GDP (Ch. 6)
Consumption is $640B, investment is $155B, government purchases are $210B, exports are $105B, and imports are $130B. What is GDP?
$980B
An economy has 152 million employed workers and 8 million unemployed workers. What is the unemployment rate?
5%
The CPI increases from 154 to 168. What is the inflation rate?
9%
When the real interest rate rises, what happens to the quantity of saving supplied, all else equal?
Increases
This security represents ownership in a company, rather than a promise to repay borrowed money.
Stock
What sector of the economy do the unreported legal transactions, like paying a house cleaner in cash to avoid taxes, belong to?
Underground economy
After graduating from college, Maya is actively searching for her first full-time job. What type of unemployment is she experiencing?
Frictional unemployment
A worker receives a 4% raise, but prices increase by 7%. Approximately what happens to the worker’s real wage?
It decreases by about 3%
Households become more concerned about retirement and decide to save more at every interest rate. Draw the loanable funds market showing this change. What happens to the equilibrium real interest rate and quantity of loanable funds?
Supply shifts right → real interest rate ↓ → quantity of loanable funds ↑.
What happens to bond prices when market interest rates increase?
Bond prices decrease.
The federal government sends a $2,000 Social Security payment to a retiree. How much does this payment directly add to GDP?
$0
A factory worker loses their job after the factory permanently replaces workers with automated machines. What type of unemployment is this?
Structural unemployment
A restaurant must repeatedly print new menus because prices are rising rapidly. What cost of inflation does this illustrate?
Menu costs
A new technology makes businesses’ machinery substantially more productive. Draw the loanable funds market showing this change. What happens to the equilibrium real interest rate and quantity?
Demand shifts right → real interest rate ↑ → quantity of loanable funds ↑.
A company’s bond rating is downgraded because investors believe it is more likely to default. Draw the bond market showing this change. What happens to the bond price and interest rate?
Bond demand shifts left → bond price ↓ → interest rate ↑
Two countries have the same GDP per capita, but workers in one country have substantially more leisure time. Why might GDP per capita fail to show the difference in their well-being?
GDP does not account for leisure
An economy has a working-age population of 240 million and a labor force participation rate of 70%. If 8.4 million people are unemployed, what is the unemployment rate?
5%
A basket of goods cost $625 in the base year and $750 today. What is today's CPI?
120
Households become more patient and save more, while at the same time businesses become more optimistic about future profits and increase investment. Draw both changes on one loanable funds graph. What can you say for certain about the new equilibrium quantity and real interest rate?
Quantity of loanable funds increases; the effect on the real interest rate is ambiguous.
The government decides to borrow substantially more money by issuing additional bonds. Draw the bond market showing this change. What happens to the equilibrium bond price and interest rate?
Bond supply shifts right → bond price ↓ → interest rate ↑.
A car dealership sells a five-year-old car for $18,000 and earns a $1,200 commission on the sale. How much does this transaction add to current GDP?
$1,200
A discouraged worker who was previously not looking for work begins actively searching but does not find a job. What happens to both the unemployment rate and the labor-force participation rate?
Both increase
Emma lends Noah $10,000 at a fixed interest rate. Inflation turns out to be much higher than they expected. Who benefits and why?
Noah (the borrower), because he repays the loan with dollars worth less in real terms
Maya deposits $225 at the end of every month into a savings account earning 4.8% annual interest, compounded monthly. If she continues making these deposits for 15 years, approximately how much will she have?
$59,146.02
PMT=225, r=0.048/120=0.004, n=15(12)=180
Households become wealthier and decide to put more of their savings into bonds. Draw the bond market showing this change. What happens to the equilibrium bond price and interest rate?
Demand for bonds shifts right → bond price ↑ → interest rate ↓.