of 5 trillion euro and a GDP deflator of 125. What
was real GDP?

4 trillion euro, and real GDP is a better gauge of economic activity than nominal
GDP

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

Bureau of Labor Statistics

What are the two main measures of inflation used in the U.S.?

The Consumer Price Index and the GDP deflator

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?

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

Hooray (again!) It is 10 years later, and now your salary is $35,000, and comic books are
now $6. What has happened to your money (nominal) wage and your real wage?

Your money wage has increased, but your real wage has decreased

Hoorah! In 2015, after graduation, you land your first professional job as a law clerk, running
errands, making copies and getting coffee for the higher ups. Your salary is $35,000 per year.
By the year 2040 you have made senior partner in the law firm, earning an annual salary of
$100,000. The CPI in 2015 is 210. The CPI in year 2040 is 650. Use that information to
answer the next few questions

Expressed in 2040 dollars, what is your salary in 2015?

$108,333

Hoorah! In 2015, after graduation, you land your first professional job as a law clerk, running
errands, making copies and getting coffee for the higher ups. Your salary is $35,000 per year.
By the year 2040 you have made senior partner in the law firm, earning an annual salary of
$100,000. The CPI in 2015 is 210. The CPI in year 2040 is 650. Use that information to
answer the next few questions

Expressed in 2015 dollars, what is your salary in 2040?

$32,308

Hoorah! In 2015, after graduation, you land your first professional job as a law clerk, running
errands, making copies and getting coffee for the higher ups. Your salary is $35,000 per year.
By the year 2040 you have made senior partner in the law firm, earning an annual salary of
$100,000. The CPI in 2015 is 210. The CPI in year 2040 is 650. Use that information to
answer the next few questions

In terms of purchasing power, when were you better off?

2015

Hoorah! In 2015, after graduation, you land your first professional job as a law clerk, running
errands, making copies and getting coffee for the higher ups. Your salary is $35,000 per year.
By the year 2040 you have made senior partner in the law firm, earning an annual salary of
$100,000. The CPI in 2015 is 210. The CPI in year 2040 is 650. Use that information to
answer the next few questions

What happened to your purchasing power from 2015 to 2040?

your purchasing power decreased over time

Suppose that the inflation rate, as calculated by the CPI, is reported to be 5% from year 1 to
year 2. Use that information to answer the next two questions

In theory, what does this information mean?

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

Suppose that the inflation rate, as calculated by the CPI, is reported to be 5% from year 1 to
year 2. Use that information to answer the next two questions

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?

In actuality, the purchasing power of the dollar probably fell by slightly less than
5%

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

real GDP increased slower than the potential rate or decreased

If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real
interest rate is

6 percent.

Coffee is weighted more than tea in the calculation of the CPI if

consumers buy more coffee than tea

Substitution bias is a problem when measuring the consumer price index because

prices of goods and services do not change in the same proportion from
year to year

If the consumer price index was 100 in 2012, 102 in 2014, 105 in 2016, and 107 in 2018,
then the base year must be

2012.

A candy bar cost $1.00 in 2019. The value for the CPI in 1962 is 30.4 and the value of the
CPI for 2019 is 236.2, what is the price of a candy bar in 1962 dollars

$0.13

Suppose the price of a forklift produced in the U.S. increases. As a result

GDP deflator increases, no change in CPI.

Suppose the price of imported wine from Italy increases. As a result,

CPI increases but no change in GDP deflator.

Suppose the price of milk produced in the U.S. increases. As a resul,

Both CPI and GDP deflator increases

Which government agency is in charge of calculating and reporting the nation’s
unemployment figures?

Bureau of Labor Statistics

Which of the following would be included as part of the labor force?

someone let go from work and who is looking for work

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

they aren’t counted at all

What category are retired people placed in by the BLS when calculating unemployment
figures?

not in the labor force

Consider the categories given below. What are the three categories used by the BLS to
classify the civilian, adult population?

i. Children
ii. employed (all – full and part time)
iii. employed (full-time only)
iv. employed (part-time only)
v. retired
vi. not in the labor force
vii. unemployed

ii, vi and vii

Betty Lou recently quit her job so that she can go back to school full-time to earn her MBA.
How would she be classified by the BLS?

not in the labor force

The total civilian, non-institutionalized adult population (16 and over), according to the BLS,
is equal to

the employed plus the unemployed plus those not in the labor force

The labor force is defined as

the employed plus the unemployed

The unemployment rate (as calculated by the BLS) is the

unemployed divided by the labor force

When someone becomes unemployed because of a slowdown in the growth of real GDP, we
say in general that the person is ____.

cyclically unemployed

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 ___.

frictionally unemployed

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

structurally unemployed

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

frictional unemployment

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

under-employed

The natural rate of unemployment is equal to _____.

frictional plus structural unemployment

The actual rate of unemployment is equal to _____.

cyclical plus frictional plus structural unemployment

Suppose that the natural rate of unemployment is estimated to be 5.5%. Suppose further
that the actual unemployment rate is 6.5%. Which of the following statements must be true?

Cyclical unemployment is 1%.

What does the term ‘full-employment’ mean?

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

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

Springfield is a small town with a total civilian population of 800. Of this population, 125 are under
the age of 16. Of the population 16 and over, there are 350 working full-time and another 50
working part-time. Of the remaining adult population, 30 people recently quit their jobs in order
to look for better employment. Finally, there are 30 full-time students (not working), 200 retired
and another 15 stay-at-home spouses

The size of the labor force is ______ and the BLS would officially count ____ as
unemployed

430; 30

Springfield is a small town with a total civilian population of 800. Of this population, 125 are under
the age of 16. Of the population 16 and over, there are 350 working full-time and another 50
working part-time. Of the remaining adult population, 30 people recently quit their jobs in order
to look for better employment. Finally, there are 30 full-time students (not working), 200 retired
and another 15 stay-at-home spouses.

The unemployment rate is _____ and the labor force participation rate is _______.

7.0%; 63.7%

Springfield is a small town with a total civilian population of 800. Of this population, 125 are under
the age of 16. Of the population 16 and over, there are 350 working full-time and another 50
working part-time. Of the remaining adult population, 30 people recently quit their jobs in order
to look for better employment. Finally, there are 30 full-time students (not working), 200 retired
and another 15 stay-at-home spouses

How would you characterize those that are unemployed in Springfield?

frictionally unemployed

Brittany Spears is a typical 20-year-old college student. She is enrolled full time, taking 15
hours of coursework. In addition, she works 15 hours per week waiting tables at a local
restaurant. How does the BLS officially classify her?

She is Employed

Minimum wages create

structural unemployment if they create a surplus in the labor market.

If the natural rate of unemployment is 5 percent and the actual rate of unemployment is 5.5
percent, then by definition there is

cyclical unemployment amounting to 0.5 percent of the labor force

Economics primarily addresses the problems associated with
a) poverty.
b) money.
c) scarcity.
d) government policies.
e) shortages or surpluses

a) scarcity

Which of the following are the main ideas of economics?
a) Resources used to make goods and services desired by society are scarce.
b) Because resources are scarce, we cannot make all the goods and services that society desires.
c) Because we cannot make all the goods and services that society desires, individuals must
continually face trade-offs and make decisions.
d) These decisions should be made in such a way as to stretch the available resources to their
fullest and best use.
e) All the above represent main ideas of economics.

e) All the above represent main ideas of economics.

Why can’t we have all the goods and services we want?
a) Because humans wants are unlimited.
b) Because the resources used to make goods and services are limited.
c) Because humans make illogical or impractical decisions.
d) All of the above are true.
e) Both a and b are true.

e) both a and b are true

Physical capital is used by economists to mean
a) goods that are used to help make other goods and services.
b) the physical space (warehouse) where production occurs.
c) time allocated to producing goods and services.
d) the education and training of the workforce.
e) financial backing

goods that are used to help make other goods and services

Human capital is used by economists to mean
a) the education of the workforce.
b) goods that are used to help make other goods.
c) training and on the job experience.
d) financial backing.
e) Both a and c are correct.

Both a and c are correct.

Tradeoffs are required in any decision because wants are ____ while resources are ____.
a) realistic; plentiful
b) scarce; efficient
c) unlimited; scarce
d) within reason; abundant
e) scarce; unlimited

unlimited; scarce

Suppose that Matt spends 4 hours playing golf, paying green fees of $50, rather than working at his
job that pays $10 hour. What is the economic cost of his decision to play golf?
a) $90
b) $60
c) $50
d) $40
e) nothing, since he enjoys golf much more than working anyway.

90

Which of the following issues are concerned with microeconomic issues?
a) Whether Home Depot hires 50 or 51 workers per shift.
b) How consumers respond to a 5% tax on gasoline.
c) How a 5% tax on gasoline affects the market for new cars.
d) How a firm responds to new pollution regulations on production.
e) All of the above are microeconomic in nature.

All of the above are microeconomic in nature.

Which of the following statements is normative?
a) Printing money causes the price level to rise.
b) People work harder when the wage rate is higher.
c) The government should try to lower the unemployment level.
d) In the short run, inflation usually rises when unemployment falls.
e) A decrease in the capital gains tax by 5% will cause the economy to grow 1% faster.

The government should try to lower the unemployment level.

An economic theory is valuable only if it
a) is complex.
b) can be tested.
c) is proven correct.
d) expresses good news.
e) is published in an important academic journal

can be tested

Marginal thinking involves:
a) comparing the total benefit and total cost of a decision.
b) accurately calculating the opportunity cost of a decision.
c) always acting in your own self-interest.
d) weighing the small incremental benefits against the small incremental cost of a decision

weighing the small incremental benefits against the small incremental cost of a decision.

A reason for government involvement in a market economy is:
a) markets sometimes fail to produce an efficient allocation of resources.
b) markets sometimes fail to produce a fair distribution of economic resources.
c) property rights have to be enforced to promote innovation in an economy.
d) All of these answers are correct

All of these answers are correct.

An economic model
a) can never be proven wrong
b) often omits crucial elements
c) simplifies reality in order to focus on crucial elements
d) uses equations to understand normative economic phenomena
e) produces poor predictions since they include unrealistic assumptions

simplifies reality in order to focus on crucial elements

Every time we choose to do one thing, we give up doing something else. This best describes the
economic principle of:
a. opportunity cost.
b. marginal thinking.
c. monetary cost.
d. self-interest

opportunity cost.

Suppose a publishing company is deciding whether or not to print 50,000 additional copies of an
economic textbook. The company should print the textbooks if:
a. the marginal cost of printing the extra books is greater than the marginal benefit (additional
revenue) of selling the books.
b. the marginal benefit (additional revenue) from selling the extra books is greater than the
marginal cost of printing the books.
c. they can get a good deal on the paper used to print the additional textbooks.
d. the cost of printing the additional textbooks is zero

the marginal benefit (additional revenue) from selling the extra books is greater than the
marginal cost of printing the books

When the government intervenes in the economy to promote equality, it means that the
government is trying to:
a. change the way we produce goods and services.
b. create a more fair distribution of income.
c. increase the size of the economic pie.
d. create a more unequal distribution of income.

create a more fair distribution of income.

Adam Smith's 'invisible hand' refers to:
a. how households and firms, acting in their own self-interest, manage to make
everyone better off.
b. how central planners made economic decisions.
c. the control that large firms have over the economy.
d. how governments allocate economic resources.

how households and firms, acting in their own self-interest, manage to make
everyone better off

Kurt decides to spend 2 hours working rather than hanging out with his friends. He earns $10 per
hour for work. His opportunity cost of working is
a. the utility or enjoyment he would have gotten from hanging out with his friends.
b. the $20 he earned working the extra two hours
c. nothing as he has given nothing up to work the extra hours.
d. $20 minus the value of the time spent with friends

the utility or enjoyment he would have gotten from hanging out with his friends.

One of the reasons that people tend to eat more in an "all you can eat" buffet is because the
a. marginal cost of an extra plate of food is greater than the marginal benefit.
b. marginal benefit from an extra plate of food is greater than the marginal cost of the
additional food.
c. opportunity cost of the additional food is greater than the marginal benefit from the
extra food.
d. opportunity cost of the extra plate of food is negative

marginal benefit from an extra plate of food is greater than the marginal cost of the
additional food

Adam has $200 to spend and wants to buy either a new amplifier for his guitar or a new cell phone.
Both the amplifier and the cell phone cost $200, so he can only buy one. This illustrates the basic
concept that:
a. people respond to incentives.
b. people face trade-offs.
c. everyone has an unlimited supply of resources.
d. everyone is always acting in his or her own self-interest.

people face trade-offs

The main reason households and societies must make many decisions is because
a. incomes fluctuate with business cycles.
b. people, by nature, tend to disagree.
c. goods and services are unlimited.
d. resources are scarce.

resources are scarce.

Which of the following statements about the circular-flow diagram is NOT correct?
a. It is an economic model.
b. It represents the flows of inputs, outputs, and dollars.
c. It incorporates all aspects of the real economy.
d. It helps explain how participants in the economy interact with one another.

It incorporates all aspects of the real economy.

Which of the following is the most likely to be a perfectly competitive market?
a. Wheat
b. Soft drinks
c. Electricity
d. Jean

Wheat

The production possibilities frontier demonstrates the
a) problem of scarcity.
b) concept of tradeoffs.
c) concept of opportunity cost.
d) available, efficient choices to society.
e) All of the above are true.

All of the above are true.

Combinations of goods outside the production possibilities frontier curve (PPF)
a) are unattainable given society's technology and resources
b) are combinations of goods that have already been consumed
c) are luxury goods that are not necessary
d) result from not utilizing all available resources
e) are the result of economic recession

are unattainable given society's technology and resources

Combination of goods that lie on the production possibilities frontier curve (PPF) are said to be
a) not feasible
b) possible, but inefficient
c) inefficient
d) efficient
e) a poor choice of resource use

efficient

Combinations of goods that lie inside the production possibilities frontier curve (PPF) are said to be
a) not feasible.
b) luxury goods that aren’t necessary.
c) possible, but inefficient.
d) efficient.
e) the best choice sets for society

possible, but inefficient.

On a PPF, economic growth is shown as a/an
a) movement along the curve from the top left towards the bottom right.
b) outward shift in the curve.
c) inward shift in the curve.
d) a rotation outward along one axis.
e) a movement from a point inside the curve to a point on the curve

outward shift in the curve.

On a PPF, a technological advance in the production of one good is shown as a/an
a) movement along the curve from the top left towards the bottom right.
b) outward shift in the entire curve.
c) inward shift in the entire curve.
d) a rotation outward along the axis of the good with the technological advance in production.
e) a movement from a point inside the curve to a point on the curve

a rotation outward along the axis of the good with the technological advance in production.

if moving to a different point, both lying under the curve what is the cost

a) no cost in the move

b) there is cost in the move

In a typical market, the demand curve is composed of ___ and slopes ____.
a) sellers; downwards
b) buyers; downwards
c) buyers; upwards
d) sellers; upw

buyers; downwards

Along a typical downward sloping demand curve, what is NOT held constant?
a) price of related goods
b) number of buyers
c) preferences/tastes
d) price of the good itself
e) income

price of the good itself

Along a typical downward sloping demand curve, what is held constant?
a) income
b) tastes/preferences
c) prices of related goods
d) future price expectations
e) All of the above are held constant

All of the above are held constant

Which of the following would shift the demand curve?
a) a change in the incomes of consumers
b) a change in the tastes or preferences of consumers
c) a change in the price of the good or service
d) All of the above are demand shifters.
e) Only a and b are correct.

Only a and b are correct.

When referring to a graph, a decrease in demand means that
a) the demand curve has shifted left.
b) the demand curve has shifted right.
c) there has been a movement down along the demand curve.
d) there has been a movement up along the demand curve.
e) Both a and c are correct

demand curve has shifted left.

When referring to a graph, a decrease in quantity demanded means that
a) the demand curve has shifted left.
b) the demand curve has shifted right.
c) there has been a movement down along the demand curve.
d) there has been a movement up along the demand curve.
e) Both b and c are correct

there has been a movement up along the demand curve.

All of the following will cause an increase in demand EXCEPT
a) an increase in consumer income
b) a decrease in the price of the good
c) a decrease in the price of a complement good
d) an increase in the number of buyers in the market
e) All of the above will cause an increase in demand.

a decrease in the price of the good