Deck 2: A Tour of the Book

Question 1

Which of the following factors is not believed to affect output in the long run?

A) Monetary policy.
B) The stock of capital.
C) Technology.
D) Education system.
E) The saving rate.

Answer 1

Monetary policy.

Question 2

The Okun's law is an empirical relation which states that:

A) if output growth is low, unemployment will decrease.
B) if output level is low, unemployment will increase.
C) if output growth is low, unemployment will increase.
D) if output growth is high, unemployment will increase.
E) if output level is high, unemployment will decrease.

Answer 2

if output growth is low, unemployment will increase.

Question 3

The next question(s) refer to the following data:
Suppose a country using the Australian system of unemployment statistics has 300 million people, of whom 200 million are working age. Of these 200 million, 80 million have jobs. Of the remainder: 40 million are actively searching for jobs; 40 million would like jobs but are not searching; and 40 million do not want jobs at all.
Refer to the information above. The labour force is:

A) 120 million.
B) 80 million.
C) 200 million.
D) 40 million.
E) 160 million.

Answer 3

120 million.

Question 4

Pure inflation refers to:

A) a faster proportional increase in pension only.
B) a faster proportional increase in prices only.
C) unequal proportional increases in wages and prices.
D) a faster proportional increase in wages only.
E) a faster proportional increase in all wages and prices.

Question 5

The next question(s) refer to the following data:
Suppose a country using the Australian system of unemployment statistics has 300 million people, of whom 200 million are working age. Of these 200 million, 80 million have jobs. Of the remainder: 40 million are actively searching for jobs; 40 million would like jobs but are not searching; and 40 million do not want jobs at all.
Refer to the information above. The official unemployment rate is:

A) 0.43.
B) 0.13.
C) 0.33.
D) 0.53.
E) 0.23.

Question 6

An individual is said to be a discouraged worker if he or she:

A) wants to work, and is actively searching for a job.
B) is working in jobs she/he is not suited for.
C) is working part time, but would prefer a full time job.
D) is working, but prefers not to work.
E) wants to work, but has given up searching for a job.

Question 7

In a given year, suppose a company spends $300 million on intermediate goods and $500 million on wages, with no other expenses. Also assume that its total sales are $800 million. The value added by this company equals:

A) $300 million.
B) $500 million.
C) $200 million.
D) $100 million.
E) $400 million.

Question 8

A deflation refers to a situation where:

A) the inflation rate is increasing at a slower rate.
B) both inflation and the unemployment rate are increasing.
C) the inflation rate is falling.
D) both inflation and the unemployment rate are falling.
E) the inflation rate is negative.

Question 9

Which of the following pairs of variables are explained by the Okun's law?

A) The money growth rate and the inflation rate.
B) The money growth rate and the change in output growth rate.
C) The inflation rate and the unemployment rate.
D) The growth rate of output and the change in the unemployment rate.
E) The inflation rate and the change in the unemployment rate.

Question 10

A firm's value added equals:

A) its revenue minus all of its costs.
B) its revenue minus its wages.
C) its revenue minus its cost of intermediate goods.
D) its revenue minus its wages and the cost of intermediate goods.
E) its revenue minus its wages and profit.

Question 11

In Australia, someone is classified as unemployed if he or she:

A) does not have a job, and has been looking for work in the last four weeks.
B) does not have a job.
C) does not have a job, and is collecting unemployment benefit.
D) does not have a job, or else has a job but is looking for a different one while continuing to work.
E) does not have a job, has recently looked for work, and is collecting unemployment benefit.

Question 12

The prices for which of the following goods are included in both the GDP deflator and the consumer price index?

A) Goods bought by domestic households.
B) Goods bought by the foreign government.
C) Goods bought by foreign households.
D) Goods bought by the domestic government.
E) Goods bought by firms.

Question 13

Which of the following does not represent real GDP?

A) GDP in (chained) 2009 dollars.
B) GDP in current dollars.
C) GDP in constant dollars.
D) GDP adjusted for inflation.
E) GDP in terms of goods.

Question 14

By 2011, labour income in Australia accounted for approximately what share of GDP?

A) 25%.
B) 65%.
C) 35%.
D) 45%.
E) 55%.

Question 15

Changes in aggregate output in the medium run are determined primarily by:

A) fiscal policy.
B) monetary policy.
C) income and wages policy.
D) demand factors.
E) supply factors.

Question 16

If nominal GDP rises from $50 trillion to $58 trillion, while the GDP deflator rises from 3.0 to 3.5, the percentage change in real GDP is:

A) - 10%.
B) 0%.
C) 20%.
D) 10%.
E) 9.1%.

Question 17

Which one of the following represents a recession?

A) An increase in the unemployment rate.
B) A decrease in stock prices.
C) A decrease in bond prices.
D) A decrease in output.
E) A simultaneous decrease in economic activity and increase in inflation.

Question 18

Fluctuations refer to:

A) changes in stock prices.
B) alternating periods of expansions and recessions.
C) changes in bond prices.
D) deviations of stock prices from their fundamental values.
E) movements in prices.

Question 19

When using the income approach to measure GDP, the largest share of GDP in advanced countries generally consists of:

A) capital income.
B) labour income.
C) interest income.
D) profit income.
E) indirect taxes.

Question 20

Which of the following expressions represents nominal GDP?

A) $Yt/Pt
B) Yt
C) PtYt
D) Yt + Pt
E) Yt/Pt

Question 21

Which of the following pairs of variables are explained by the Phillips curve?

A) The inflation rate and the change in the unemployment rate.
B) The change in inflation and the unemployment rate.
C) The change in inflation and the change in the unemployment rate.
D) The money growth rate and the inflation rate.
E) The money growth rate and the wage rate.

Question 22

By 2011, capital income in Australia accounted for approximately what share of GDP?

A) 25%.
B) 45%.
C) 65%.
D) 35%.
E) 55%.

Question 23

Suppose nominal GDP in 2011 increased by 5% (over its previous level in 2010). Given this information, we know with certainty that:

A) real GDP increased during 2010.
B) either the price level or real GDP increased during 2010.
C) both the price level and real GDP increased during 2010.
D) the price level increased during 2010.
E) more information is needed to answer this question.

Question 24

Assume that 2009 is the base year. Given macroeconomic conditions in Australia over the past several decades, we know that:

A) real GDP is always larger than nominal GDP for the period 1960 to 2008.
B) real GDP and nominal GDP would be equal for the entire period.
C) real GDP is smaller than nominal GDP from 1998 to 2002.
D) real GDP is larger than nominal GDP from 2006 to 2011.
E) nominal GDP is always larger than real GDP during the past several decades.

Question 25

Pure inflation occurs when:

A) the GDP deflator prices rise faster than the CPI prices.
B) all prices and nominal wages rise by the same percentage.
C) all prices rise faster than nominal wages.
D) nominal wages rise faster than all prices.
E) the GDP deflator and consumer price index rise by the same percentage.

Question 26

Hedonic pricing is used to:

A) obtain chain- weight indexes.
B) measure the rate of change in real GDP.
C) calculate the difference between nominal GDP and real GDP.
D) price the characteristics of a good or service.
E) convert nominal values to real values.

Question 27

Consider this current information in Australia: 200 million people are working, 30 million are not working but are looking for work, and 60 million are not working and have given up looking for work. The official unemployment rate for that month is:

A) 10.0%.
B) 30.0%.
C) 13.0%.
D) 7.0%.
E) 26.0%.

Question 28

Changes in aggregate output in the short run are caused primarily by:

A) demand factors.
B) population growth.
C) capital accumulation.
D) supply factors.
E) technology.

Question 29

The next question(s) refer to the following data:
Suppose a country using the Australian system of unemployment statistics has 300 million people, of whom 200 million are working age. Of these 200 million, 80 million have jobs. Of the remainder: 40 million are actively searching for jobs; 40 million would like jobs but are not searching; and 40 million do not want jobs at all.
Refer to the information above. The labour force participation rate is:

A) 0.2.
B) 0.6.
C) 0.3.
D) 0.8.
E) 0.4.

Question 30

Policy makers can become concerned if the unemployment rate is too low because:

A) output will decrease.
B) the economy will run into labour shortages.
C) an exchange rate crisis will occur.
D) stock prices will fall.
E) employment will fall.

Question 31

When nominal GDP falls for a given period, we know with certainty that:

A) either real output or the price level has decreased.
B) the price level has decreased.
C) real output has increased and the price level has decreased.
D) real output and the price level have both decreased.
E) real output has decreased.

Question 32

The next question(s) refer to the following data:
Suppose a country using the Australian system of unemployment statistics has 300 million people, of whom 200 million are working age. Of these 200 million, 80 million have jobs. Of the remainder: 40 million are actively searching for jobs; 40 million would like jobs but are not searching; and 40 million do not want jobs at all.
Macroeconomists are concerned about unemployment because changes in the unemployment rate provide information about:

A) the welfare of those who are unemployed.
B) the level of support payment required from the government.
C) how efficiently the economy is utilising its human resources.
D) Both A and B.
E) Both A and C.

Question 33

The GDP deflator provides a measure of which of the following?

A) Real GDP divided by the aggregate price level.
B) The ratio of nominal GDP to real GDP.
C) The ratio of GDP to the size of the population.
D) The ratio of GDP to the number of workers employed.
E) The price of a typical consumer's basket of goods.

Question 34

During the late 1990s, Japan experienced decreases in the GDP deflator. Given this information, we know with certainty that:

A) real GDP remained the same and the price level decreased during these periods.
B) real GDP fell during these periods.
C) the price level in Japan decreased during these periods.
D) both real GDP and the price level decreased during these periods.
E) real GDP did not change during these periods.

Question 35

A very low level of unemployment can potentially lead to what kind of problem?

A) Overheated demand.
B) Labour shortages.
C) Increase in inflation.
D) All of the above.
E) None of the above.

Question 36

Deflation generally occurs when which of the following occurs?

A) Real GDP does not change.
B) The consumer price index decreases.
C) Nominal GDP does not change.
D) The consumer price index is greater than the GDP deflator.
E) The rate of inflation falls, for example, from 4% to 3%.

Question 37

Hedonic pricing is:

A) the process of pricing individual characteristics of a good or service.
B) the way that luxury goods are priced in a market economy.
C) the tendency for the inflation rate to rise by greater and greater amounts.
D) the tendency for nominal GDP to rise when the price level rises.
E) the process of translating nominal GDP into real GDP.

Question 38

The Phillips curve is an empirical relation which states that:

A) when unemployment becomes high, this leads to downward pressure on bond prices.
B) when unemployment becomes high, this leads to upward pressure on inflation.
C) when unemployment becomes high, this leads to downward pressure on stock prices.
D) when unemployment becomes low, this leads to downward pressure on inflation.
E) when unemployment becomes low, this leads to upward pressure on inflation.

Question 39

Changes in aggregate output in the long run are determined primarily by:

A) supply factors.
B) demand factors.
C) technological progress.
D) monetary policy.
E) fiscal policy.

Question 40

A decrease in the unemployment rate will generally cause which of the following to occur?

A) A decrease in the size of not- in- the- labour- force pool.
B) A decrease in the number of young workers.
C) A decrease in the number of employed workers.
D) An increase in the labour force participation rate.
E) A decrease in the number of discouraged workers.

Question 41

Which of the following prices will be used when calculating the rate of growth of real GDP between the years 2010 and 2011 using the chain method?

A) Prices in 2010, 2011, and in 2009 (the base year).
B) Prices in 2005.
C) Prices in 2011.
D) The average of prices in 2010 and 2011.
E) Prices in the base year (2009).

Question 42

Explain the three ways GDP can be measured.

Question 43

Which of the following calculations will yield the correct measure of real GDP?

A) Multiply nominal GDP by the GDP deflator.
B) Divide the GDP deflator by the consumer price index.
C) Divide nominal GDP by the consumer price index.
D) Multiply nominal GDP by the consumer price index.
E) Divide nominal GDP by the GDP deflator.

Question 44

Explain how inflation can lead to distortions.

Question 45

GDP in current dollars is equivalent to which of the following?

A) GDP in constant dollars.
B) GDP in 2009 dollars.
C) GDP in terms of goods.
D) Real GDP.
E) Nominal GDP.

Question 46

Why are economists interested in unemployment in relation to output?

Question 47

Explain the difference between the GDP deflator and the CPI.

Question 48

Between 2004 and 2011, we observed a significant increase in commodity prices. In Australia, we would expect that this increase would cause:

A) no change in the CPI and an increase in the GDP deflator.
B) no change in the GDP deflator and an increase in the CPI.
C) a larger increase in the CPI compared to the GDP deflator.
D) a larger increase in the GDP deflator compared to the CPI.
E) an equal increase in the CPI and GDP deflator.

Question 49

Explain the empirical relation known as Okun's law.

Question 50

Suppose an individual wishes to provide a definition of GDP for a given period. Which of the following phrases would be used when defining GDP?

A) Final and intermediate goods and services.
B) Final and intermediate goods and services produced by the private sector only.
C) Final goods and services purchased by domestic households.
D) Final goods and services.
E) Final and intermediate goods and services, plus raw materials.

Question 51

One of the reasons macroeconomists have concerns about inflation is that inflation causes:

A) real GDP to exceed nominal GDP.
B) wages to rise as fast as prices.
C) real GDP to rise.
D) nominal GDP to fall.
E) relative prices to change.

Question 52

What is the impact of the commodity price increase in 2004- 11 on the GDP deflator and the CPI?

Question 53

Which one of the following represents an expansion?

A) An increase in stock prices.
B) An increase in output.
C) An increase in bond prices.
D) An increase in the unemployment rate.
E) A simultaneous increase in economic activity and decrease in inflation.

Question 54

Prices for which of the following are included in the GDP deflator, but not included in the consumer price index?

A) Intermediate goods and services.
B) Consumption of services.
C) Consumption of goods.
D) Firms' purchases of new equipment.
E) Purchases of imported goods.

Question 55

The labour force in Australia is defined as:

A) the total number of individuals who are 18 years old and older, but not retired.
B) the entire population.
C) the sum of the total number of individuals who are employed, unemployed, and are discouraged workers.
D) the total number of individuals who are employed.
E) the sum of the total number of individuals who are employed and unemployed.

Question 56

Explain the difference between the unemployment rate and the participation rate.

Question 57

What are the social and economic implications of unemployment? Explain.

Question 58

Explain what factors cause changes in output in: (1) the short run; (2) the medium run; and (3) the long run.

Question 59

First, define nominal GDP and real GDP. Second, is it possible for nominal GDP in a year to be less than real GDP in the same year? Explain.

Question 60

Suppose government officials decide to change the base year to a more recent year . A change in the base year such as this will cause:

A) nominal GDP in every year to increase.
B) nominal GDP in every year to decrease.
C) both nominal and real GDP in every year to decrease.
D) real GDP in every year to decrease.
E) None of the above.

Question 61

What are the two reasons why the rate of growth of output has to be at least equal to the normal growth rate of output (which is 3.75% using Australian data 1960- 2011) to prevent the unemployment rate from rising? Explain.

Question 62

First, what do discouraged workers represent? Second, explain whether the existence of discouraged workers causes the official unemployment rate to provide an over- estimate or under- estimate of the extent to which labour resources are unemployed.

Question 63

Explain the relation known as the Phillips curve.

Question 64

Explain whether it is possible for nominal GDP to increase and real GDP to decrease in the same period.

Question 65

Briefly explain why the reported official unemployment rate in Spain in 1994 may have provided an over- estimate of unemployment in Spain.

Question 66

Explain why economists care about inflation.

Question 67

Do the CPI and GDP deflator always move together? Explain.