Ugba 101B Macroeconomics Midterm

Front 1

What are the three most valuable variables in macroeconomics?

Back 1

unemployment, inflation, GDP

Front 2

What are the three ways of looking at GDP?

Back 2

income, expenditure, goods produced

Front 3

Name 7 complications with calculating the GDP.

Back 3

1. used goods (not counted),
2. inventories (counted),
3. intermediate goods (not counted),
4. imputed rent (counted),
5. imputed government service (counted),
6. home production (not counted),
7. underground economy (not counted)

Front 4

What is the formula for the GDP deflator?

Back 4

Nominal GDP / Real GDP

Front 5

What are the four components of GDP?

Back 5

consumption, investment, government spending and net exports

Front 6

What are the three types of consumption?

Back 6

nondurable goods, durable goods, services

Front 7

What are the three types of investment?

Back 7

business fixed investment, residential fixed investment and inventory investment

Front 8

Does government spending include transfers?

Back 8

no, transfers are not part of the GDP

Front 9

What are the three key differences between the GDP deflator and the CPI index?

Back 9

1. GDP deflator is for all goods, CPI is for only those purchased by consumers
2. GDP deflator includes only goods produced domestically
3. the GDP deflator isn't stuck to a fixed basket as the CPI is (orange prices skyrocketing example)

Front 10

When measuring unemployment, what are the three categories in which adults are placed?

Back 10

employed, unemployed and not in the labor force

Front 11

What are two ways of gathering data for the unemployment rate?

Back 11

1. polling households (household survey)
2. polling businesses to look at payrolls (establishment survey)

Front 12

What are three sources of growth in output, according to the book?

Back 12

increases in capital, increases in labor and advances in technology

Front 13

Adam Smith said that having an economy be open to international trade spurs economic growth. Is this supported?

Back 13

yes. open nations have greater growth than closed nations. nations that open up see an increase in growth. and nations that have open trade but don't trade a lot are not as well-off.

Front 14

What are five costs/problems of inflation?

Back 14

1. shoeleather cost
2. menu costs
3. cost of dealing with menu costs
4. tax laws
5. need to correct for inflation, makes it a worse measure

Front 15

Higher inflation means higher interest rates. Higher interest rates means you hold less money in your wallet, which means you have to go to the bank more frequently, which means what kind of cost?

Back 15

shoeleather cost

Front 16

This cost of inflation arises because high inflation induces firms to change their posted prices more often.

Back 16

menu costs

Front 17

What are the two main causes of unemployment?

Back 17

job search and wage rigidity

Front 18

What causes structural unemployment?

Back 18

wage rigidity

Front 19

What are three causes of wage rigidity?

Back 19

1. minimum-wage laws
2. monopoly power of unions
3. efficiency wages

Front 20

What are two reasons that the minimum wage has a large effect particularly on teens?

Back 20

1. they are the least skilled and experienced members of the labor force, so they expect to get paid less
2. they use jobs partly as training, so they're willing to get paid less

Front 21

This theory says that high wages make workers more productive

Back 21

efficiency-wage

Front 22

Which is more volatile, investment or consumption?

Back 22

investment

Front 23

What law relates the unemployment rate with real GDP?

Back 23

Okun's law

Front 24

What does Okun's law state?

Back 24

increases in the unemployment rate are associated with decreases in real GDP

Front 25

Express Okun's law in an equation

Back 25

Percentage change in real GDP = 3% - 2 x Change in the unemployment rate

Front 26

What are variables that tend to fluctuate in advance of the overall economy?

Back 26

leading indicators

Front 27

What are two possible causes of a high rate of unemployment?

Back 27

a low rate of job finding, and a high rate of job separation

Front 28

Name three possible reasons for changes in the NAIRU

Back 28

demographics, sectoral shifts and productivity

Front 29

What are two reasons Europe has rising unemployment?

Back 29

1. generous benefits for unemployed workers
2. technologically driven fall in the demand for unskilled workers relative to skilled workers

Front 30

What does national income depend on according to classical economic theory?

Back 30

factor supplies and available technology

Front 31

What are three ways of measuring prices?

Back 31

1. CPI
2. PPI
3. GDP deflator

Front 32

What are three differences between the CPI and GDP deflator?

Back 32

1. basket vs. all goods
2. weighted vs. non-weighted
3. point-of-view of customer vs. al

Front 33

Name 6 reasons why GDP might not equal welfare?

Back 33

1. underground economy
2. imputations
3. home production
4. ignores reason for spending (could be to repair damage)
5. Profits may be going elsewhere
6. negative externalities

Front 34

What are two ways we look at investment in this class?

Back 34

1. spending on capital
2. spending on goods bought for future use

Front 35

What three expenditures comprise most of federal expenditure?

Back 35

welfare, interest on debt and defense spending

Front 36

Why does growth matter? Give two reasons.

Back 36

1. improves living standards (including infant mortality)
2. adds up, huge effect in long-run

Front 37

Give four reasons there are many kids in poor nations.

Back 37

1. help with work
2. help with caring old people
3. they're fun (and less expensive)
4. less contraception

Front 38

What are 3 reasons it is somewhat easy for underdeveloped countries to catch up?

Back 38

1. stand on the shoulder of giants
2. diminished returns
3. depreciation

Front 39

What's the most important decision you can make in your life?

Back 39

choosing the right parents

Front 40

What two institutions did we focus on?

Back 40

government and financial structure

Front 41

What's phenomenal about a successful government or financial structure?

Back 41

government- doesn't hoard power
financial structure- matches money with the ideas

Front 42

What are 3 reasons latitude matters in growth of nations?

Back 42

1. frost more prolific in north and south
2. grain not tropical
3. Africa has variety of climates

Front 43

What is the median duration of unemployment in the US? What is the mean?

Back 43

median- 22
mean- 37

Front 44

What are 2 reasons why our measure of unemployment might be too low?

Back 44

1. discouraged workers (+15 points)
2. underemployment (+3 points)

Front 45

What are 2 reasons why our measure of unemployment might be too high?

Back 45

1. measures people who might not really be working hard to find work
2. political skewing of unemployment measure

Front 46

What was inflation in the US in 2010?

Back 46

1.6 percent

Front 47

What's the relation between inflation and interest rates?

Back 47

move together closely

Front 48

What is the interest rate in the US?

Back 48

depends

Front 49

What are three definitions of recession?

Back 49

1. whenever GDP falls two consecutive quarters
2. when a committee of economists says so
3. there's a lot of unemployment (people's feelings)

Front 50

Which is more volatile, investment or consumption?

Back 50

investment

Front 51

Name 3 things that determine consumption.

Back 51

1. interest rates
2. expectations of the future (including inflation)
3. anything that increases income (higher transfers, lower taxes)

Front 52

What are 3 examples of automatic stabilizers?

Back 52

1. proportional income tax
2. corporate tax
3. transfer payments

Front 53

What kind of budget deficit results from a recession?

Back 53

cyclical budget deficit

Front 54

What is it called when saving a lot means lower GDP?

Back 54

paradox of thrift