Macro-Econ-Midterm1

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In Europe, the high rate of unemployment is the result of:

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A rigid labor market that has not adapted to globalization.
High minimum wages.
Powerful labor unions.
High structural unemployment.

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A good that is used as a tool to produce other goods is known as a

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capital good

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A nominal quantity is measured in terms of

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it's current dollar value

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A situation in which the inflation rate is extremely high is known as

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hyperinflation

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A worker who can't find a job because of a lack of skills is experiencing which type of unemployment?

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Structural Unemployment

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A worker who is unemployed due to a recession is experiencing which type of unemployment?

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Cyclical Unemployment

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absolute advantage is:

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the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

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According to the cost benefit principle, a decision should be taken if:

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implicit and explicit costs are smaller than the benefit

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attainable point

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Any combination of goods that can be produced using currently available resources.

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capital good

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a long-lived good, which is itself produced and used to produce other goods and services

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Compared to U.S. unemployment rates, unemployment rates in Western Europe since 1980 have been

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high

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complements

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two goods for which an increase in the price of one leads to a decrease in the demand for the other

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Consumer Price Index

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Shows changes in the average prices of goods and services purchased by consumers over a period of time

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consumer price index (CPI)

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measure of the average of the prices paid by urban consumers for a fixed basket of consumer goods and services

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consumption expenditure

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"Spending by households on goods and services such as food, clothing, and entertainment."

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Cost-Benefit Principle

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individual or firm should take action ONLY if benefit are at least as great as the extra costs

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CPI equation

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CPI= cost of CPI basket at current prices/cost of CPI basket at base-period prices

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deflating (a nominal quantity)

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process of dividing a nominal quantity by a price index to express in real terms

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discouraged worker

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worker who has stopped looking for a job because of repeated failure to find one

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disposable income

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income earned minus net taxes

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Efficiency Principle

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a principle stating that efficiency is an important social goal because when the economic pie grows larger, everyone can have a larger slice.

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efficient point

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Any combination of goods for which currently available resources do not allow an increase in the production of one good without a reduction in the production of the other.

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Equilibrium Principle

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a principle stating that a market in equilibrium leaves no unexploited opportunities for individuals but may not exploit all gains achievable through collective action.

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Final good

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item that is bought by its final user during a specified time period

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frictional unemployment

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the short-term unemployment associated with the process of matching workers with jobs

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GDP

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market value of the final goods and services produced within a country

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GDP that has been adjusted for inflation is called

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real GDP

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government expenditure

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governments buy goods and services from firms

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Government goods and services are:

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included in the GDP valued at their cost

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If a new college graduate takes 3 months after graduation to find the right job, the graduate is experiencing which type of unemployment during the 3 months?

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Frictional

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If, holding the amount of capital and other inputs constant, additional labor adds less and less additional output, a firm is experiencing

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diminishing returns to labor

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In the recent past, the largest expenditure in total expenditure has been:

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government expenditure

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In the US, globalization and technological progress are related because:

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"Winning" American industries in international competition tend to use the most sophisticated technologies.

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In the US, globalization has:

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Decreased labor demand for low skilled workers

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In the US, increased wage inequality is the result of:

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A flexible labor market that has adapted to globalization.

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In the US, technological progress has:

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Increased labor demand for high skilled workers.

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Incentive Principle

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individual/firm more likely to take action if benefit rises (and vise versa)

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income effect

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the change in consumption resulting from a change in real income

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indexing

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The practice of increasing a nominal quantity according to changes in the price level to prevent inflation from eroding purchasing power

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inflation rate

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annual percentage change of the price level

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inflation rate equation

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CPI this year- CPI last year/ CPI last year

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marginal benefit

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the additional benefit to a consumer from consuming one more unit of a good or service

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marginal cost

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the additional cost to a firm of producing one more unit of a good or service

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marginally attached worker

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currently neither working nor looking for work but has indicated that he or she wants and is available for a job

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monetary policy

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adjusts the quantity of money in circulation

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net exports

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exports minus imports

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net investment

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amount by which the value of capital increases

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nominal GDP

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the GDP measured in terms of the price level at the time of measurement (unadjusted for inflation)

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nominal quantity

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a quantity that is measured in terms of its current dollar value

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normal good

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a good for which, other things equal, an increase in income leads to an increase in demand

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normative economic principle

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one that says how people SHOULD behave

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psychological cost

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NOT a cost of inflation

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opportunity cost

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whatever must be given up to obtain some item

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outsourcing

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The procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs

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positive economic principle

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One that predicts how people will behave.

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potential GDP

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when all the economy's labor capital land and entrepreneurial ability are fully employed

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price index

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a measure of the average price of a given class of goods or services relative to the price of the same goods/services in a base year

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price level

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a measure of the overall level of prices at a particular point in time as measured by a price index such as the CPI

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Principle of Comparative Advantage

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everyone does best when each person (or country) focuses on what they are best at

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Principle of Increasing Opportunity Cost

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"Low-hanging-fruit principle"
in expanding the production of any good first employ those resources with the lowest opportunity cost.

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rate of inflation

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the rate of change of prices (as indicated by a price index) calculated on a monthly or annual basis

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real GDP

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GDP adjusted for inflation

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real quantity

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a quantity that is measured in physical terms - for example, in terms of quantities of goods and services.

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real wage

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The wage paid to workers measured in terms of purchasing power (dividing the nominal (dollar) wage by the CPI for that period)

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scarcity principle

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no-free-lunch principle
boundless needs/wants, limited resources (have to choose)

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Since the 1960's the nominal wage of production workers has_______ and their purchasing power has________.

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increased; decreased

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structural unemployment

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unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs

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sunk cost

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A cost that has already been committed and cannot be recovered

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The annual percentage increase in the purchasing power of a financial asset is called the:

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real interest rate

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The Boskin Commission found that the CPI _____ the true inflation rate

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overstates

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The compensation that leaves you just indifferent between working and not working is your

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reservation wage.

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The consumer price index measures:

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the cost of living

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The CPI in 1997 equals 1.02 The CPI in 1996 equals 1. The rate of inflation between 1996 and 1997 is ____ percent

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2%

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:The GDP does not measure

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environmental quality
resource depletion
voluntary leisured
quality of life

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The GDP is _________ with indicators of well-being such as _______:

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positively correlated; health and education.

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The GDP represents

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Total production
Total expenditure
Total Income

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The main component of investment is:

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business fixed investment

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The principle of comparative advantage sates that countries tend to

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concentrate on activities that have the lowest opportunity cost

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The production of a Danone factory (French company) located in the US:

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is not included in the GNP
is included in the GDP

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The real and nominal GDP of the base year are:

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always the same

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The respective shares of labor and capital income in total income are

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66%; 33%

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Fisher effect

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The tendency for nominal interest rates to be high when inflation is high

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The US Gross domestic product is a measure of

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output

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The US Gross domestic product is measured in

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dollars

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The value of the flour used to make a loaf of bread is not included in GDP because it is not a

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final good

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Transition aid programs aim at:

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Decreasing the labor supply of low skilled workers.

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a trend that characterizes the labor markets of the industrialized world:

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Since the early 1970's the rate of real wage growth has slowed.

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trends in employment over the past two decades characterizes the industrialized world?

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The number of people with jobs in the U.S. has grown

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value added

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the gross value of the product minus the costs of raw materials and energy

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What is never considered a source of inflation?

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The shoe-leather cost

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What is true about nominal interest rates

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they are always positive.
they can be directly observed.

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When high inflation makes market signals difficult to interpret, it is called

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noise in the price system

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When inflation increases unexpectedly, which of the following will decrease?

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real interest rate

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Which of the following is not one of the components added together to measure GDP using the expenditures approach?

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capital

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Which of the following may be an impediment to full employment?

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Minimum wage laws
Labor unions
Unemployment insurance
Government regulations

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what will decrease a firm's demand for labor?

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A lower relative price of output

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Women increased labor force participation since the 1960's has:

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increased the GDP artificially
increased paid household worked

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Worker Mobility

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the movement of workers between jobs, firms, and industries